It turns out that the media reports of spending rates from the Congressional stimulus package were taken from a preliminary CBO analysis of a bill that has since been altered. While opponents of the stimulus package have touted these estimates to claim that the stimulus will have little effect in the next two years, CBO produced nothing that can support this claim. CBO will produce an analysis next week that will examine the bill in its current form. It is also important to keep in mind that the preliminary analysis (and probably the analysis that will be produced next week) relied on standard rules of thumb for spendout rates rather than the spendout rates for the specific projects in the stimulus package. There can be a big difference. For example, as a rule of thumb, the spending for highways in the first year after an appropriation may be just a small percentage of the total cost of the highway, with spending in the second year being on a little bit higher. It takes time to plan a highway and to bid out contracts. However, if there are maintenance projects where planned maintenance has been deferred, then it is likely that spending can proceed far more quickly. Furthermore, contractors will typically have to find time to fit a government project in their queue of other work. Given the severity of the current downturn, especially in the construction sector, there are likely to be plenty of contractors who are ready to move almost immediately after a contract is signed. For these reasons, CBO's rules of thumb on spendout rates may substantially understate the amount of spending that will be carried through in the next two years. Hopefully the CBO report will be clear on its methodology in its report so that there will be less confusion on this issue.
--Dean Baker