It has been one year since the American Recovery and Reinvestment Act of 2009 (ARRA) became law. Intended to stimulate the U.S. economy, the act includes $212 billion in tax incentives and $575 billion for transportation and infrastructure upgrades, environmental clean-up, affordable housing, federal building construction and public safety and Homeland Security programs. 


According to the U.S. House Committee on Transportation and Infrastructure, ARRA infrastructure funding will create or sustain 1.8 million jobs and generate $323 billion of economic activity. The House Committee estimates that each $1 billion invested in infrastructure construction will create or sustain 34,800 jobs and generate $6.2 billion of economic activity.


Construction industry trade groups believe these numbers are overly optimistic. 


Doubtless, ARRA will benefit the construction industry, which has lost 1.43 million jobs since December 2007 and has a current unemployment rate nearly double the national rate. However, the benefits cannot be fully assessed yet since vertical construction – which generally fosters more job creation than its transportation and infrastructure counterparts – requires a significantly longer lead-time period to get in the ground. 



Dissension


Some critics claim ARRA funding is “too little, too late.” Politics aside, the numbers are daunting. Approximately $1.1 trillion was invested in construction in 2008. This dropped by $190 billion in 2009. The act includes approximately $135 billion for transportation, infrastructure and vertical construction and, according to the Associated General Contractors (AGC) of America, each $1 billion of nonresidential construction creates approximately 9,700 construction jobs. If AGC is correct, the industry will need over $147 billion just to recapture the construction jobs lost since December 2007.


Because the construction industry accounts for more than 8 percent of the nation’s gross domestic product, the decline in construction spending will continue to have a severe drag on economic growth. Thus, even if the act’s lofty goals are achieved, the U.S. will only recover a fraction of the construction jobs lost over the last two years. 



Scorecard


What has ARRA funding done to stimulate the construction industry thus far? According to the its Web site (www.recovery.gov), it has “created or saved” 595,308 jobs nationally and 9,227 jobs in Massachusetts as of December 31, 2009. More optimistic is the White House Council of Economic Advisors report which states, in carefully chosen language, that the act “raised employment relative to what it otherwise would have been by 1.5 million to 2 million” jobs. The Congressional Budget Office pegs act-related jobs at 600,000 to 1.6 million. 


Transportation Secretary Ray LaHood advised the Transportation and Infrastructure Committee October 1 that the Federal Housing Administration had already obligated 72 percent of its act funds, the Federal Aviation Administration had obligated 99 percent of its funds for airport improvements, and the Federal Transit Administration had committed 88 percent of its funds. However, other federal agencies and departments have moved at a less brisk pace. The act’s Web site reports that approximately $179 billion in act funding has been spent, but over $330 billion remains unawarded as of this writing.



Bay State At Bottom


According to the House Committee, Massachusetts was close to the bottom of all states in ARRA spending as of last October, although the Patrick administration challenged the Committee’s analysis as “an inappropriate one-size-fits-all analysis.” The act’s website reports that Massachusetts has $8.4 billion in funds which still have not been awarded. 


More recently, the pace in Massachusetts has quickened. The state earmarked all $437 million of act funding for road-related projects before the March 1 deadline. However, other act-funded projects, especially private development projects, have been delayed.


According to recent reports, the much heralded Assembly on the Mystic project in Somerville – which received $65 million in state and federal funds – has yet to produce the intended job creation. Only one development project, Westwood Station in Westwood, still plans to begin construction later this year. The problem, according to state officials, is a bit of a Catch-22: The state wants to award act funds to jumpstart private real estate development, yet banks aren’t lending to such projects. 


To end on a positive note, according to the White House, the U.S. economy expanded at a 5.7 percent pace in the fourth quarter – the second straight quarter of growth – and unemployment has dropped below 10 percent. Thus, for now, the hope is that ARRA funding will help stabilize construction job losses in the short term and add jobs as more act funding is put into the ground.