Fed economist: Highway stimulus misses most needy states

Tuesday, April 21, 2009 at 12:20am
Steve Matthews, Bloomberg News

The $70 billion for transportation projects in the $787 billion fiscal stimulus package will go disproportionately to healthy states with lower unemployment rates, where the economic impact will be less, a senior economist with the Federal Reserve Bank of San Francisco said.

“From the standpoint of maximizing the national economic impact of the stimulus package, this distribution of transportation spending clearly appears less than optimal,” Daniel Wilson, senior economist with the San Francisco Fed, wrote in an analysis released Monday.

“As far as maximizing its impact on national economic growth,” the fiscal stimulus “across states clearly is not perfect,” Wilson wrote.

Too much of the transportation funding has been directed to less-urban states “since less densely populated states tend to have more highway miles per capita,” he wrote. “In addition, low-population-density states tend to be in better fiscal shape during this downturn, thanks largely to booms in their natural resources industries in recent years.’

The $54 billion directed at education funding is going to states based on the population’s age, which is unrelated to the states’ fiscal health, he added.

Funding for unemployment insurance will go to people who are out of work and who have a higher likelihood of spending the money rather than saving it, Wilson wrote.

Even though Wilson concluded some stimulus spending is flawed, he agreed with Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner that the package overall will help bolster the economy. Fiscal stimulus “ will contribute to a gradual resumption of sustainable economic growth,” the Fed said in its March 18 statement.

While “state allocations do not represent the absolute optimal stimulus, they are on the whole well directed,” he said. “Overall, that means that the economic impact of this support for state governments is more likely to exceed than to fall short of forecasts.”