Is the federal stimulus creating jobs in Virginia?
Where are slow-moving stimulus dollars going in Virginia, and are they creating jobs?
- February 26, 2010
The last thing David Pool wanted to do was put members of his own family out of work. Yet that was a decision he considered last year when the recession reached its full fury. For more than a decade the booming housing market in and around Williamsburg provided plenty of work for his 12-person company in Newport News, Pool’s Window & Door Service.
But when the economy tanked, the market dried up. Builders stopped building. His phone stopped ringing. “We are a true family business,” says Pool. He heads the company as president, a brother serves as vice president and a sister takes care of secretarial duties. Pool’s son and a few nephews are on the payroll, too. “If we went under, it would affect every household.”
Then came dollars from the $787 billion federal stimulus bill. It pumped millions into military construction projects, including Fort Eustis, the U.S. Army base in Newport News. By summer, Pool’s company was busy again doing work for a large federal contractor. “Three jobs came through just in time,” he says. The most recent is an addition to a fire station at Fort Eustis. “If it hadn’t been for the government, we would have 100 percent been out of business,” he says.
Saving jobs was the reason President Barack Obama and congressional Democrats gave a year ago when they pushed through the American Recovery and Reinvestment Act of 2009 with almost no Republican support. Yet even a year out, it’s hard to say how much impact the stimulus is having. For one thing, money moves slowly through federal pipelines, and much of the money hasn’t been dispersed yet.
Pool’s company was one of the lucky ones. By early February, only about 23 percent of the funds in the original bill had been spent, according to the Reston-based INPUT, a consultant to government contractors.
But hard numbers on the stimulus can be elusive. On the anniversary of the bill’s passage in February, the federal recovery Web site http://www.recovery.gov said prime recipients of stimulus money reported spending just over $1 billion of $5.1 billion allocated to Virginia. On the same day, the White House said $2.3 billion had been spent, and the Council of Economic Advisers estimated 48,000 Virginia jobs had been created or saved.
When all is said and done, the state expects to receive nearly $9 billion in additional federal funds, including more than $4 billion in tax credits and other direct assistance for those hardest hit by the recession: low- and moderate-income children, families, the elderly and disabled.
In the Old Dominion, as in other states, the new money is going for investments and to offset budget shortfalls. A few of the projects here: expanding early childhood education, installing broadband in rural areas and patching up Virginia’s crumbling roads, bridges and highways. All told, the state expects to spend $1 billion on infrastructure projects.
That sounds like a lot until one considers that Virginia has been forced to cut $4.6 billion from its six-year road-building plans because of a recession-wracked budget.
White knight or boondoggle?
At this juncture, it’s hard to determine if the stimulus program is a white knight or a bureaucratic boondoggle. For one thing, there’s not much confidence in how the impact is measured since the method for counting jobs, either saved or created, has changed. The first count showed 640,000 jobs created or saved nationwide through September. Then in January, a rules change required recipients to report all jobs funded by stimulus dollars, not just jobs that were “saved.” In February, recipients of stimulus money reported that in the last quarter of 2009, 599,108 workers were being paid with stimulus funds.
Overall, Obama’s administration says the plan kept 2 million to 2.4 million jobs in the economy through the end of 2009.
The public appears skeptical about such self-congratulations. A recent CNN poll found that 63 percent of Americans think half the stimulus money was wasted. A majority of people also said some projects were funded primarily for political reasons and will have no economic benefit.
Clearly the stimulus policy is having trouble finding facts and showing them to the public. Eileen Norcross, a senior research fellow at the Mercatus Center at George Mason University, says gauging the jobs impact is murky at best. “The whole logic of it is based on faulty thinking. They changed the rules, so it’s impossible to avoid double-counting,” she says. Plus the money gets harder to track as it moves from federal to state to local spending levels. “It’s hard to know how the money is being spent. They’re being given money and told, ‘Make something happen with it.’ It’s rife with all sorts of bad incentives.”
One expert on Virginia’s employment says the money is definitely doing some good. “I’d say in Virginia it’s maybe saved at least 4,000 to 5,000 jobs, mostly in the larger areas,” says William Mezger, the recently retired chief economist for the Virginia Employment Commission. The state already is rich with government- and defense-related jobs, especially in Northern Virginia and Hampton Roads, and the stimulus money added more. Federal employment is up by 1,500 to 2,000 jobs over the year in both areas, Mezger says.
That’s one reality about the stimulus money: because so much of it has been fed through federal programs, it winds up helping areas that already get a lot of federal dollars and thus have a pretty decent economy. Northern Virginia and Hampton Roads have lower unemployment than other parts of the commonwealth. Virginia — with an unemployment rate of 6.7 percent in December — is much better off than the nation as a whole with its jobless rate of nearly 10 percent. “Proportionately Virginia is probably benefiting more from the stimulus package than most states,” Mezger says.
According to the state’s stimulus-tracking Web site, http://www.stimulus.virginia.gov a big, portion of Virginia’s $5.1 billion will be spent in these three areas:
• $1.9 billion for programs administered by the Department of Health and Human Resources. They include child support enforcement, vocational rehabilitation, Head Start, Medicaid and food stamps.
• $1.5 billion for education, including local public schools and the state’s colleges and universities as well as money for dislocated workers and workforce investment initiatives.
• $812 million for transportation. More than half of this amount will go for highways and bridges. Virginia has ranked near the bottom of the states in terms of spending its allocated stimulus money on transportation improvements. In February, it came in last on a national ranking by the American Association of State Highway Transportation Officials. The group looked at how many highway projects each state had ready to build if additional federal money became available and Virginia was last with six “ready to go” projects valued at $106 million whereas other states had anywhere from 26 to 1,178 projects valued at as much as $4 billion.
Rural areas get fewer dollars
If you look at where the dollars have gone, it’s clear that rural areas didn’t get so much. Highland County on the West Virginia line, for example, will get an estimated $287,000. Fairfax County on the other hand, should take in $154 million. Mezger says it’s true that the biggest share of money is going to urban areas, but that’s where the workers are. About 80 percent of the state’s 3.7 million workers live in the urban crescent that runs from Northern Virginia through Richmond to Hampton Roads. He points out that hundreds of millions of stimulus dollars have been handed out by the local school systems around the state. In many localities, public education is not only the biggest share of the local budget; it’s also the biggest employer, so those dollars helped. “All of the localities would be hurting a lot more if it were not for the stimulus money,” he says.
Much of the job creation in Virginia has come from contracting work in and near the state’s military bases. One firm working that market is Vienna-based Centennial Contractors Enterprises. It has won about $20 million in contracts for dozens of projects at military sites around the country, including Fort Eustis and Fort Lee in Virginia. This is the firm that hired Pool’s company for the fire station addition at Fort Eustis.
Centennial depends a lot on hundreds of subcontractors. Its contracting method with the federal government, which goes by the acronym IDIQ (for indefinite delivery/indefinite quantity), is quicker than your average government contract, partly because only a limited number of contractors are eligible, says David Carrithers, Centennial’s vice president of marketing. “We’re almost like incubators for small businesses” that depend on bigger firms to navigate the federal regulations. “A lot of them would otherwise do residential or commercial [work], and that stuff is flitting off in the market. So we’re able to help them.”
Stimulus dollars also are helping to loosen the purse strings for business borrowers. Al Carpenter bought a small accounting firm in Roanoke last August, helped by a $419,000 Small Business Administration loan he got from Virginia-based StellarOne. Congress allocated $375 million in stimulus funds last year to temporarily waive fees charged to banks making SBA loans and raise the agency’s cap on guarantees to 90 percent of a loan.
The SBA conditions saved Carpenter about $12,000 in loan closing costs, and let him repay the loan over 10 years. “When you’re a new business starting out, $12,000 is a lot of money,” says Carpenter, who previously worked for Roanoke-based Luna Innovations. The firm has seven people; Carpenter would like to grow it eventually and hire more CPAs and support staff.
Norcross, of the Mercatus Center at GMU, says sparking business creation and growth is the best thing stimulus dollars can do. “The government basically can’t create jobs,” she says. “It can stimulate activity, but will that lead to wealth creation? Only the private sector can do that.”
Jobs a top priority
Virginia Gov. Bob McDonnell has made job creation his number one priority. He recently proposed a package of economic incentives and tax credits to encourage business growth. In fact at press time, about 20 bills were winding their way through the General Assembly that would double the governor’s deal-closing fund and make it easier for small businesses to get access to capital. A preliminary economic analysis by the Virginia Economic Development Partnership estimates that the budget initiatives, if passed, could bring more than $311 million in new revenue and nearly 30,000 new jobs.
How the governor’s agenda meshes with the use of federal stimulus dollars isn’t clear. “The governor is reviewing how the stimulus money is being spent to ensure that it is 100 percent going to job creation,” says Stacey Johnson, the governor’s press secretary. “He is first and foremost dedicated to creating jobs.”
President Obama has jobs in mind, too. In his budget last month, he proposed $100 billion for immediate job-creating investments in small business, infrastructure and clean energy. This included $33 billion for a new small-business jobs and wages tax cut, intended to spur hiring and wage increases.
The stimulus money will eventually run out, of course. About $600 billion of the $787 billion should be handed out by the end of 2010, and the rest the following year. But it’ll take longer than that for the money to find its way into the economy.
Pool’s company in Newport News, meanwhile, has a much shorter horizon. The fire station addition will keep his employees busy for only about a month. He’s going to stick close to Centennial and hope to catch more work from the contractor while waiting for the residential housing market to revive.
“Hopefully there will be more down the road,” he says. “They’re very good about trying to give it to us.” The outlook is better today for Pool than it was a year ago, but work is still hard to find. And, there is more competition than ever from subcontractors like him, trying to hang on. “It’s tight out there right now, it really is.”
A sampling of infrastructure projects in Virginia
• $399 million for improvements to highways and bridges
• 552 miles of pavement repair under contract; 119 bridges being replaced
• $100 million for new clean water and wastewater projects
• $75 million to expand high-speed rail
• $21.5 million to add 575 miles of broadband in Southern and Southwest Virginia
Data: Virginia Business. State of Virginia.
Tracking the stimulus charts outlining where the stimulus dollars went in Virginia.