What the Economic Stimulus Package Can Do for the District

by Jenny Reed | March 4th, 2009 | PDF of this report

Updated March 17th, 2009

The economic stimulus package recently passed by Congress, the American Reinvestment and Recovery Act, is intended to quickly inject money into the economy and to boost employment to help keep the economic crisis that we are current facing, from getting worse.

Much of the money in the $787 billion stimulus package is funds that will come directly to states and cities. The District alone is expected to receive at least $950 million between 2009 and 2011.[1] While most of these funds will come through specific programs, a substantial portion of the funds are intended to be flexible funds that can help the District avoid deep cuts to programs and services. The stimulus package also includes competitive funds that the District must apply for, as well as increases in various benefits for residents affected by the downturn, such as food stamps and unemployment insurance benefits.

This means that the stimulus package will be available to help the District address its large budget gaps, rising program caseloads, and potentially support targeted new investments. While legitimate concerns have been raised that these funds are short-term and may not be available to support programs in the long-term – most of the stimulus funding would end in FY 2010 or 2011 – it makes sense for the District to claim as much stimulus funding as possible now and develop plans to spend it through 2010 or 2011, including on the city’s shortfall, as the federal law intended.

The stimulus funding also presents a challenge for Mayor Fenty and the DC Council to figure out how to spend this massive infusion well in a short amount of time. The Mayor’s budget proposal comes out in mid-March and then the Council has just two months to finalize it. Making sure the stimulus money is used where it’s needed and spent wisely is the most important issue facing our elected officials right now.

Even with the stimulus though, some budget savings and/or revenue increases will be needed to balance the city’s budget. The current unresolved shortfall for FY 2009 and FY 2010 – the shortfall after actions taken to date to this year – totals more than $900 million. Stimulus funds and other available resources will cover only about half of what is needed to close these shortfalls. Stimulus funds and other resources to address the gap are roughly $500 million, but still leave a budget gap of more than $400 million.[2]

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[1] This figure assumes that the District applies for the Unemployment Insurance Modernization Funding. All funding allocations have not yet been finalized by the Federal Government and so it may be that some program allocations may change. In addition, all District allocations were not available at the time of writing.

[2] See DC Fiscal Policy Institute, How Bad is DC’s Budget Shortfall?, March 2009.