Stimulated?

AT FIRST JINGLE, $787 billion of federal economic stimulus—otherwise known as the American Recovery and Reinvestment Act (ARRA), signed by President Obama in February—sounds like a lot of money. With interest—remember, this money is borrowed—it rounds off to an even trillion. Touted as “the new billion,” a trillion dollars (that’s $1,000,000,000,000) in ones laid end to end would reach the sun.

But what can a trillion bucks really buy anymore? According to finance blog Mint.com, a trillion is enough to run the federal government for 103 days, or pay the rent for every renter in the U.S. for three years, or fund the military of every NATO country combined.

That’s both the promise and the problem the federal government faces as it pumps a trillion dollars of stimulus into a $14 trillion economy. Divvied up by more than 3,100 U.S. counties, the stimulus becomes a less imposing sum. By the time the funds move from state government to county government to local government and through a contracting and subcontracting process, the recession may be over. Because infrastructure and construction projects can’t be delivered overnight, it will take years to evaluate whether the stimulus worked, and no one knows if it can ever be paid off.

Of the more than $30 billion slated to stimulate California’s economy, San Diego will benefit from expenditures on highway repair/construction and improvements to infrastructure and military facilities.

But not all of the stimulus funds will flow from Sacramento. Some will come directly from Cabinet-level departments in Washington, which means local contractors who want to share in the bounty will need stimulus intelligence in D.C. Some will be realized through tax cuts—roughly $13 a week less in withholding taxes—or new programs that seek to address specific problems, such as tax credits for those buying homes or lowered mortgage payments for homeowners facing foreclosure.

A trillion dollars may look like a wall of water at first, but spread over 50 states, it begins to more closely resemble a fine mist. Months ago, the San Diego County Association of Governments (SANDAG) canvassed cities to determine a wish list of transportation projects. The estimated tab: $4 billion. More recently, SANDAG formulated a plan, using the stimulus, that funds two major highway projects and a list of local road improvements throughout the county, amounting to about $130 million (60 percent to the highway projects and 40 percent among the county’s 18 cities).

These include:

• About $105 million for widening of Route 76 for 5.5 miles between Oceanside and Bonsall. SANDAG says construction is expected to start in late summer or early fall.
• $18 million to the I-805 and Carroll Canyon Road widening project.
• $4 million to the Grossmont Station Pedestrian Enhancement Project.
• Miscellaneous funding for parts of the I-805 auxiliary lanes project between SR-54 and E Street in Chula Vista and to complete the SR-905 freeway project connecting the Otay Mesa border crossing with I-805.

In addition to the $130 million for highways, the county will receive about $85 million in programs for mass transit. According to SANDAG chief economist Marney Cox, stimulus funds are expected to generate about 12 jobs per $1 million in stimulus. So that $215 million in stimulus money would generate fewer than 3,000 jobs.

“It’s important, but it’s not going to move the needle that much,” Cox says, noting that the county has at least 16,000 unemployed construction workers.

A bigger job creator could be the nearly $3 billion Cox says he expects will be spent on upgrading local defense facilities to improve infrastructure and housing, though he doesn’t expect it to be spent all at one time. “That’s a lot of money and construction activity,” he says. “You can’t finish it all in one year, so these could be more like two-year projects.”

Gary London, president of real estate and economic consultants The London Group, says these
infrastructure programs’ benefits may be as much psychological as actual. “It’s not a lot of money and jobs, and certainly not the tens of thousands of jobs originally anticipated,” he says. “But any amount of stimulus money is welcome, because new jobs create other jobs. The important point is its psychological impact—the stimulus can create a psychological cornerstone in which confidence is built into the marketplace, and that confidence allows the private sector to create its own stimulus.”

PSYCHOLOGICAL STIMULUS is also what developers such as Brookfield Homes are counting on to spur the county’s housing market.

“The federal law contains an $8,000 tax credit for first-time home buyers,” says Brookfield president Steve Doyle, who blogs on home-ownership developments (expectmoreinahome.com). “There are income limitations of $75,000 for a single person or $150,000, married.”

If applicants exceed the income limitations, they’ll receive less credit. The $8,000 is a one-year credit and fully refundable, meaning that a buyer who owes $5,000 in federal taxes will get a check for $3,000.

In addition, on March 1, the state of California began offering a $10,000 credit for buyers of newly built homes. It’s available until the state meets the allocated $100 million or 10,000 homes. “For the state, there’s no first-time buyer requirement or income limits, and the tax credit is spread over three years,” Doyle says. Thus, a first-time buyer of a new house who meets all of the qualifications could realize a bonanza of $18,000 in tax credits.

Doyle says prospective buyers should act fast. “The California credit is going to go quickly,” he warns. “In the first three days it was available, 173 people applied, and we think that by July or August, the credit will be used up.”

He says home sales are already on the rise over 2008 levels and that the federal and state programs “will be just enough to help people make up their minds.”

In the long run, whether you take advantage of or receive a job from the government’s stimulus plans, you’ll be paying for it. Some economists worry that the Federal Reserve’s pumping of dollars into the economy is inflationary.

James Hamilton, professor of economics at UCSD, says he favored a stimulus plan as a necessary part of the economic recovery. He also says, “I’m a little worried about these numbers. It’s a trillion dollars here, a trillion dollars there—it’s a huge sum of money we’re going into debt for. It makes me worry that we’re on an unstable trajectory.”
 

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