Obama promises 600,000 new jobs from stimulus spending

President Obama is set to announce Monday plans to ramp up spending of the $787 billion in economic stimulus money this summer, promising to create or save 600,000 new jobs.

The president is frustrated that it’s taking so long to get the money into the American economy. The national unemployment rate hit 9.4 percent last week, a 25-year high. According to the government’s website, only $37 billion had been spent by May 22, and a good portion of that money went to Social Security recipients and tax relief.

An array of federal agencies from the Department of Health and Human Services to the Department of the Interior intend to accelerate spending on 10 major projects this summer, according to Reuters. Some of the expedited spending is for 200 waste and water systems in rural areas and some maintenance and construction projects at airports, highways, and the national parks.

But contractors and budget analysts familiar with government efforts to spend large sums of money say the delays are not surprising. Some states have their own competitive bidding rules, and “Buy America” provisions in the stimulus legislation are causing confusion.

In short, spending hundreds of billions of dollars quickly and responsibly is not easy.

“Starting something new and getting money out the door is not a fast process,” says Stan Collander, a managing director at Qorvis Communications and a federal budget expert.

After hurricanes Katrina and Rita, for example, Congress passed legislation spending billions of dollars. One program was a Community Development Block Grant of $13.3 billion for Louisiana. This money was mainly for contractors, home construction, and bridges, according to D.J. Nordquist, a former Gulf Coast relief staffer. As of May 15, almost 30 percent of the money was still unspent.

“You can only get the bureaucracy to move so fast,” says Ms. Nordquist, formerly with the agency involved in the Gulf Coast redevelopment.

The sheer size of the spending package is perhaps the largest impediment, says Isabel Sawhill, a fellow at the Brookings Institution in Washington.

In addition, many agencies in the new administration are still not fully staffed. “So the capacity of the federal government is somewhat reduced, and you have a real challenge on your hands,” says Ms. Sawhill, a member of the Office of Management and Budget during the Clinton administration.

Confusion is also a factor. The Obama administration is trying to document all the new jobs and projects, leading to uncertainty about reporting requirements.

The “Buy America” provisions in the legislation are causing delays, as well. Contractors must obtain certification that most of a piece of permanently installed equipment was made in the US.

“When contractors are unable to obtain from the manufacturers that certification on a timely basis, it can lead to a delay in awarding a contract,” says Ken Simonson, chief economist for the Associated General Contractors of America (AGC).

That’s certainly the case for Michael Welch, one of seven contractors that AGC brought together Friday to discuss the impact of the federal stimulus package.

Mr. Welch's company, BRB Contractors of Topeka, Kan., won a contract and sought to buy a $2 million piece of equipment made in Austria. Only one US company made a similar item, and it cost 30 percent more.

“We’re having problems getting anyone up the line of command to make a decision if it’s OK for us to buy [the Austrian-made product],” he says.

Moreover, some of the equipment that must be certified as made in America is no longer even made domestically, says Don Laskey, president of Laskey-Clifton Corp. in Coos Bay, Ore.

For their part, states and communities have been slow to hand out contracts to complex jobs, given the paperwork involved, says Mr. Simonson of AGC.

“The more complex the documentation for the bid, the more time it takes to award a contract,” he says. “As summer goes by, we’ll see more bid letting, and some contractors will have a chance to respond to different projects.”

The funds that have been flowing through to states have mostly been “shovel-ready” projects, such as paving projects or some form of road construction.

Pike Industries in Walpole, N.H., for example, reported that it has hired or will hire 120 people as a result of the stimulus package. The company is working on eight paving projects in New England, says Christian Zimmermann, president of Pike Industries.

Last August, Pike was planning to lay off 150 people. “So, the stimulus spending is a swing of 250 employees for Pike, or about 25 percent of our workforce,” says Mr. Zimmermann. “The stimulus has been very good for us.”

Spending on such projects goes well beyond the main contractor. BRB Contractors won a $13 million wastewater contract in Overland, Kan. It was eventually awarded $8 million in stimulus funds. BRB's Welch was able to save 40 jobs at his own firm and many more in the community, he estimates.

“First of all, we will be hiring local suppliers ... who will have to retain or hire more employees as a result of our employment,” says Welch. “We will also purchase process equipment or other materials from all over the United States from 15 or 20 companies.”