WASHINGTON -- A White House plan to stimulate the economy by accelerating the payment of billions of dollars of federal infrastructure grants to the states is largely a "sham," state and federal officials said last week.
To give the economy a "shot in the arm," the President proclaimed on Dec. 5 that he would speed up the payment of $9.7 billion of grants and loans, including $1.9 billion of airport improvement grants and $3 billion of wastewater treatment grants to the 50 state revolving loan funds.
Six days later, newly appointed White House Chief of Staff Samuel Skinner told the nation's governors the administration is accelerating payment of this year's portion of the highway and mass transit grants just authorized by Congress with passage of the $151 billion, six-year transportation bill.
He asked the governors for assistance in getting "the earliest possible economic benefits" and predicted that the cash infusion, by spurring construction starts and creating jobs, would "be a stimulus to the economy."
Many economists initially welcomed the news. Ordinarily, the payment of infrastructure grants approved by Congress is spread out over an entire fiscal year. The White House plan called for front-loading most payments into the first and second quarters.
The highway funds, in particular, had been held up by Congress' delay in passing the transportation bill. The lag in the funding, originally slated for the fiscal year's Oct. 1 start, had caused many states to significantly scale back their programs.
Despite their early optimism, however, many state and federal officials now call the measure deceptive and likely to do little for the economy. They say the federal government's own time-consuming and cumbersome procedures for siphoning out the grants and approving construction projects will prevent them, for the most part, from spending the money immediately.
The primary obstacle, said Linda Eichmiller of the Association of State and Interstate Water Pollution Administrators, is that "everybody is using cash-flow plans which were negotiated a long time ago" between the states and the Environmental Protection Agency. Those plans, mandated by the EPA's controversial letter-of-credit regulations, were specifically designed to slow down payment to the states to avoid exacerbating the federal deficit.
The White House made no move in its announcement to amend or suspend the regulations. In fact, it stipulated that to get the grants, states would have to continue to meet "all conditions of use" and "all other legal requirements, including procurement law," which currently restricts grant payments.
The many conditions attached by the White House stirred skepticism -- even cynicism -- among some state officials. One grant administrator attending an Environmental Financial Advisory Board meeting last week, who requested anonymity, called the White House plan a "sham." Another said it was a "public relations move" aimed more at boosting Mr. Bush's re-election prospects than helping the states.
"You'd have to grant all 50 states an aggressive leveraging exemption" from the letter-of-credit regulations to carry out the plan, said Richard Torkelson, the advisory board's chariman and administrator of the New York State Department of Environmental Conservation.
Exemptions from the slow-payment procedures have been granted only to Minnesota and New York, both of which had to prove that getting the funds more quickly would enable them to leverage more bonds and build more projects.
But even those two slates say they would have trouble lining up more projects and spending money more rapidly right now, Ms. Eichmiller said.
"You don't want to pooh-pooh it entirely. It's a good idea" that could allow some projects already on line to proceed faster, said Linda Eichmiller of the Association of State and Interstate Water Pollution Control Administrators, whose members manage the Clean Water Act revolving fund program.
"But I'm not sure how many more projects could be built. Lots of things have to be done before you start pouring the concrete," she said.
EPA official Michael Deane agreed that while the White House ostensibly is making all $3 billion of wastewater treatment grants authorized by Congress available immediately, the initiative will do little to spur immediate spending by the states because of the many time lags inherent in managing the program.
"If we wrote a check for the entire capitalization grant for each state tomorrow, "I'm not sure that would help get construction done more quickly," he said. "Not that many states are in a position where they have people ready to break ground and the just need the funding" to do so, he said.
Quick spending under the highway, mass transit, and airport grant programs is similarly hampered by a tangle of regulations, according to Vic Miller of Federal Funds Information for States.
"I don't know how you speed up the reimbursement process" without violating rules that prevent local governments from drawing down more than three days' worth of funds, and which require contracts to go through a long approval process, he said.
"There's no evidence that a process has been devised to accomplish what was announced" at the White House, he said.
Also, all of the federal grant programs require states to come up with matching funds before the federal money can be spent. The financial difficulties being experienced by states may prevent many of them from quickly producing those funds, he pointed out.
The initiative could help the states, he said, if they were allowed to hold the grants in interest-bearing accounts where it might improve their overall financial condition and bottom line.
However, Mr. Deane emphasized that the EPA's regulations specifically prohibit states from earning interest on their federal grants -- even though they were authorized to do so under the Clean Water Act.
Ms. Eichmiller said the initiative would be more effective if state and local goverments -- who currently are negotiating the line-up of construction projects for next year -- knew they could take advantage of the White House's quick-payment scheme that far down the road. That would enable them to start gearing up now for a higher level of construction activity next year, she said.
However, there is no indication that the White House intends to continue accelerating grant payments beyond the current fiscal year, Mr. Deane said.