In Indianapolis last month, a state government official named Jacob Sipe finally got the news he'd been anticipating. The U.S. Treasury had approved $164 million to finance affordable housing projects left paralyzed by the credit crisis, using funds from the Obama administration's increasingly controversial fiscal stimulus.
Before the financial crisis erupted, the housing program was funded via state tax credits that developers in turn sold to large banks. With the banks crippled, demand for the tax credits — and thus the funds that subsidized the state's low-cost housing — evaporated.
"We have a lot of existing multifamily developments built in the '60s and '70s that need to be rehabbed. … They just need investment," said Sipe, Indiana's multifamily housing manager.
Now, they've got it. The stimulus effectively substitutes Uncle Sam for the banks. The state sells its tax credits to the Treasury Department and funnels the proceeds to developers, making it possible for them to offer below-market rentals for the working poor in a state that's among the hardest hit by the economy's plunge. In central Marion County, a family of four making less than $41,000 annually is eligible.
Indiana's housing initiative — and similar efforts in 23 other states and territories — illustrates the impact of the administration's recovery strategy. The state expects 3,500 construction jobs to result from its part of the stimulus spending. That reality is a long way from the political brawl in Washington, where less than five months since President Obama signed into law the American Recovery and Reinvestment Act, the $787 billion fiscal stimulus is alternately condemned, mocked and defended.
"We are moving in the right direction. We are cleaning up the wreckage of this storm," President Obama insisted Saturday.
From Indiana rental units to a Colorado energy company and workers' paychecks everywhere, the stimulus is just beginning to make itself felt. In its short history, the program has emerged as ground zero of a running debate on the future of the badly damaged U.S. economy. The role of government, the societal cost of prolonged joblessness, the danger to future generations of an ever-larger public debt — they all come together in the hard-fought clash over the efficacy and wisdom of the stimulus.
The first Obama administration stimulus is actually the second federal government effort to boost demand in a post-bubble economy grown desperately short of it. In 2008, the Bush administration spent $152 billion on tax rebates. Shortly after taking office, amid clear signs of an economy in free fall, the new administration unveiled a massive fiscal program designed to revive a lifeless economy with tax cuts, road and bridge construction and alternative energy projects. The official forecast said the $787 billion measure would keep unemployment from topping 8%.
Now, amid the worst financial crisis in 80 years, the unemployment rate has reached 9.5% and is barreling toward double digits. Republicans such as House Minority Whip Eric Cantor say the verdict on Obamanomics is in. "We're hearing a lot of excuses — that we have to wait, or it wasn't big enough and we have to do it again. … Clearly, the stimulus bill has failed," Cantor says.