Economists fear retreat when stimulus runs dry

LOS ANGELES — With home sales sliding, employers reluctant to hire and world stock markets gyrating wildly, the U.S. economy is in danger of stalling. Now one of its only reliable sources of fuel — federal stimulus spending — is running out.

Funds flowing from the $787 billion legislation passed last year have helped create hundreds of thousands of jobs and propped up social programs such as unemployment benefits. But with much of that money spent and lawmakers reluctant to approve another big round of spending, concerns are rising about what will replace it in the short term to keep the economy moving.

Jitters about a global slowdown pounded world markets Tuesday after an index forecasting Chinese economic activity was revised downward and Greek workers walked off the job to protest government budget cuts. In the United States, the Dow Jones industrial average plunged 268 points on news that consumer confidence fell in May after three consecutive months of gains.

Economists worry that the weak labor market will spook U.S. consumers, whose spending fuels the economy. Dwindling federal stimulus funds are heightening those fears.

According to recovery.gov, the federal government website that tracks stimulus spending, Washington state was awarded about $6.1 billion in stimulus money from February 2009 through March 2010. The state had received a little more than $2 billion of that by March.

The stimulus money includes more than $900 million for education, more than $150 million in energy and technology, $270 million in health and human services, $3.8 billion for local government and private organizations, $210 million for public safety and $500 million for transportation.

The American Recovery and Reinvestment Act, the official name of the legislation that authorized the stimulus money, has been contentious since Congress approved it to aid an economy mired in a deep recession. Republicans have been particularly critical of the program and its price tag, and the final bill was billions of dollars less than the one President Obama originally had proposed.

But 17 months later, those stimulus jobs, along with temporary government positions created for the 2010 census, are among the few bright spots in a dismal employment market. The nation's unemployment rate is 9.7 percent, and companies have shown little willingness to hire. Private-sector employers added only 41,000 jobs in May, out of a total of 431,000 jobs created.

The government has few levers to pull to produce quick growth. Interest rates are at rock-bottom levels. Concerns about swelling U.S. deficits have many on Capitol Hill opposed to the idea of another stimulus. That worries some consumers.

"There's an uncomfortably high probability that we slip back into recession," said Mark Zandi, chief economist of Moody's Analytics. "If we slip back, there's no policy response. We won't have the resources to respond."

Thousands of stimulus projects are ongoing and billions of dollars remain to be spent. The administration is calling this "Recovery Summer" and will spotlight dozens of projects in coming weeks. But many important programs are losing funding.

Among the most crucial is unemployment insurance. Benefits vary from state to state, but the federal government has helped pay for five extensions that have boosted the duration of payments to as much as 99 weeks from the standard 26 weeks. Stimulus funds also have helped subsidize health benefits through the Consolidated Omnibus Budget Reconciliation Act, or COBRA, which gives jobless workers an opportunity to continue their coverage at group rates for a limited time.

Efforts to extend those provisions are stalled in Congress. The National Employment Law Project estimates that 1.63 million workers will exhaust their benefits by the end of this week, and at least 140,000 workers will lose COBRA coverage.

The House on Tuesday rejected a $33.9 billion stand-alone bill that would have provided up to 99 weekly unemployment checks averaging $335 to people whose 26 weeks of state-paid benefits have expired. House Democratic leaders hope to vote again as early as Wednesday. Senate Majority Leader Harry Reid filed a motion Tuesday night to force a vote on a similar bill by Thursday.

Without an extension, payments would continue to phase out for more than 200,000 people a week. The last extension expired at the end of May.

A broader, $140 billion bill voted down by the Senate two weeks ago would have combined the extension of jobless benefits to a hodgepodge of other proposals, including continuation of an array of business tax cuts and help for states to cover health-care costs for the poor under Medicaid.

Washington state hoped to receive about $480 million, a sum included in a budget approved by the state Legislature this year.

Gov. Chris Gregoire has warned that the state could be forced to make deep cuts and potentially lay off thousands of state workers if Congress fails to act. She was part of a contingent of governors in Washington, D.C., on Tuesday lobbying on behalf of the Medicaid money.

Republicans say extending benefits and other provisions of the stimulus bill would add to the country's trillion-dollar deficit. "Here's another idea Democrats should consider, one that Americans have been proposing loudly and clearly: Stop spending money you don't have," Republican leader Mitch McConnell of Kentucky said Tuesday on the Senate floor.

But Democrats — and some economists — say spending money now to create jobs and fund jobless benefits is the only way to stave off another recession.

"What worries me the most is this idea that austerity is going to be helpful," said Michael Reich, a University of California, Berkeley economics professor who said ending unemployment benefits could drive more people to file for disability and hamper long-term growth. "When you make an economy shrink, it makes it harder to pay back debt in the future."

Information from Seattle Times archives is included in this report.