Image: Protesters fill Wisconsin State Capitol
Andy Manis  /  AP
Protestors of Gov. Scott Walker's bill to end collective bargaining rights for many state workers pack the rotunda at the state Capitol in Madison, Wisc. on Thursday.
By Tom Curry National affairs writer
msnbc.com
updated 2/18/2011 12:05:02 PM ET 2011-02-18T17:05:02

With the stimulus celebrating its second birthday, the plan's friends are celebrating, its foes are grousing, and its waning impact was being felt in seismic waves in state capitals from Madison to Trenton.

Razzes about the measure — which was signed in law on February 17, 2009 — came from House Speaker John Boehner, whose Twitter talking point Thursday was: “Two years after the ‘stimulus’ was signed, we’ve lost 1.8 million private sector jobs.”

The BlueGreen Alliance, a labor union-environmentalist group, celebrated the stimulus as “a down pay­ment on the investments needed to transition to a clean-energy economy” and said the energy spending in the stimulus “provides jobs for some of the country’s most vulnerable workers.”

And, amid the flurry of the bill's anniversary press releases — most of them critical ones from Republicans — the looming consequences of state budget shortfalls prompted thousands of demonstrators to pack Wisconsin's statehouse to protest proposed cuts.

But the stimulus, or American Recovery and Reinvestment Act, has been a bit misunderstood from the start, by both friends and foes.

It's not over yet
For example, despite the perception that the stimulus has all but ended, there is still nearly $55 billion to be spent in fiscal year 2012, which begins in October, and in the four years after that, according to the Government Accountability Office, assigned by Congress to monitor the $814 billion in spending.

But that amount is small, considering what's already been spent. In fact, a measure originally introduced by Rep. Sean Duffy, R-Wis., is included in the House's Continuing Resolution to send unspent stimulus funds back to the Treasury to be used for deficit reduction.

Next, although it was touted as a program to build things and get people back to work, tax cuts/breaks account for 40 percent ($326 billion) of the total cost of the bill — this, according to the staff of the congressional Joint Committee on Taxation.

Video: Why did White House enter Wisconsin debate? (on this page)

The tax breaks included the “Making Work Pay Credit” for people with jobs and an extension of first-time homebuyer credit.

Not focused on infrastructure
Initially, there was a somewhat exaggerated focus on roads, bridges, and infrastructure from both Democrats who voted for the stimulus and from media outlets that covered it.

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But most of actual stimulus outlays have not gone to building highways, airport runways, and wind farms.

Instead, a large part of the stimulus was dedicated to bolstering government jobs — public school teachers, police officers, state caseworkers, and other public-sector employees — by funneling federal money to the state and local governments.

The money went chiefly in two channels: added funds for Medicaid and for public schools.

According to GAO, about 63 percent of the stimulus outlays has been provided in the form of the increased Medicaid funding and education money.

Donald Boyd, a senior fellow at The Nelson A. Rockefeller Institute of Government at the State University of New York, said, “There’s no doubt that the stimulus has helped maintain state and local government employment. It may be a little hard to measure,” he said, but “it was a lot of money for two years that was largely fiscal relief (to the states), meaning that they had some flexibility. If it hadn’t been for that, they would have been making major cuts.”

Between June 2008 and June 2010, according to data from the Bureau of Labor Statistics, the number of private-sector employees fell by six percent, but the number of state and local government workers declined by less than one percent.

State employment stable throughout recession
Boyd said, “State government employment was quite stable throughout the recession; it actually increased early on.”

But now, he said, “with the stimulus going away and as state fiscal problems have continued, there have actually been very substantial cuts in state government employment.”

With stimulus money now beginning to fade, states “face really severe choices and clear voter sentiment largely against any tax increases. So that leads you to the spending side of the budget.”

Video: Walker urges Democrats to return and vote (on this page)

Case in point: Wisconsin, where the newly elected governor, Republican Scott Walker, is coping with a $137 million budget shortfall for the current fiscal year and a deficit of more than $3 billion over the next two years.

Walker wants most public workers — except for police, firefighters and state troopers — to pay more of their pension and health care costs.

Walker would also limit pay increases to the inflation rate (currently less than 2 percent) unless voters OK’d larger raises via referendum. Again he’d exempt police, firefighters and troopers from that pay lid.

Most controversially, he wants to curb the power of public-sector employee unions, ending collective bargaining rights for state workers (other than law enforcement officers), except over the issue of wages.

Democratic state senators in Wisconsin refused to show up at the Senate chamber Thursday and again on Friday in an effort to prevent a quorum and keep Walker’s proposal from passing.

But the state Assembly plans to vote on the plan Friday.

Democratic senators "get paid to come to work and they should be coming to work," Walker told a press conference Thursday. "They have every right to propose amendments... (and) to debate the bill, but they don't get to do any of those things unless they show up for work."

Around the state, protesting public school teachers called in sick, forcing the shut-down of school systems in Racine, Madison, Wausau and other communities, according to The Milwaukee Journal Sentinel.

Boos for New Jersey's plan
On Wednesday, another GOP governor, New Jersey’s Chris Christie, gave a major address in Washington declaring “it’s time to do the big things, the really big things” and “for us in New Jersey, it’s three things: it’s restoring and maintaining fiscal sanity; it’s getting our pension and health benefits under control, reformed and have the cost lowered; and it’s reforming an education system that costs too much and produces too little for our society today and for our children’s future.”

He touted his plan to raise the retirement age for public-sector workers, increase the amount employees must contribute to their pensions, and roll back a nine percent increase “that was given to them by a Republican governor and a Republican legislature and they had no way to pay for it.”

After he unveiled his plan, Christie recalled, a crowd of firefighters booed him.

He told them, “I understand you feel deceived and betrayed ... For 20 years, governors have come into this room and lied to you. Promised you benefits that they had no way of paying for, making promises they knew they couldn’t keep ...”

The fight between the GOP governors and state employees has clear electoral implications: it's no accident that the National Education Association, which represents public school teachers, is the top donor to state-level campaigns, according to the National Institute on Money in State Politics, giving $53.6 million in 2007-2008.

And the American Federation of State, County, and Municipal Employees ranked number 12 among all state-level donors, with $18 million. The two unions give most of their money to Democratic candidates and causes.

Stimulus delayed the pain
For the first 24 months after it became law, the stimulus helped shield governors and state legislators from booing crowds of public-sector employees and from some of the harsh choices about cutting costs.

The largest flow of money has been to help states cope with people seeking health coverage in the Medicaid program. As in previous recessions, states saw a surge of people who had lost their jobs and their health insurance and were now eligible for Medicaid.

In its very first report on the stimulus in April of 2009, the GAO said state governments were using the influx of Medicaid money not only to maintain their current level of Medicaid benefits and cover increased Medicaid caseloads, but also “to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery.”

As state officials said in their reports to GAO, the additional Medicaid money was fungible, so it allowed state governments to keep state employees on payroll. GAO said that Arizona officials, for example, “reported that the state used funds made available as a result of the increased FMAP (Medicaid money) to pay down some of its debt and make payroll payments, thus allowing the state to avoid a serious cash flow problem.”

In a July 2009 report GAO found that the Medicaid money had freed up other money in state coffers which was used to pay for non-Medicaid operations and to keep state workers on the job. GAO found that states were “using or planning to use the freed-up funds to help finance their state budgets. Five states — Arizona, California, Colorado, North Carolina, and Ohio — reported using or planning to use these funds solely for this purpose.”

Likewise GAO found that nearly 70 percent of public school districts getting stimulus money used most of it to keep teachers on the payroll.

In new research published this month, two Dartmouth College economists, James Feyrer and Bruce Sacerdote, found that “Following the passage of the stimulus package, education employment had a small increase and then a slow decline" to about 10.4 million jobs by June 2010. "There is a sharp drop in employment (80,000 jobs) after June 2010. This timing may anticipate the fall in ARRA outlays that happens toward the end of 2010.”

They said that stimulus money might have “allowed schools to maintain their staffing patterns without increasing taxes or having states incur additional debt in order to support the schools in their state.”

They said stimulus money for education “may have funded staffing that would have occurred anyway but would have been financed through increased taxation and state and municipal debt as opposed to Federal debt.”

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