Overview: The 111th Congress convenes this week, and one of its first orders of business will be the introduction and passage of a stimulus bill to address the nation's economic concerns. Negotiations are ongoing over details of a package and will likely continue even after a bill is introduced. However, the broad outline of a package has been discussed by congressional leaders in the House of Representatives and representatives of the incoming Obama administration, and includes: funding for infrastructure projects, individual and business tax cuts, and direct aid to states for their Medicaid costs and to pay unemployment benefits. Estimated costs for the package range from $675 billion to $775 billion. Democratic leaders in the House and Senate had initially planned to have this legislation pass both Houses of Congress and arrive on President-elect Obama's desk when he takes office Jan. 20, 2009. They have since retreated from this goal. Republicans, along with some Democrats, may also challenge the scope of the stimulus bill, as well as the mix of new spending and tax cuts. The new target date for this legislation is Friday, Feb. 13, 2009, before Congress leaves Washington for a one-week recess.
This note provides some detail on the package as currently discussed, including those areas where additional changes are expected. The Reed Smith Public Policy & Infrastructure Practice will continue to monitor deliberations and provide updates as warranted.
I. Infrastructure: The centerpiece of the economic stimulus bill will be more than $350 billion for investments in infrastructure across the country. The goal is to fund "Ready-to-Go" or "shovel ready" projects, currently defined as those ready for construction within 90 days, in order to put the maximum number of people to work. At this point, "Ready-to-Go" projects are expected to include road, bridge, wastewater treatment and public school projects. However, debate is underway between transportation groups, environmental activists, and business organizations as to whether to also include projects with a "green" or "sustainability" component, such as mass transit and alternative energy. This question also impacts a larger question regarding the scope of projects funded, e.g., should the stimulus address more routine repair projects, which can begin quickly, or should it also include more longer-range projects that would have a larger impact. We expect debate on these two issues to continue, as noted above, up to and beyond the point where legislation is actually introduced.
A. The states will have final say on which projects receive funding. At no point during the drafting of the economic stimulus bill is Congress expected to identify and fund specific infrastructure projects as it does in its annual appropriations bills, i.e., there will be "no earmarks." Instead, that will fall to the individual state governments, which are in the process right now of putting together their "Ready-to-Go" wishlists. Some deliberation and input on the national level is expected, both inside and outside of Congress. On Oct. 29, for example, the House Transportation and Infrastructure Committee held a hearing on the need for infrastructure investment. Chairman Oberstar (D-Minn.) stated that when his committee adds its input to the bill, it will rely in part on a January 2008 study by the American Association of State Highway Transportation Officials (AASHTO) that identified "3,071 ready-to-go highway and bridge projects with a total cost of $17.9 billion that could be under construction within 90- 120 days."
B. Not a "Christmas Tree." The absence of spending for specific infrastructure projects is a deliberate attempt by congressional Democrats to avoid claims that the stimulus was just an attempt for Congressmen to fund either favored projects or those with little or no merit, e.g., "pork barrel spending." At no point do we expect Congress to back down from that pledge. As Vice-President-elect Biden put it recently, the stimulus bill will not be a "Christmas Tree."
II. Individual and business tax cuts: The stimulus bill is expected to also include a number of tax breaks directed toward individuals and businesses. This component of the package has been increased recently as Democrats look for support from their Republican colleagues, who favor tax cuts over spending. At this point, the package is expected to include: 1) a payroll tax credit amounting to $500 for individual workers and $1000 for working couples; 2) tax incentives for companies that hire new workers or avoid laying them off; 3) a net operating loss carryback provision that would allow businesses to use losses from 2008 or 2009 to offset taxable income from five prior years and receive an immediate refund (the carryback loss provision currently applies to two years' prior taxable income); and 4) an increase in the amount of expenses that small businesses can write off, to $250,000 in 2009 and 2010, up from $125,000 currently.
We expect the tax-cuts component of the stimulus to change as efforts continue to make this a bipartisan bill.
III. Aid to states: The stimulus package is also expected to send direct spending to the states, by increasing the federal share of Medicaid costs and by providing additional federal funding for state unemployment trust funds. Both measures have been requested by governors.
IV. What could also be added: Other areas under consideration include additional funding to promote "green" technologies and alternative energy sources; additional funding for education; and funds to help states pay for the cost of providing health care to the uninsured.
We expect additional changes in all areas to occur as debate on this legislation progresses.
Once legislation, and appropriations, are completed, the allocation and award process regarding these outlays must be determined. Each step, including any future rulemaking, presents the possibility of influencing federal and, potentially, state decision-making on funding obligations.