Most stimulus dollars going to social programs

updated 6:19 p.m. ET June 4, 2009

SACRAMENTO, Calif. - Remember the "shovel-ready" projects lined up for all that stimulus money? It turns out social spending, more than construction, is hitting pay dirt in the huge federal effort to turn the economy around.

The public face of the stimulus package has been the worker in a hard hat, getting back on the job to rebuild the nation's infrastructure.

Earlier this spring, for example, California Gov. Arnold Schwarzenegger appeared before the cameras at a job site along a freeway east of San Francisco. He declared that the stimulus-financed project would provide paychecks for 235 construction workers who otherwise would have to "stand in the unemployment line."

The reality of how the vast majority of the stimulus money will be spent is quite different, and that raises questions about how much help the Recovery Act backed by President Barack Obama will be to the economy in the long run.

Most of the roughly $300 billion coming directly to the states is being funneled through existing government programs for health care, education, unemployment benefits, food stamps and other social services.

"We all talked about 'shovel-ready' since September and assumed it was a whole lot of paving and building when, in fact, that's not the case," said Chris Whatley, the Washington director of the Council of State Governments, a trade group for state governments. He estimates states will get three times more money for education than for transportation.

Government programs benefit
Two-thirds of recovery money that flows directly to states will go toward health care.

By comparison, about 15 percent of the money is for transportation, including airports, highways and rail projects, according to Federal Funds Information for States, a service of the National Governors Association and the National Conference of State Legislatures.

Overall, two-thirds of the stimulus program will go toward tax cuts, relief for state budgets and direct payments to the unemployed and others hurt by the recession, part of the administration's desire to provide immediate fiscal relief. Much smaller pieces of the pie will be allocated for weatherization, affordable housing and other projects designed to create jobs.

John Husing, a Southern California economist, said keeping teachers and police officers employed should help prevent the recession from getting worse. But he said the stimulus package would have improved communities' ability to grow over the long haul if it had dedicated more money to public works.

While billions of dollars eventually will flow to infrastructure projects, Democrats who crafted the package say they directed most of it to existing government programs such as Medicaid and education to prevent state economies from slipping even more. One goal was to help fill state budget gaps, keeping teachers and others employed while strengthening the social safety net.

Jolting the economy
It's an approach that has led to debates in statehouses and among economists about whether more of the money should have been steered to projects that generate more private-sector jobs and lead to long-term growth.

"Too many of the dollars are social service dollars," said George Runner, a Republican state senator in California. "The most compassionate thing we can do is to get the economy going and get jobs created."

If the aim of the stimulus package was to jolt the economy, the government could have concentrated more of the money on areas that have suffered the steepest declines during the recession — housing, auto, retail and restaurants — said Edward Leamer, an economist with the Anderson School of Management at the University of California, Los Angeles.

Some elements emphasizing longer-term investments will not see big spending until 2011, according to a recent report by the president's Council of Economic Advisers.

The report says direct government spending creates more jobs on a dollar-for-dollar basis than tax cuts or state budget relief.

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