United States: A Rose By Any Other Name: A Second Economic Recovery Act May Be On The Way...But Don´t Call It A Stimulus

Jobs, Jobs, Jobs

The Obama administration continues to tout the performance of the "American Recovery and Reinvestment Act of 2009," signed into law February 17, 2009 and commonly called the "Stimulus Bill" (Public Law 111-5). One of the biggest, and most argued over, metrics is job creation. The Obama administration, on the website "Recovery.Gov," lists that as of October 10, 2009, 30,383 jobs were either created or saved by the stimulus funding sent to federal contractors via grants. In addition, the Obama administration announced in a report issued October 19, 2009 that 250,000 education jobs were either created or saved, thanks to $67 billion in stimulus formula grants distributed through September 30 ("Educational Impact of the American Recovery and Reinvestment Act"). These funds went to help state and local governments fill in gaps in education-spending as a result of declining tax revenue, thereby avoiding lay-off of teachers and other personnel.

The Obama administration argues that, but for the stimulus bill, these jobs would not exist and the recession would be far worse. Regardless, this has not stopped the unemployment rate from reaching 9.8 percent in September, the highest since June 1983. Labor Department statistics indicate 7.2 million jobs have been eliminated since the recession began in December 2007 ( www.dol.gov). Even President Obama has stated that the unemployment rate will reach and exceed 10 percent, a symbolic but important milestone, perhaps as soon as October's unemployment figures are reported.

All of this has led to calls for a second effort to help the nation's economy, with a particular effort to address high unemployment. But the Obama administration will not call it a second stimulus bill, in large part because of the concern that to do so would be to admit that the first stimulus bill was a failure. Semantics aside, the Public Policy & Infrastructure Group does not see the president and Congress agreeing to another stimulus package equaling the $787 billion included in the first one. Besides being seen by some as an admission of failure, the distribution of funds from the first stimulus bill has not even reached the halfway mark. Recovery.gov notes, for example, that of the $275 billion that is set aside under the stimulus for contracts, grants and loans, only $47 billon has been spent as of October 8, 2009.

We anticipate considerable funding opportunities to become available between now and September 30, 2010, as indicated under the stimulus bill. The remaining levels of appropriated monies, as well as a growing call for many types of additional funding, also suggests the possibility—uncertain at this point—that FY 2011 might be a time to create a broader spending vehicle. But legislation extending unemployment benefits, set to expire for many between now and December 31, has a very strong likelihood of enactment into law, and this could be a vehicle for other efforts to address the current economic situation, primarily in the form of tax credits and not in direct spending. Components of a second economic recovery act are discussed below.

Options on the Table for a Second Effort to Address the Nation's Economy

Extend unemployment insurance – Congress has already passed a number of extensions of the unemployment program, most recently in February, but many workers have either run out of or are about to run out of benefits. The House of Representatives passed a proposal to extend benefits 13 weeks for 25 states—the states that contain about 70 percent of the U.S. population—that have had an average jobless rate of at least 8.5 percent for three months. H.R. 3548, the "Unemployment Compensation Extension Act of 2009," passed the House of Representatives by a large majority, 331-83, in September and is pending in the Senate. Senate Democrats want to amend the bill to extend unemployment insurance by 14 weeks for everyone, and add six extra weeks for those states where unemployment rates are 8.5 percent or better. While final details have not yet been approved, we consider some extension of unemployment as likely to pass and be the legislative vehicle for which all other options that get approved are attached.

Extend tax credit for first-time homebuyers – The $8,000 tax credit for first-time homebuyers was included in the stimulus bill and is very popular. While the program expires November 30, many Republicans and Democrats support an extension, as do the nation's homebuilders. The program currently is capped to individuals earning $75,000 and families earning $150,000, but there is a proposal pending in the Senate to double those income limits in an extension that would last through June 30. In addition, the proposal would make the credit apply to anyone buying a primary home, not just first-time home buyers. Senators are discussing adding this proposal to the unemployment benefits bill and, given the popularity of the underlying program, we also consider this likely to pass, after debate and some potential changes.

Extend a tax credit for laid-off workers who buy health insurance through the COBRA program – Another idea supported by the Obama administration and many in Congress is to continue a tax credit that allows workers to keep their company's health insurance plan after they leave their job, with the government's help. The tax credit pays for two-thirds of the cost of premiums, with the employee paying the rest. That program is set to expire December 31, and many support extending it for another nine months. There is no proposal yet in the Senate to do so; however, we consider this another popular proposal that has a strong likelihood of passage.

$250 payment for Social Security beneficiaries – President Obama has proposed a one-time $250 payment to Social Security beneficiaries for 2010 as there will be no cost-of-living adjustment ("COLA") that year. COLAs are based on the rate of inflation, which declined during the period used to calculate the COLA. This is a politically popular proposal that also is likely to be enacted into law.

Tax credits and other assistance to businesses to promote job creation – There have been discussions in Congress as to how to further stimulate job creation. Some House Democrats support a tax credit to companies for every new job they create, tracking a similar proposal that was made by the Obama administration during the debate on the stimulus, but then rejected by Congress. Another proposal is to extend the net operating loss carryback provision for small businesses that was included in the stimulus bill. This provision allows small businesses to apply losses from prior years to offset past profits and claim tax refunds. Currently, this applies to businesses with gross receipts of $15 million or less. Neither proposal is currently under consideration in the Senate, where the unemployment bill is pending, so enactment into law may not be as likely as with the other proposals mentioned above.

Conclusion – It All Comes Down to Cost

What will determine the final dimensions of a package, besides the likely unemployment benefit extension, is cost. Given the latest projections on the federal deficit for 2009 hitting $1.42 trillion, the biggest deficit since World War II, Congress will struggle with any new spending amounts. A major factor will be the congressional requirement that any new spending be supported by either cuts in other areas or tax increases, so-called "pay-go" provisions. As a way to meet pay-go requirements, Republicans are proposing to offset the costs of a new economic recovery package with unused funds from the stimulus. Democrats and the Obama administration do not support this idea, but have not yet proposed their own offsets.

As the debate on an overall package continues, the Public Policy & Infrastructure Group will continue to provide updates as necessary. Clients should be advised, however, to anticipate an enormous level of grant funding during this fiscal year, with sensitivity toward maintaining the right to continue to use at least the remaining Stimulus Bill funds beyond the originally defined deadline. Important political and policy questions remain to be answered, but opportunities should also be available.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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