It has been over two years since the completion of the first construction project funded through the American Recovery and Reinvestment Act (“Recovery Act”). In July 2009, the Indianapolis Executive Airport’s runway was reconstructed at a cost of approximately $3.4 million. As of June 30, 2011, Indiana is set to receive more than $4.5 billion in Recovery Act funding. Of this amount, Indiana has already received $3,258,419,927. So how has our share been allocated and spent?
Before detailing how Recovery Act funds were dispersed in Indiana and in order to bring context to these dollar amounts, it is helpful to review the overall nation-wide distribution of all Recovery Act funds. Recovery Act funding is broken down into three basic categories: (1) Tax Benefits; (2) Contracts, Grants & Loans; and (3) Entitlements.
As of the end of June 2011, $259.9 billion of the $288 billion set aside for tax benefits has been paid out. Of that amount, over $122 billion was allocated for individual tax credits, including credits to first-time homebuyers, transportation subsidies, and education benefits. Another $89.3 billion went to tax credits for working individuals. $33.5 billion was provided to businesses in the form of the Work Opportunity Tax Credit (unemployed veterans) and Net Operating Loss Carryback (offset of losses via tax refunds). Other “tax benefits” included energy incentives ($9.3 billion) and offsetting the costs of COBRA premiums ($3.7 billion).
Only $2.1 billion of the $259.9 billion of “tax benefits” directly benefited the construction sector. Of this amount, $500 million was expended on Build America Bonds to reduce the cost of borrowing for state and local governments, $330 million for manufacturers of clean technology, and $140 million for rehabilitation, repair and equipping of schools.
Contracts, Grants & Loans
One might assume that the construction industry fared much better in terms of receiving direct benefit from funds allocated under the category of “Contracts, Grants & Loans.” At the mid-point of 2011, approximately $223.3 billion of funds were dispersed in the form of contracts, grants or loans. This is about 81% of the funds earmarked for this category, leaving approximately $52 billion to be allocated. Of the $223.3 billion spent, over $84 billion went towards education, which included $47 billion to stabilize state education budgets, $16 billion for student financial assistance, $10 billion for special education, and $9 billion for compensatory education for the disadvantaged. Again, the lion’s share of the funds earmarked for education did not directly benefit the construction industry in terms of actual dollars spent on infrastructure construction and improvements.
Approximately $29.6 billion has been expended for highway infrastructure, high-speed rail corridors, and airport improvements. More than $21 billion of these funds were used for highway infrastructure investment. Another $5 billion was used for mass transit, $1.2 billion for capital grants for railroad improvements and $1 billion for airport improvements. Heavy highway and equipment contractors received a direct benefit from the expenditure of these funds and, as detailed later, roughly 20 percent of the Recovery Act funds expended in Indiana were for highway improvements in 2009--2011.
Approximately $27 billion of the total Recovery Act funds was expended on various energy and environmental initiatives, including but not limited to energy efficiency and renewable energy programs. Another $21 billion was used for infrastructure improvements, including EPA grants ($5.3 billion), improvements to federal buildings ($2.4 billion), operation and maintenance for the Army ($1.2 billion) and for the Air Force ($962 million). Another $16.1 billion was spent on housing initiatives, $13.1 billion on health related programs and $10 billion on research and development costs.
It does not appear so far that the construction industry, besides the heavy highway and equipment sector, has received much direct benefit from the allocation of Recovery Act funds. $224 billion was set aside for Entitlements. Of this amount, approximately $187.7 billion has been paid out. The top recipients of entitlements were state Medicaid programs ($84.6 billion), unemployment insurance programs ($60.8 billion), family services ($28.7 billion) and economic recovery payments ($13.8 billion).
Indiana’s Share and Usage of Recovery Act Funds
The financial data and dollar amounts set forth in this article are from the U.S. government's official website that provides easy access to data related to Recovery Act spending. See http://www.recovery.gov. This website also provides detailed information about Recovery Act spending for Ohio, Kentucky, Tennessee and West Virginia.
Indiana’s share of these expended funds is truly a “drop in the bucket.” Only $3.2 billion of the $670.9 billion of Recovery Act funds expended was received for use in Indiana. That is less than one half of one percent of the total Recovery Act funds expended! In comparison, California has received $19 billion or 2.8% of the total Recovery Act funds expended and New York has received just shy of $11 billion or 1.6% of the total Recovery Act funds paid out.
Of the $4.5 billion Indiana is scheduled to receive, some of the largest “non-road” construction projects being funded by the Recovery Act include $94 million for improvements to water and sewer lines (43 total projects), $133 million for the weatherization of residential houses, and $118 million to upgrade the electrical, mechanical and plumbing of Enerdel, Inc’s existing facilities. Funds passed through INDOT were used for over 1,000 projects throughout the State’s 92 counties. Over $621 million has been paid to INDOT for infrastructure improvements.
Has spending $3.2 billion over the last two-years benefited Indiana’s construction industry? According to the U.S. government, approximately 6,000 Indiana jobs have either been “created or saved” by these expenditures. Stated differently, each Indiana job created or saved came at a cost of over $500,000. In California, the cost was approximately $360,000 per job created or saved and, in New York, the cost was approximately $279,000 per job created or saved. Although there was a 2 percent increase in construction employment this past year, the overall construction employment in Indiana is still down 23 percent from the state’s peak in March 2000. Until the remaining $1.3 billion allocated to Indiana is actually received and spent, the extent of the total benefit to Indiana’s construction industry remains uncertain.