American Recovery and Reinvestment Act (2009)

The American Recovery and Reinvestment Act (ARRA or “Recovery Act”) was passed in early February of 2009, in the second month of President Obama’s term in office and mid-way through the great economic downturn of the early 21st Century. Along with nearly 50 other countries that also passed stimulus packages totaling trillions of dollars, the U.S. devoted approximately $840 billion in stimulus, spread across a range of different efforts.

The primary goals of the Recovery Act were to create new jobs and preserve existing ones, spur short-term economic activity, invest in long-term growth and infrastructure development, and to do so with strict transparency and accountability of government spending. Programs or issues that received the majority of Recovery Act funds included unemployment compensation and employment, health, energy, information and broadband technology, and education.

The Recovery Act is a fascinating case in the study of federalism. The case involved the national government choosing which state and local programs to support, and how to allocate funds across locations based on both formulas and competitive bidding. It also required an immense degree of coordination across government and non-government actors, both vertically and horizontally, and, not surprisingly, many challenges arose in such efforts. The case also involved challenges to implementation and program compliance due to requirements set by the federal government and conflicting sub-national laws and regulations. This brief entry reviews some of these conditions, and also provides several references that contain additional information about these and other federalism implications of the Act.

Recovery Act funds for all programs were allocated first through a federal agency, and then, in the case of sub-national programs, funneled to state or local governments, and/or to other entities such as businesses or universities. Although the federal agencies maintained oversight over the administration of funds, and enforced guidelines and regulations, a number of different entities might have been involved in the administration of funds for any given program. For example, the Weatherization Assistance Program (WAP) included the Department of Energy, the Department of Housing and Urban Development, state energy offices, community action groups, and local contractors. While many of these entities and relationships existed before the Recovery Act, the massive infusion of funds through the stimulus made it necessary to increase the number of community action groups and local contractors, and hire more individuals across all of the organizations.

Due to a focus on transparency and accountability, the federal government made reporting requirements for Recovery Act programs particularly detailed and frequent. In some cases, a grantee would need to file different reports with multiple federal agencies. Due to a drastic increase in funding for some programs, and the simultaneous filing and reporting requirements, many grantees, such as state governments, increased staff, particularly to serve the reporting role. Many also outsourced their contract monitoring to third parties.

Compliance requirements introduced even more challenges than reporting requirements. For example, the prevailing wage requirement and the Buy American provisions set by the federal government created challenges for grantees. The prevailing wage provision required all contractors to pay the prevailing wage for each specific job and, in the event that a prevailing wage was not yet set, the Department of Labor (DOL) would need to establish one. The Buy American provision required all manufactured components and materials used in public building or works projects to be made in America. Not only would state agencies that administered the Recovery Act programs need to file paperwork to demonstrate compliance with these provisions, but so too would any sub-grantee. These federal requirements introduced reporting complications but they also slowed down the process of administering funds. In some cases, the prevailing wage was not yet set for a specific occupancy class, such as solar panel installer, and states would have to wait for months to receive information from the DOL. Other programs struggled to secure American made products, such as compact-florescent light bulbs used in the WAP (Carley 2016).

Compliance and reporting requirements—and the manner in which different levels of government were able to coordinate efforts—affected the efficiency by which grantees were able to administer their funds and achieve program outcomes. Similarly, the implementation of some programs was restricted or attenuated by both federal and state pre-existing regulations, such as provisions within the National Environmental Policy Act or local historic preservation codes.

At the end of the Recovery Act funding period, many states had not spent all of their funds due to an inability to administer their programs on time. Energy programs, for example, were allocated approximately $90 billion. Some programs required an extension to spend their funds yet, still, about $690 million was retired at the end of the extension (Carley 2016). States that were more efficient at spending their allocated energy funds tended to have prior experience with energy policies and programs, such as with state electricity portfolio standards, and stronger administrative capacity (Carley et al. 2015).

Some states also failed to spend—or, more accurately, chose to return—Recovery Act funds due to partisan politics, a circumstance that has been studied previously in the case of state and federal partisan interactions and described as “leaving money on the table” (Nicholson-Crotty 2012). Many Republican governors and state policymakers refused Recovery Act grant aid for political and ideological reasons. For example, seven states with Republican governors refused stimulus funds for an extension of unemployment benefits to part-time workers. Although state rejection, or even an initial lack of application, for federal funds was not a new phenomenon, the rate of rejection increased significantly and more prominently along partisan lines during the Recovery Act, and persist through present day (Nicholson-Crotty 2012).

The literature has reported many positive benefits from the Recovery Act including job gains and economic stimulus. Despite positive gains, the Act also had some longer-term consequences of mixed success, such as 1) changes in sub-national organizational networks and relationships, and 2) diminished post-stimulus funding levels. The uneven distribution of federal funds across local governments led to changes in city networks, where larger grantees tended to turn inward and smaller grantees sought to expand their networks (Kwak et al. 2016). In the case of the WAP, which received approximately $5 billion over three years—more than six times typical funding levels—one study found that the stimulus helped improve WAP implementation and also raised the salience of the program among the public. But these benefits came at the cost of degraded existing funding relationships, such as between WAP groups and utilities (Tonn et al. 2016). Following the end of the Recovery Act, WAP funding levels also returned to levels lower than they were before the Act began, thus the program had both lower levels of federal support and fewer leveraged funds from other organizations.