Economy, and debate, stimulated

Pervasive U.S. funding provides a jolt for North Carolina. Is this just another bubble?

Staff WriterJuly 25, 2010 

— New high-speed trains are being planned for North Carolina. Thousands of public school teachers have avoided layoffs. And millions of dollars are being spent on university research for studies ranging from heart disease in dogs and humans to cocaine use in monkeys.

At a time when money has been extremely tight, one spigot has been turned on full blast: $10 billion in federal stimulus money that is coming into the state.

Approved by Congress in February 2009, the American Recovery and Reinvestment Act, better known as the stimulus, was designed to save jobs and encourage job creation.

The question of whether the influx of money has succeeded is now a critical part of the national political debate. Proponents argue that the stimulus is succeeding, saying it has put people to work, spurred research and shored up infrastructure. Critics contend that the cost has been too high and the money wasted.

The president's Council of Economic Advisors this month estimated that the stimulus package spurred the creation of 90,000 jobs in North Carolina as well as providing tax cuts - mainly in the form of tax credits - to 3.4 million Tar Heels.

Vice President Joe Biden argued last week that the stimulus package not only helped walk the country back from a possible depression but also was encouraging economic innovation, as with its investment in Durham-based Cree, which manufactures LED lighting.

"We know we can't guarantee economic growth from Washington or the state capitals, but we can lay down a foundation for economic expansion," Biden said Thursday at a Democratic fundraiser in Chapel Hill.

Public vs. private

Many economists of differing political stripes believe the stimulus has played a role in helping employment.

"I think the stimulus plan probably did save and create some jobs," said Mike Walden, an economist at N.C. State University. "I'm in the camp that those funds did help the employment situation."

Unemployment has dropped in North Carolina, from 11.1 percent in May 2009 to 10 percent this past June, according to the N.C. Employment Security Commission.

But conservative critics said the stimulus has created the wrong kind of jobs - too many public-sector jobs and not enough private-sector jobs. They also note that the stimulus package has added to the national debt, which now stands at about $13 trillion, and argue that the economy would be recovering more quickly if the government had taken a more hands-off approach.

"They have shored up some government jobs that may or may not have been needed to be there in the first place," said Perri Morgan, founder of the Capitol Monitor, a Raleigh nonprofit organization that monitors stimulus spending. "They should have focused on the long-term growth of the state - making it a better place to live and to do business.Very little of the money has been used for that purpose."

State GOP Chairman Tom Fetzer goes even further: "By any objective measure, this stimulus package has been a complete failure."

Forms of funding

The N.C. Office of Recovery and Investment is easy to miss, a two-story brick house across the street from the Governor's Mansion in downtown Raleigh.

It is from this office that Dempsey Benton watches over much of the $10 billion that will come into North Carolina by the end of next June. Benton, 64, is a soft-spoken professional manager who spent most of his career as Raleigh city manager before serving in several top-level state posts, including state health and human services secretary. Democratic Gov. Bev Perdue appointed Benton to oversee the stimulus package.

The easiest way to look at the stimulus, Benton said, is to see it as four main pots of money:

$3.5 billion is "stabilization" money that has helped keep state government financially afloat during the budget crisis over three budget years. That money will run out next June.

$2.5 billion is for various projects - roads, buildings, firehouses, water and sewer projects, research grants and so forth.

$2.5 billion comes in direct payments from the federal government to individuals for such programs as Pell grants to help students attend college, unemployment benefits and Social Security supplements.

$1 billion comes in payments to federal agencies, most of it going to military bases.

The state controls the first two categories - $6 billion. As of June, the state had spent a little more than half of that amount, Benton said.

Budget tourniquet

North Carolina, like every other state government, has suffered a huge budget deficit during the recession - tax revenues dropped off the cliff, and the demand for public services, such as job training and unemployment benefits, climbed. For the first time in decades, state funding has been shrinking. So the state legislature has used $3.5 billion in stimulus money as a giant budget tourniquet to help fund numerous state programs.

Benton estimates that the stimulus money has prevented 22,000 to 24,000 public employees from being laid off in North Carolina this year - the largest group of them school employees.

There were 16,298 school positions funded with stimulus money, including 5,793 teachers, according to the Department of Public Instruction. Other positions were custodians, teacher aides, teacher assistants and support positions.

The stimulus money has allowed the state to defer "some really difficult decisions about having to make cuts in public education budgets," said June Atkinson, state superintendent of public instruction. "Without those dollars, we would have lost thousands of teachers and custodians and support people."

The stimulus money, Atkinson said, allowed the public schools to avoid enlarging classes in kindergarten through the third grade. Classes were enlarged in grades four and above during the recession.

The stimulus funds also allowed the schools to avoid drastic cuts in elective programs such as technical education, Advanced Placement courses and arts education, all of which help keep students from dropping out of school, Atkinson said.

Beyond schools

But the stimulus did more than just help the schools.

In 2008-09, the stimulus money provided funding for 10,343 Department of Correction jobs.

It is providing money for 60 positions in state law-enforcement agencies and providing community police grants to 50 local governments to allow them to hire 208 police officers.

Conservative critics say saving public jobs is fine, but what is really needed is stimulation of private jobs.

Brian Balfour, an analyst with the conservative, Raleigh-based Civitas Institute, calculates that since Congress passed the stimulus bill, public sector jobs in North Carolina have increased by 40,900, while private sector jobs have decreased by 90,600.

Critics also worry about oversight of such large sums.

"There is such a large amount of money being spent in different ways," said former state Auditor Les Merritt, a Republican who is nowexecutive director of the Foundation for Ethics in Public Service.

"It's awfully easy not to manage it well. Some of it was shoveled out the door without the recipients having a firm understanding of what has to be done."

In several instances, the U.S. Government Accountability Office, the investigative arm of Congress, has raised questions about how the money was spent, such as not requiring multiple bids or quotes for purchases.

In one instance, the GAO objected to the use of portions of a $38,400 Title I grant to the Winston-Salem Forsyth County School system. The money was used for an educational summer program run by the Housing Authority of Winston-Salem, and GAO auditors found that it had been improperly used for a field trip that included "tickets for movies, a water park, fast food and other entertainment."

Bricks and mortar

Portions of the stimulus money also are being spent on infrastructure - $745 million on highways and bridges, $545 million on high-speed rail, $260 million on defense facilities, $135 million on water and sewer connections, and $128 million on energy conservation projects such as weatherization of houses and businesses.

It is money that has seeped into every corner of North Carolina - building a fire station in New Bern, cleaning up an abandoned gas tank at a Salisbury gas station, erecting a retirement home for veterans in Swannanoa, building a sewer line in Spindale, and financing a bus maintenance facility in Charlotte.

"A lot of us won't be able to distinguish between a project that is built with [stimulus money] versus a project that is built with Outer Loop monies or other monies," Benton said. "But these are projects that will be with us for many, many years."

Many of the biggest projects have involved roads - loops and bypasses in Fayetteville, Wilmington and Sanford, a connection to the Global TransPark near Kinston, and commuter routes in the far-flung suburbs of Raleigh, Charlotte and Winston-Salem.

The stimulus money has allowed North Carolina to continue road building, despite a decline in revenues.

Because of the recession, road building contracts had dropped to about $25 million per month, but the stimulus money raised it back to the more normal $75 million to $80 million per month, said Gene Conti, state secretary of transportation. Conti said that has meant 7,000 to 8,000 road jobs each month.

"It has allowed the private sector to keep people employed," Conti said.

Rail funding

North Carolina is receiving $545 million in stimulus money for high-speed rail - the sixth-highest amount of any state and an eyebrow-raising amount for a state that still considers itself pickup truck country.

In accepting the first $20.3million this month, Perdue said, "It means jobs, economic development, reduced congestion and a cleaner environment."

The state DOT is using the money to purchase and refurbish passenger coaches and locomotives, improve stations, build passing sidings and double tracks between Greensboro and Charlotte, close highway-rail crossings, upgrade private crossings and construct new highway bridges.

The state has already added midday service on the Piedmont route between Raleigh and Charlotte, and plans are under way to add more service. The North Carolina improvements also are part of a larger effort to develop a Southeast High Speed Rail Corridor.

Ridership on the Piedmont improved 200 percent between June 2009 and June 2010, Conti said.

State officials estimate that about 30 rail projects in 11 North Carolina counties will create as many as 4,800 private-sector jobs in the state, with 1,000 created this year.

There are other sorts of brick-and-mortar projects:

Water and sewer projects: Many of the water projects are designed to deal with recent water shortages, Benton said. Many involve running water lines from small communities to allow them to hook into the water systems of larger ones. In Eastern North Carolina, for example, it allowed Farmville and Greene County to connect to Greenville's water system, to reduce the use of the aquifer, which some had worried was becoming dangerously low.

Energy research: This month, the Department of Energy awarded $3.7 million to Cree in Durham to demonstrate advanced transistor-based electrical substations, $4.2 million to ABB in Raleigh to develop an advanced superconducting magnetic energy storage device, and $49 million to Celgard, a battery manufacturer for electric cars near Charlotte, which has announced plans for a $91 million expansion in Charlotte and a new facility Concord.

Bonds for building: The stimulus package also provided subsidized interest rates for bond financing for public and private projects for as much as $1.5 billion. The bonds helped the Catawba Valley Medical Center in Hickory with its $70 million expansion and provided $131 million in bonds for Siemens Energy to expand a gas turbine manufacturing facility that would create 825 jobs in Charlotte.

Fiber optic network: In another project, $28.2 million will go to MCNC in Research Triangle Park to help design and build a 480-mile fiber optic network to link 37 counties to serve schools, businesses and homes.

Research

The stimulus money has been a major source of research funding for North Carolina universities, providing at least $116 million in grants and creating hundreds of research jobs.

That has included $2.7 million to N.C. State University to study biofuels such as butanol, a $14.5 million grant to UNC-Chapel Hill to expand research on dogs and hogs to learn more about hemophilia, heart disease and muscular dystrophy in humans and in some instances dogs.

But the research grants have also provided talking points to critics who want to portray the stimulus package as wasteful.

At a news conference Thursday, Fetzer criticized a $71,623 grant to Wake Forest University medical school to pay for the study of the long-term effects of cocaine addiction on monkeys.

The grant allowed the continuation of a research job. The study, university officials say, could lead to better treatment for recovering cocaine addicts.

Fetzer also criticized a $147,694 research grant to Wake Forest University to study the use of yoga to reduce hot flashes in women, and a $762,272 grant to UNC Charlotte to develop computer technology to digitally record the dance moves of performers.

Drawing the scrutiny of the conservative John Locke Foundation is a $470,000 stimulus-financed study on the cultural process of the local food movement.

The study, which began this month, is being conducted by the Center on Urban and Regional Affairs at UNC-CH.

Donald Nonina, an anthropologist at UNC-CH, said the grant had been awarded by the National Science Foundation, and it involved studying local food movements in the Charlotte, Durham and Rocky Mount areas and one in the mountains. The grant would hire nine people, some part-time, over 20 months.

He said the study would examine the local food movement as a social phenomenon. Nonina said the study could have implications for the state's agriculture economy, its eating habits and its health.

"How is this putting North Carolinians to work or getting bridges built?" Fetzer asked of the academic studies.

" 'Stimulus' has become a bad word in North Carolina. It has become a bad joke."

rob.christensen@newsobserver.com or 919-829-4532

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