Editor’s Viewpoint: The Beast at Hand

The one thing that is clear about the federal stimulus package is its lack of clarity. Every discussion on virtually any aspect of it reminds me of the six blind men, each holding a different piece of the elephant and collectively wondering about the true nature of the beast they’ve grabbed. There’s no question the stimulus package is a beast, and it is being dissected line for line and dollar for dollar by local and state government officials, associations and thousands of vendors who hope to share in the federal feast. It is just as clear that the hundreds of billions of dollars that will be spent will not solve all our economic problems, remake our infrastructure or fill the gaping holes in local and state budgets.

Counter to the stimulus package’s lack of clarity are the issues surrounding it. For example, the most prominent and, to some, most threatening string attached to the funds is the level of transparency required of those receiving money. A key element of the stimulus package is the federal government’s oversight, which will be looking for waste, fraud and abuse. As a result, some agencies are considering avoiding the money altogether for fear that they will have to pay the money back following an examination of how the funds were spent. Others are concerned that even if the project passes federal muster, it will require a long-term financial commitment.

Finally, as with many federal programs, stimulus projects can require a level of matching funds, and while raising taxes isn’t a popular option, issuing bonds remains viable. However, the news in today’s municipal bond market is mixed enough to carry its own issues. For example, on April 7, for the first time in its history, Moody’s Investor Service assigned a negative outlook to the creditworthiness of all local governments, which could result in downgrades of some municipal bonds. That, in turn, would increase the bond’s interest rate, making it more expensive to raise money. Only four days later, Morningstar noted that municipal bond funds returned an average of 4.7 percent in the last quarter, versus 1.3 percent for taxable bond funds. That also compares to an average loss of 8.3 percent for stock funds. Why? Government-issued bonds, however damaged by the economic crisis, currently have more street cred than private debt.

So, after figuring out how to apply, when to apply, through whom to apply, just what qualifies for stimulus funds and raising additional money to round out the funding package, state and local governments must go through yet another gauntlet: federal examiners, the local media and, of course, their citizens.

Wait a minute. This is all beginning to sound familiar, right?

It’s your job.