Stimulus Effect

Infrastructure Companies Are Big Winners Under Plan To Jumpstart Economy

Whiteman doubts that tax breaks for individuals will be a factor in improving the economy. People who get a little more money in their paychecks will save it rather than spend it, because they’re afraid they’re going to lose their job.

“It’s all about jobs,” Whiteman says. “Housing is there. It’s affordable. Interest rates are low. The way to get this economy moving is to create jobs. This stimulus plan is more like a $90 billion stimulus and $700 billion social services plan.”

Whiteman is not alone in his view of the stimulus plan. ASU Economics Professor Stephen Happel says tax cuts for individuals won’t matter much.

“They’ll buy food and save a little, but they won’t buy a new color TV,” Happel says. “I can’t imagine it having a big impact on fancy restaurants. Maybe some fast-food chains will get some business, and the mass retailers should benefit. A big part of the stimulus package is energy, so maybe people will buy more energy-efficient stuff, like weatherizing their homes. Stores like Home Depot might benefit a little.”

Asked about the benefit of money channeled directly to state government, Happel says, “It depends on how that money is allocated and how much gets sucked up in the bureaucracy. Some people who would have lost their jobs will be saved, so that might have some impact. ”

Happel’s colleague, Hoffman, says beneficiaries will include any business that supplies state government, and businesses that depend on the consumption patterns of state and local government employees. Hoffman and Happel are among the public employees who were forced to take unpaid furloughs as ASU deals with legislative cuts in funding.

To address the sick economy, Happel favors “big time tax cuts,” saying the stimulus package is more like a redistribution of wealth, taking from Peter to pay Paul, and warns of “big-time inflation down the road.”

When American corporations make profits overseas and bring that money back into the country, they are taxed at 35 percent, Happel says.

“It won’t cost the government anything because the companies don’t bring that money back if it’s taxed at 35 percent,” he says. “It sits overseas. Eliminate that tax for one year and it amounts to about $580 billion. That’s not too far short of the stimulus,” he says. “Then the companies can reinvest that money for jobs. It’s a slam dunk.”

Hoffman defends the stimulus plan and its multiplier effects downstream, saying they benefit “everybody from a barber shop to a grocery store.”

“We’ve got an unprecedented, in my experience, collapse in consumer, business and investor confidence,” he adds. “Let’s get behind the package and give it a chance to work. There will be plenty of time to do the political dance in a year or two.”

Regarding housing, Hoffman says many economists believe the industry has farther to fall.

“It’s all about this confidence issue,” he says. “We’ve got to find traction when it comes to confidence, and just muddle along for awhile. These massive foreclosures are taking everything down.”

Hoffman is confident that eventually the stimulus money is going to find its way to everybody.

“I’m for infrastructure,” he says. “I’d like to see some longer-lived projects, like building a hospital, repairing and building roads, helping schools, and putting together programs that will have more lasting effects. Some say the burden is all on our children, but if we do it right, spend this money wisely, it’s going to accrue benefits to our children as well.”

But Hoffman is pragmatic about the tough road ahead.

“By all accounts, the next two years are going to be pretty bad, and ’09 will be terrible,” he says. “I’ve got my concerns about the first part of 2010. People need to take some confidence in the fact that government is not standing by and letting this economy go into a complete tailspin.”

Happel, despite his opposition to the stimulus package, is optimistic.

“There is a natural recovery process. We’re going to come out of this. By mid-summer housing will bottom out in many parts of country,” he says. “It’s hard to imagine that the stimulus package will have any kind of a big impact this year. It may happen when infrastructure construction spending kicks in next year that we will see more of a pop.

“The only way the stimulus package will have an immediate positive impact is if the American public, en masse, believes that it’s going to end the recession. Eliminate some of the fear and people start spending. There is a tremendous amount of fear out there. People are scared to death, and with good reason. Staff at ASU, they’re not only facing furloughs, but they’re thinking at the end of this fiscal year they’re going to lose their jobs. They’re running scared.”

Jones of the Arizona Contractors Association is concerned about bureaucratic delays. Any contractor who has dealt with the federal government on public works projects knows about the steps that need to be taken.

“It could be three to four months before a shovel-ready project is ready to go,” Jones says, “and maybe another 60-to-90 days before you get the first payment.”

Contractors are hoping that Congress approves an advance payment of 40 percent of a project’s amount to the contractor on the date the contract is signed. Such a payment would be covered by a performance bond, Jones says, so taxpayers would have nothing to lose if a company defaults.

“We have to look outside the box,” he says. “If we want maximum effect for the stimulus package, it is best that the money is put on the street into the hands of the people who are out there working and are going to spend.

“Construction is the second largest contributor to the revenue stream in Arizona, second only to retail. So, how the Arizona construction industry goes, so goes Arizona’s economy.”

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About Don Harris

Don Harris is a freelance writer in Phoenix who reports on a variety of business-related topics. He also serves as copy editor/reporter for Arizona Capitol Times. Immediately prior to joining the Capitol Times in 2001, for nearly nine years Harris was a public information officer for two state of Arizona agencies, first with the Department of Commerce and then the Department of Insurance. Harris also covered politics, organized labor and general news events for The Arizona Republic for 19 years, periodically serving as an assistant city editor. At The Republic, Harris covered the Arizona House of Representatives for 10 years, as well as five national political conventions and most major Arizona political races. He has received several journalism awards in Arizona and Chicago, where he had been a reporter for a daily newspaper for a number of years.