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A stimulus strangled in red tape

New reports by two California watchdogs show that bureaucratic quicksand often stops local governments from doing anything with alacrity.

September 22, 2010

With the economy still sputtering more than a year after the official end of the recession, some economists are questioning not only the size and composition of the $787-billion stimulus package that Congress approved in 2009, but also the economic theory behind it. New reports by two California watchdogs, however, suggest another factor in the measure's limited effectiveness: the bureaucratic quicksand that stops local governments from doing anything with alacrity.


FOR THE RECORD:
Stimulus: A Sept. 22 editorial about delays in spending stimulus funding said San Bernardino County received $3.6 billion in federal aid for its subsidized employment program. It received $3.6 million. —

The first two reports, issued last week by Los Angeles City Controller Wendy Greuel, found that the departments of Public Works and Transportation moved so slowly to spend $111 million in federal grant money that they had created or saved only 55 jobs — most of them on public payrolls. The construction projects and bus purchases financed by the grants should eventually support more than 200 additional jobs, Greuel said, but the red tape the city routinely imposes prevented the departments from acting quickly.

The response City Administrative Officer Miguel Santana gave The Times' David Zahniser was telling. The city had created 936 jobs in June with the grants received by multiple agencies, Santana claimed, adding: "And we've only spent 13% of what we've received." In other words, seven out of eight dollars sent to Los Angeles to stimulate the local economy are sitting idle, stimulating nothing.

The city has a long history of stumbling at opportunity's doorway — witness, as just one example, how officials botched their bid for hundreds of millions of dollars worth of federal subsidies for urban renewal in 1994. But Los Angeles is hardly unique in its inability to take maximum advantage of the stimulus.

On Monday, state Inspector General Laura Chick released her 22nd report on how stimulus funds are being spent throughout California, examining what San Bernardino County had done with nearly $3.6 billion in federal aid to help put poor residents to work. Chick found that the county had spent little more than one-fourth of the money by the end of March, despite the risk that any unspent funds would have to be returned at the end of this month. The program's director blamed paperwork delays in Sacramento and Washington, as well as a lack of demand by private employers for workers even if their wages were subsidized by the county. But those excuses rang hollow with Chick, who said the county had all the tools needed to maximize the use of the federal dollars rapidly. And with 14.3% unemployment in the county, there was no excuse to hold back.

Similar bureaucratic tangles have held up billions of dollars in other stimulus spending projects across the country, including grants for building high-speed rail lines and making buildings more energy efficient. According to the Obama administration, of the $202 billion in stimulus dolllars awarded by March 31, only $61 billion had made it into the hands of grant recipients. In California the ratio was a bit better, with $23.4 billion awarded but only $10.8 billion received.

The delays in spending defeat the purpose of the stimulus. The point of the American Recovery and Reinvestment Act of 2009 was to counteract dwindling spending by consumers and businesses with a surge of spending by government, with the money flowing to state and local grantees over three years. Theoretically, the grants would keep more people working while the economy rebounded. But it's vital that the money be spent soon after it's awarded; otherwise, the surge becomes a trickle that has little impact.

Admittedly, there is a conflict between moving quickly and protecting against waste, fraud and abuse. But the results in Los Angeles and in San Bernardino County illustrate what happens when the ordinary mechanisms of local government are applied to a program designed for extraordinary circumstances. Greuel notes in her report that the Transportation Department waited to seek bids on four highway projects seven months or more after they were authorized by state and federal authorities. As she delicately put it, "The department's typical contracting processes, which follow a standard framework to comply with established federal, state and city policies, may not be the best approach to ensure that ARRA projects have an immediate impact on local economy."

Analysts probably will debate for years how much of a spark, if any, the Recovery Act gave the economy. As the reports by Greuel and Chick make clear, though, the benefits have been diminished in some communities by a lack of urgency on the part of local officials. There's not much point in giving city agencies extra resources during a downturn if they don't have the resourcefulness to put them swiftly to work.

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