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April 05, 2009

The Most Sought After Money in the Stimulus Bill

Most of the money coming to states under the American Recovery and Reinvestment Act (aka ARRA aka the stimulus bill) is for very specific purposes and must go to very specific programs. Usually, but not always, there is also a maintenance of effort (MOE to us bureaucrats) requirement which assures that states don't just use the federal money in place of state money. However, there is a sliver of money ($17.17 million in Vermont out of a total of more than $800 million) which can be used for almost any government program and which can supplant the use of state funds. This is the most sought after money in the whole stimulus program. Because there is so much flexibility in using it, everyone has an argument as to why it should go to whatever project he or she is passionate about (or an advocate or lobbyist for).

Just so you can keep things straight, until last week this super-flexible money was called the discretionary 18.2% of SFSF (State Fiscal Stabilization Fund). It is now called the General Services Fund (GSF) so I'll use that name in this post.

When I started the job as Vermont's Chief Recovery Officer there had already been over $100 million of proposals received for the $17 million we have available here. The pile of proposals has continued to grow. This money is especially attractive to those who have not found any other program in the stimulus bill for which their project would be qualified but it also sought after by those who would otherwise have to compete for scarce funds in specific programs. Needless to say, more people are going to be more disappointed than happy over the eventual allocation of GSF.

So who decides how the GSF money is given out in Vermont?

The language of the federal law says "The Governor shall use 18.2 percent of the State's allocation [of SFSF] for public safety and other government services." (later regulations make clear that "and" should have been "or"). Some people have reasonably concluded from this language that the Governor of Vermont can unilaterally decide where the money goes which is probably why so many proposals have come directly to the Office of Economic Stimulus and Recovery. However, in Vermont federal grants whose amounts are known during the legislative session are appropriated by the Legislature through the budget process in the same way that money raised from taxes is appropriated to specific programs (some other states DO allow their governors to spend federal money unilaterally). The Governor can and does propose a budget; the Legislature generally has its own ideas about what the budget should be and can pass any budget the House and Senate agree on subject to veto by the Governor.

The short answer is that the budget process now underway will determine how the GSF money is spent in Vermont. The answer will be known in about a month when the budget bill is agreed on and the legislature can adjourn.

What is under discussion for use of the GSF money in Vermont?

Governor Jim Douglas proposed that all of the $17.17 million, which will be available over two years, be spent on economic development, most of it through the Vermont Economic Development Authority (VEDA) which will be able to use the stimulus money to attract additional private capital. The administration's estimate is that this allocation will result in up to $160 million of loans and equity being available to Vermont businesses including farms - literally "seed capital". The purpose is to grow the Vermont economy now and have a better tax base and jobs that last after the stimulus money has dried up. Full disclosure: I am a gubernatorial appointee and was involved in drawing up this plan.

The House Appropriations Committee proposed that half of the GSF money or $8.58 million be used for public safety. Since they didn't propose new public safety programs, the effect is to relieve pressure on the FY2010 budget – and there certainly is plenty of budget pressure given declining revenues and increased demand for social services. They didn't say how they propose spending the other half; that decision would be made in next year's budget.

The philosophical difference between these two proposals is whether the money should be used to reduce short-term pain (which is real) or aimed at creating economic growth now and in the longer term rather than relieving pressure on the budget. IMHO, the first alternative is dangerously close to eating the seed corn – always a temptation when it's winter and you're hungry. Civilizations which don't have the discipline to avoid eating the seed corn don't last.

What if I have an opinion on how GSF money should be spent?

If you have an opinion, now's the time to make it known; there is only about another month before a final decision is made in the form of the state budget. Usually final results are somewhere in the range between what the governor and the legislature propose; but we haven't even heard from the Senate yet so it is certainly possible that other ideas will be introduced.

A form for contacting the Governor is at http://governor.vermont.gov/contact.html and his hotline is at 800.649.6825. Contact information for legislators is at http://www.leg.state.vt.us/legdir/legdir2.htm. In the end this is your money and you certainly have a right to tell us how it should be spent.

Coming Up: Other ARRA sources if your project doesn't get GSF funding.

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