President signs stimulus package.

• Author: Berger, Barrie Tabin
• Position: Federal Focus

President Obama signed the $787 billion American Recovery and Reinvestment Act (ARRA) (Public Law No. 111-5) into law on February 17, 2009. The goal of the legislation, according to the White House, is to "create jobs, jumpstart growth, and transform our economy so it competes in the 21st century." The nation's governors, mayors, and other elected and appointed government officials welcomed the new law as a means toward helping state and local governments with their budget shortfalls, to prevent deep cuts in essential services. The law is also expected to create and save jobs by providing funding to help secure affordable housing, safe infrastructure, efficient transportation, and adequate law enforcement for states and their local communities.

The new law contains many tax provisions that are of significant interest and benefit to states and local governments. Particularly noteworthy is a one-year delay in implementing the 3 percent withholding law--to January 1, 2012. The 3 percent withholding law mandates that governments spending more than a $100 million a year on goods and services must withhold 3 percent from most payments made to a vendor or contractor, and remit those funds to the Internal Revenue Service (IRS). While a one-year delayed is preferred to immediate implementation of this withholding requirement, GFOA and other state and local government organizations will continue to advocate for full repeal of the law this year.

As anticipated, the ARRA provides funding to both state and local governments through a series of grants and loans distributed by various federal agencies, or in the case of local governments, sub-allocated by the states. Many of the funds will be distributed for only "shovel-ready" projects and must be obligated within a specific time period. Accordingly, state and local government officials need to pay close attention to these distribution formulas and immediately begin a dialogue with designees in the appropriate federal agency or governor's office to ensure that they understand how to apply for and receive any funding they may be entitled to or eligible for under the new law. (See "The Economic Stimulus Bill: Accessing the Resources" on page 4 of this issue for details.)

SPENDING PROVISIONS

The law contains a number of spending provisions:

Education/Job Training/Unemployment

* $53.6 billion for a State Fiscal Stabilization Fund, including $39.5 billion to local school districts, which can be used for preventing cutbacks, layoffs, as well as school modernization; $8.8 billion to states to provide flexible funding for governors' priorities, which can include public safety, further assistance for K-12 and higher education, modernization, renovation, or repair of public school facilities and higher education institutions, and other government services; and $5 billion to the State Incentive Fund, a competitive grant program that states can apply for. Additionally, the law provides $13 billion for Title I grants for disadvantaged students and $12.2 billion for special education. No funds were allocated for new school construction.

* $36 billion to states for extending and expanding unemployment benefits, including $27 billion for extending the 33 weeks of extra unemployment benefits (up from 26 weeks) until December 31, 2009, and $9 billion to increase the current average unemployment insurance benefit.

* $3.95 billion for job training, including funding through the state formula grants program set forth in the Workforce Investment Act for adult, dislocated worker, and youth programs dedicated to job training.

Energy

* $3.2 billion for the Energy Efficiency and Conservation Block Grant Program (EECBG), which provides grants to states and local governments to fund renovation projects of public facilities that would install more energy efficient building technologies and materials. More specifically, $2.8 billion is strictly dedicated to EECBG formula created through the Energy Independence and Security Act of 2007. Pursuant to that act, the distribution of funds should take place accordingly: 68 percent of appropriated funds for grants to eligible units of local government (usually determined by population); 28 percent to states; and 2 percent to Indian tribes. The remaining $400 million will be awarded on a competitive grant basis.

* $3.1 billion for the Energy...