A recent New York Fed report shows that the spending components of the American Recovery and Reinvestment Act (ARRA) expanded funding to states across various federal agencies and supplemented state tax revenues. In New York and New Jersey, the spending components were broadly similar to those of the nation, though the amounts allocated across agencies in the two states differed.
In their study, “The American Recovery and Reinvestment Act of 2009: A Review of Stimulus Spending in New York and New Jersey,” authors James Orr and John Sporn find that the funds allocated to New York, when compared with the nation, were more concentrated in Department of Health and Human Services programs and were directed largely at expanded Medicaid expenditures. This reflected both the increase in the federal government’s share of the program’s cost and the large role played by Medicaid spending in the state’s budget. New Jersey’s allocation, meanwhile, was more concentrated in funding from the Department of Labor for extended unemployment insurance benefits. Moreover, ARRA spending supplemented revenues in both states in fiscal years 2010 and 2011, which helped them to continue their spending on a variety of services.
The report begins by explaining how ARRA was structured, noting that the expected $840 billion cost was made up of roughly $300 billion in tax cuts and $540 billion in federal spending increases. The bulk of these increases consisted of large federal transfers to state governments to support social services, fund infrastructure, and provide assistance to unemployed and disadvantaged individuals. While some spending followed existing formulas for federal transfers, spending in other categories was more closely related to the extent of the downturn in a state’s economy. New York was allocated $35 billion of stimulus funds; New Jersey received $12 billion.
While a portion of the stimulus funds bolstered New York and New Jersey revenues initially, neither state can rely any longer on these federal transfers when preparing its budget. As of year-end 2011, almost 90 percent of the total funds allocated to both states had been spent.
Orr is an assistant vice president in the Research and Statistics Group of the New York Fed; Sporn is a senior analyst in the Bank’s Markets Group. Their study can be read in full in the latest Second District Highlights.
The American Recovery and Reinvestment Act of 2009: A Review of Stimulus Spending in New York and New Jersey »