American Recovery and Reinvestment Act of 2009

January 26, 2009

CBO has releaseda cost estimatefor H.R. 1, the American Recovery and Reinvestment Act of 2009, which was introduced today in the House of Representatives. A link to the full cost estimate can be found here.

As summarized in the cost estimate, H.R. 1 would specify appropriations for a wide range of federal programs and would increase or extend certain benefits payable under the Medicaid, unemployment compensation, and nutrition assistance programs. The legislation also would reduce individual and corporate income tax collections and make a variety of other changes to tax laws.

Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B.

In addition, CBO and the Joint Committee on Taxation (JCT) estimate that enacting the provisions in Division B would reduce revenues by $76 billion in fiscal year 2009, by $131 billion in fiscal year 2010, and by a net of $212 billion over the 2009-2019 period.

In combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period.

The budgetary impact of the bill stems primarily from three types of transactions: Direct payments to individuals (such as unemployment benefits), reductions in federal taxes,and purchases of goods and services (either by the federal government directly or indirectly via grants to states and local governments). CBO estimates that impacts from the first two categories of transactions would occur fairly rapidly. In the third category,CBO estimates slowerrates of spending than historical full-year spending rates in 2009 for a number of reasons:

  • The bill's enactment would likely occur nearly half way through the fiscal year.
  • Previous experience suggests that agencies have difficulty rapidly expanding existing programs while maintaining current services; the funding in H.R. 1 for some programs is substantially greater than the usual annual funding for those activities.
  • Spending can be delayed by necessary lags for planning, soliciting bids, entering contracts, and conductingregulatory or environmentalreviews.
  • Agencies face additional challenges in spending funds for new programs quickly because of the time necessary to develop procedures and criteria, issue regulations, and review plans and proposals before money can be distributed.

Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources. The seasonal nature of some spending also affects the speed at which activities can be conducted; for example, major school repairs are generally scheduled during the summer to avoid disrupting classes.

The following table summarizes CBO's and JCT's estimates of the budget effects of H.R. 1.

By Fiscal Year, in Billions of Dollars

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2009-2019

DIVISION A APPROPRIATIONS

Estimated Budget Authority

274.1

66.5

4.1

3.6

2.8

1.4

1.4

1.4

1.4

0.9

0.4

358.2

Estimated Outlays

29.0

115.8

105.5

53.6

26.5

13.0

6.9

3.0

1.6

0.9

0.4

356.0

DIVISION B DIRECT SPENDING

Estimated Budget Authority

64.5

109.4

53.3

6.9

6.9

14.8

4.8

-4.7

-3.9

-2.2

-1.8

248.0

Estimated Outlays

64.1

108.8

54.0

7.1

6.9

14.8

4.8

-4.7

-3.9

-2.2

-1.8

248.0

DIVISION B - REVENUES

Estimated Revenues

-76.5

-131.3

-14.5

12.2

8.1

4.0

0.6

-1.8

-3.5

-4.3

-4.8

-211.8

NET IMPACT ON THE DEFICIT

Net Increase in the Deficit

169.5

356.0

173.9

48.6

25.3

23.9

11.0

0.1

1.2

2.9

3.4

815.8

Note: Components may not sum to totals because of rounding.

Sources: CBO and JCT.

This is the first cost estimate that CBO has prepared for H.R. 1 in its entirety. A previous preliminary estimate that has been widelycited addressed only the budgetary impacts of an earlier version of the provisions contained in Division A, at the request of the House Committee on Appropriations.

CBO has since made small changes to our estimates of the portion of the bill that was included in that preliminary estimate, mostly to reflect amendments to the legislation since we prepared the last estimate. Based on information provided by the committee and discussions with numerous state officials, we also made small technical changes to that earlier estimate.