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The Case for Waste
The idea's to stimulate the economy. So what if we blow a few billion on the wrong things?

By Alec MacGillis
Sunday, April 12, 2009

As the $787 billion stimulus package starts to flow, the message from on high is clear: No one dare waste a dime of it.

"This plan cannot and will not be an excuse for waste and abuse," President Obama declared last month, after he designated Vice President Biden the "sheriff" in charge of patrolling for misuse of stimulus funds. Sen. Susan Collins (R-Maine) has warned officials overseeing the money that "we must ensure that haste does not make waste" and that even minimal amounts of misspent money would be simply "unacceptable." And California Gov. Arnold Schwarzenegger has appointed an inspector general to oversee "every single dollar" of the $50 billion flowing into his state.

Missing amid all these high-minded calls to protect taxpayer dollars is an awkward question: When the whole point of a major government spending program is to stimulate the faltering economy as quickly as possible, what exactly counts as "wasted" money? After all, if some stimulus cash is misspent -- say an errant official or contractor buys himself a Cadillac or a Harley Davidson, only to suffer the full force of law -- might not such fraud boost the economy more than if the cash languished in a law-abiding state account? All that monitoring, however well-intentioned, may undercut recovery by compelling officials to spend more slowly to avoid hearings, prosecution, or embarrassment in the media.

Officials tracking the money recognize the dilemma. "We want this money to be spent, and yet it has to be spent in ways that are consistent with the purpose of the act," said Chris Mihm, managing director for strategic issues at the Government Accountability Office. "It's something that we're struggling with."

Some observers are not as diplomatic. It's a bit rich, they say, for elected officials who voted for the biggest stimulus package in history -- and urged at the time that it be spent quickly -- to be covering for that vote now with calls for tough oversight. "If the goal for the stimulus spending is to minimize fraud and waste to the point of zero, I know how to do that: All I have to do is not spend the money," said Steven Schooner, co-director of George Washington University's Government Procurement Law Program. "Are we capable of grasping the concept that in a struggling economy, it's more important to throw money at the problem, even if it's possibly inefficient and possibly inaccurate?"

Underlying this contradiction is a broader tension in the stimulus law. Obama sold the package as a "down payment" on his goals for energy, education and health care and has expressed the hope that it will also renew confidence in government. From that perspective, it's crucial that the money have the desired policy impact and be spent in an above-board manner. Members of Congress calling for close oversight cite notorious examples of waste in Iraq war contracts and the Hurricane Katrina recovery.

But the stimulus package's main stated goal was to jumpstart the economy by getting billions of dollars into circulation fast, and that requires a different mindset. Just as the economy needs consumers to at least temporarily throw some caution to the wind and start spending again, it also may need the government to worry less about crossing every "t" before cutting a check. It was John Maynard Keynes who famously said that paying unemployed men simply to dig up bottles filled with cash and buried in abandoned coal mines would be "better than nothing" as economic stimulus.

Instead of catching a break because of the time pressures, the stimulus is receiving far greater scrutiny than regular government spending. The Interior Department's highly regarded inspector general, Earl Devaney, is heading a new stimulus oversight board, and the law sets aside $350 million in oversight funds, which allows the federal agencies' inspectors general and the GAO to hire hundreds of additional auditors.

Federal agencies and departments must produce weekly reports on how they are disbursing their part of the stimulus. On top of the usual paperwork, state officials handling the money must tell Washington how many jobs are being created and get governors to sign off on spending. The government has set up a Web site, Recovery.gov, to track spending, and 40 states have similar ones. The White House bills the federal site as the ultimate in transparency, but so far its tens of thousands of daily visitors are finding little information as the creators struggle to get officials to file up-to-date reports.

Left undefined is just what kind of "waste" is being targeted. Some congressmen and inspectors general seem to worry about blatant forms of abuse, while others define it as anything that falls short of the bill's specific policy aims. At a Senate hearing this month, Sen. Claire McCaskill (D-Mo.) worried aloud about possible "ugly stories" involving money such as the $15 million that is going to the Urban League of St. Louis for weatherizing homes. She foresaw a grant recipient "giving a second cousin who has a pickup truck and two friends a bunch of money to weatherize homes . . . and they put weather-stripping around the doors and that's all that happened."

Rob Nabors, the deputy director of the Office of Management and Budget, the White House's point man for the stimulus, conceded that there is a "discrepancy" between the attention paid to the stimulus funds and normal government spending. But he said that the increased oversight is justified because the legislation's policy aims are as much a part of it as the stimulus.

"Yes, from an economic perspective, the money is spent when the money is spent, but we are planning for this money to leave a lasting legacy," he said. "We expect to show not just X numbers of jobs created but X number of homes weatherized. We're looking to improve our parks system, modernize our infrastructure. Any dollar distracted from those purposes really is a wasted dollar." He added: "The president charged us with making sure the money's being spent wisely, and if that means we have to take an extra day to make sure the reporting is in line and we're doing things right, we tend to push the agencies to . . . slow down a little."

The threat of further spending delays is particularly acute because even as currently designed, the stimulus is not expected to fully ramp up until later this year and early next year, partly because of the planning and paperwork that many programs require. Nabors said the White House hopes that 70 percent of the money will be spent by the summer of 2010. As of Tuesday, $54 billion had been "obligated" to be spent, while $11.7 billion had actually been disbursed.

Alan Chvotkin, a lawyer for the Professional Services Council, a trade group for federal contractors, said that the oversight is putting a scare into federal officials whose agencies are undermanned as it is when it comes to contracting and procurement. "Most of the agency officials, the career officials, are risk averse," he said. One such individual he spoke with told him that the White House was behind the official "with a hot pitchfork to get the funds out," Chvotkin said, "yet he knows whatever action he takes is going to be reviewed by a lawyer or his inspector general or Mr. Devaney, so he's saying, if it's going to be [me] in a sling, this is going to be done on my timetable."

At the state level, officials say that they're early enough in the process -- and so grateful for the money -- that they regard the rules as a challenge they are eager to meet. But the bureaucratic trappings are slowing some spending. For example, officials must wait until July, while Washington writes the guidelines, to apply for the $2 billion that states and cities can use to purchase and renovate foreclosed homes.

The tension between speed and accountability has some history. In 1933, President Roosevelt created two agencies to get people back to work: the Public Works Administration, led by Harold Ickes, and the Civil Works Administration, led by Harry Hopkins. Ickes moved cautiously to avoid any scandals, spending only $110 million of his $3.3 billion in the first year. The PWA did pull off some big projects, such as New York's Triborough Bridge, but it lagged behind the CWA, where Hopkins put people directly on the federal payroll and stressed speed over prudence.

Seeing that Hopkins was creating more jobs, Roosevelt diverted some PWA money to Hopkins's outfit, which promptly put several million people to work within a matter of months. Later, Roosevelt put Hopkins in charge of the new Works Progress Administration, which created millions more jobs and, depending on your perspective, not a few boondoggles.

But today, with unemployment reaching 8.5 percent and job losses surpassing 600,000 every month, Congress is demanding even stricter oversight of the stimulus dollars. At a hearing last month, McCaskill urged that stimulus reporting rules extend to all contractors, to "get to the issues that many of us have kind of staked our reputation on." And she urged that state auditors desist from their big annual audits of federal grants flowing to their states and instead focus entirely on stimulus spending -- which Kinney Poynter, director of a national association of state auditors, said was "just not reasonable."

Amid the calls for oversight, Sen. George Voinovich (R-Ohio) issued a rare dissent. "Does this make sense?" he said at last month's hearing. Officials "are filling out all these reports and they're going to ask the question, 'Do they want us to do [stimulus] or are they more interested in the reports?' "

For all the political benefit of promising to protect taxpayer dollars, the rhetoric around accountability may also unintentionally raise the stakes when the eventual spending scandals do surface. Devaney, for one, has tried to lower expectations about all the corruption he is supposed to ferret out.

"There may be a naive impression that, given the amount of transparency and accountability called for by this Act, little or no fraud or waste will occur," he said in congressional testimony on April 2. "Some level of waste or fraud is, regrettably, inevitable."

macgillisa@washpost.com

Alec MacGillis is a reporter on the national staff of The Washington Post.

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