Happy Birthday ARRA!

One year ago today, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) into law. The ARRA provided a lifeline to families in California who were struggling through what turned out to be the longest and deepest recession in the post-World War II era. While the effects of the economic downturn continue to linger, it’s worth remembering that the ARRA helped to mitigate the impact of the recession in California. The consensus of leading economists is that without the ARRA, the recession would have been even more severe. For example, the ARRA has:

  • Boosted economic activity and employment. Research indicates that the state of the economy and the job prospects of many Californians would be worse without the ARRA. The President’s Council of Economic Advisers estimates that as of the fourth quarter of 2009, the ARRA boosted employment relative to what it otherwise would have been by 1.5 million to 2 million jobs, including approximately 250,000 jobs in California. According to widely respected economist Mark Zandi, the ARRA “is doing what it was supposed to do: short-circuit the recession and spur recovery.”
  • Helped California to close a massive state budget shortfall. Last year, California faced a $59.5 billion budget shortfall in 2008-09 and 2009-10. Policymakers used $8.5 billion in ARRA dollars to cover program costs that otherwise would have been supported by the state’s General Fund. Absent this fiscal relief, balancing the budget would have required deeper spending cuts or larger tax increases.
  • Protected low-income Californians’ access to key safety-net programs. The ARRA temporarily increased the federal government’s share of cost for Medicaid (Medi-Cal in California) and prevented states that accepted this increased funding from restricting eligibility for the program. The ARRA also included funding to help states pay for rising costs in their welfare-to-work programs. While California policymakers cut funding for CalWORKs last year, the program would have been vulnerable to even deeper cuts absent the additional federal funds.
  • Increased benefits for workers affected by the recession. The ARRA boosted unemployment insurance and food stamp benefits, provided subsidies to help laid-off workers maintain their health coverage, increased funding to prevent homelessness, and boosted funding for a range of other benefits and services to help struggling workers and their families.
  • Mitigated the impact of state funding cuts to education. ARRA dollars partially filled the gap created by state cuts to K-12 and higher education. For example, K-12 districts received $1.2 billion in ARRA funds in 2008-09, and districts will receive an additional $3.6 billion in 2009-10 and $1.2 billion in 2010-11, according to the Legislative Analyst’s Office.

While the ARRA has helped California weather the worst of the downturn, most of the measure’s funding, including assistance for states, ends in 2010 or soon thereafter. Meanwhile, Governor Schwarzenegger has proposed deep cuts to help close a projected $18.9 billion budget gap. The proposed reductions not only would cause additional hardship for families, but also would threaten the state’s fragile economy. Additional federal funding is needed to help California avert another round of deep spending cuts that would further weaken the state’s economy and potentially impede the national recovery.

— Scott Graves

Bookmark and Share