Philadelphia, December 30, 2010- Over the past two years, more than a billion dollars from the federal stimulus program has poured into Philadelphia to help pave roads, hire cops, renovate SEPTA stations, rehab public housing and prevent teacher layoffs.
But time is running out on that money. Starting next year, many of the grants given to local government agencies, universities and nonprofits expire. A substantial amount of money used to prop up the state government will also sunset.
And looking ahead to life after the stimulus isn’t pretty.
Without that money, the city government, the school district and other agencies will have less money for contracts and capital projects. Combined with expected budget cuts from the fiscally challenged state government, the impact on Philadelphia could be grim, said Mark Muro, director of policy for the nonpartisan Brookings Institution.
“It will lead to a steady increase in layoffs, less contracting, canceled vendor relationships, outsourcing,” said Muro. “Let’s note that localities, transit systems and other government entities are not just part of the government, they are part of the economy. We could have an anti-stimulus kicking in.”
The $787 billion stimulus act, approved by Congress in February 2009, was President Obama’s attempt to kick-start the failing economy through tax cuts, expanded social services and substantial money for infrastructure projects, education and scientific research.
Some of the money went to state governments, which then distributed it. Some was awarded directly to agencies that traditionally get federal money, and other funds were handed out through a competitive bidding process.
While debate continues to rage about whether the stimulus program was worth the money, Muro said Philadelphia was certainly better off with it than without it.
“The econometric analysis suggests that clearly this was valuable on balance, it somewhat mitigated an economic collapse,” Muro said. “Does that mean it was efficient? Does that mean it was properly structured? Not necessarily.”
Worth the trouble?
The federal reporting rules make an exact stimulus-created jobs figure for city residents very difficult to calculate, but a conservative estimate would be in the thousands. A recent report from the Keystone Research Center estimates that Philadelphia’s unemployment rate would have shot to 20 percent without the stimulus. Instead, the rate at the end of October was 11.5 percent.
“It would have gotten a lot worse without it. That’s really not controversial among economists,” said Stephen Herzenberg, an economist with the Keystone Research Center.
Still, from a city-government standpoint, the stimulus program has been a mixed blessing. While the money helped accelerate capital projects like street paving and provided job training and loans to small businesses, no dollars were given to the cash-strapped Nutter administration to help prevent service cuts or to shore up the city’s ravaged pension fund.
“The money has been fantastic, and we’ve been grateful for it and made it work,” said Maari Porter, the city’s recovery officer, who oversees the stimulus funding. “I guess we would have wanted a little more thought from the federal government about what cities need.”
The city got off to a slow start spending the money. By Sept. 30, officials had spent or committed only $106 million of the $251 million awarded directly to the city.
Porter stressed that spending picked up this year and noted that many of the city’s biggest grants had only recently been awarded, leaving little time to get money out the door.
“It does take time to do public works,” Porter said.
Also, because the program focused primarily on state governments, much of the money went to Harrisburg, rather than directly to Philadelphia.
“Stimulus was structured in a way that was emphatically not creative for the most part,” said Muro. “It was about accelerated business as usual. And it was about a federal system in which states had a lot of sway and regions and localities [had] less.”
However, because stimulus dollars were very restricted, the city has not come to rely on them to pay salaries or keep the lights on, which is a good thing for the future. And some of the grants will have a lasting regional impact – like money for green jobs training and dollars helping to transform the Navy Yard into an “energy innovation hub,” creating thousands of jobs.
The program was a boon for Philadelphia’s academic-research institutions – like the University of Pennsylvania and Temple University – where academics got big grants for studies.
It also helped public agencies like SEPTA, PennDOT and the Philadelphia Housing Authority, which received money for capital projects that were already in the works.
Officials from those agencies said they directed the money to specific projects, because it was a one-time infusion of cash. The funding future now, they said, is uncertain.
Life after stimulus
“We knew we would go from a wild peak to a starvation diet, which is where we are now,” said Jeff Knueppel, SEPTA’s assistant general manager and chief engineer. “We tried to plan around that assumption.”
Knueppel said that in addition to the end of stimulus money, the agency is anticipating a reduction in state funding, which could mean SEPTA will have to rely on borrowing to fund capital improvements.
Rich Kirkpatrick, chief spokesman for PennDOT, said the agency also is staring at a grim future, given its reliance on state and federal funds.
“The funding future is murky at the moment,” he said. “Washington has not yet given us the next six-year authorization, which gives a sense of how much money will be available.”
The School District of Philadelphia is in the most dire straits, with an estimated budget shortfall of between $234 million and $500 million for the next financial year. The district received $503 million in stimulus dollars, although some of that money was used to make up for reduced state funding.
Michael Masch, the district’s chief financial officer, said it does not look as if state and local tax revenue will be enough to offset the lost stimulus dollars.
“It now appears, although we are officially out of recession, we are not going to be in September 2011 where the Congress thought we would be in February 2009,” said Masch. “The state and local revenue has not returned to a sufficient level.”
In addition to a lean future at City Hall and local public agencies, another key concern as the stimulus money runs out is what will happen at the state level. Gov.-elect Tom Corbett will face a budget gap of more than $3 billion next year, most of which is due to the expiration of stimulus funds.
Economist Herzenberg stressed that if cutting is the main tool used to balance the budget, there could be a major impact on employment and long-term recovery.
“It is helpful just to remind people that if we do nothing more in Washington and Harrisburg on the jobs front, while the Recovery Act money goes away, then we are running the risk of the economy stalling again,” Herzenberg said. “We need to have a pragmatic conversation about how to strengthen the economy.”
This report was prepared by Daily News staff writer Catherine Lucey and Ben Waxman of “It’s Our Money,” a joint project between the Daily News and WHYY that is funded by the William Penn Foundation.