On January 15, 2009, Appropriations Chairman David Obey released a copy of The American Recovery and Reinvestment Act of 2009.  The total cost of the bill is about $825 billion -- $275 billion in tax cuts and $550 billion in direct assistance.  It is projected to save or create 3-4 million jobs. 

A summary provided by Chairman Obey on the elements contained in the measure notes:

The economy is in a crisis not seen since the Great Depression. Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year. Conservative economist Mark Zandi was blunt: “the economy is shutting down.” This bill is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century . . . The economy is in such trouble that, even with passage of this bill, unemployment rates are expected to rise to between eight and nine percent this year. Without this bill, we are warned that unemployment could explode to near twelve percent. With passage of this bill, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos. Tough choices have been made in this legislation and fiscal discipline will demand more tough choices in years to come.

The Basics on the Federal Budget

The federal government oversees an annual budget of approximately $3.0 trillion.  Of this total, a majority of federal resources are designated to fund entitlement programs authorized to support low-income, elderly, and disabled Americans.  In fact, as indicated below (Chart 1), the major entitlement programs (Social Security, Medicare/caid, Veterans’ benefits, etc.) annually account for 55% – 60% of total federal expenditures.  Funding to support these programs is mandated through longstanding statutory formulas, leaving less than 45%, or roughly $1.35 trillion, available for use at the discretion of the Congress.  

Discretionary spending is divided in turn between (1) defense/national security (29.2% of the total federal budget) and (2) domestic programs (14.7% of the total federal budget).  As these figures indicate, current funding for defense activities is double the amount provided for all other discretionary federal programs combined.  Outside of defense, the largest domestic discretionary programs (in approximate order of size) are: education, highways and other ground transportation, agriculture, housing assistance, biomedical research, federal law enforcement, public health services, and air traffic and related transportation.  Domestic discretionary federal programs are the lifeblood of many state and local programs, providing federal resources to support programs for which state and local tax revenues and other fundraising mechanisms are not sufficient. 

A brief analysis of federal funding trends throughout the Bush Administration, as compiled by the Center on Budget and Policy Priorities, signals particular challenges confronting state and local programs.  Referring to Chart 1, note that federal expenditures related to defense and security have increased significantly throughout the Bush Administration.  While this certainly comes as no surprise given the nation’s extensive military involvement in both Iraq and Afghanistan, it is important to note that domestic discretionary funding priorities have been affected most dramatically as a result of increased military spending.  Again, assuming a baseline total budget of $3 trillion, the net 8-year decrease in federal funding to support domestic discretionary programs amounts to $111 billion. 

Chart 1:  Domestic Discretionary Funding as Percentage of Total Federal Budget (2001-2008)

Chart 2 below further illustrates this significant loss in federal support for programs of relevance to state/local governments. This analysis demonstrates:  a) the nominal or unadjusted average annual growth rates of the four major federal spending categories (nominal); b) these growth rates adjusted for inflation (real); and c) these growth rates adjusted for both inflation and population, thereby providing a more realistic assessment of the per-person benefit these programs deliver to the American public (real/capita).  Again, note that domestic discretionary programs today receive only 0.3% greater per-citizen support from the federal government compared to 2001.  By comparison, defense and security spending has grown 27 times as rapidly throughout the Bush Administration.

Chart 2: Domestic Discretionary Funding – Average Annual Rate of Growth (2001-2008)

Challenges Ahead:

As has been widely reported, Congress moved swiftly in late September to draft and enact H.R. 1424 – the Emergency Economic Stabilization Act (EESA).  As the most recent in a series of increasingly significant ventures into the private sector, the EESA originally was intended to authorize as much as $700 billion in federal resources to be used to inject liquidity into troubled financial markets while relieving the burden of mortgage-backed assets that have weakened markets throughout the world.  However, with broader challenges continuing to confront the American economy, more expansive uses for funding authorized through the EESA have been considered and approved, including relief for the auto industry.

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