Ken Silverstein | Sep 14, 2010

 President Obama's most notable legislative victory is under attack by government auditors. Billions that have been targeted to rebuilding the nation's infrastructure are still sitting on the sidelines.

That's easy fodder for the White House's critics who will say that such largess is not only lavish but that it will not serve its intended purpose, which is to generate a 21st Century economy centered on the growth of clean energy. Setting aside the political points, the allocation of nearly a $1 trillion dollars in total stimulus spending is meant to flood the economy with dollars and thereby help produce or sustain job levels.

Both the arguments for and against the stimulus have their pros and cons. And while the administration's own U.S. Department of Energy Inspector General's office is critical of the fact that funds remain unspent, others in the executive branch are pointing out that the naming of projects has spawned an unstoppable economic wave. That is, once jobs are announced, contractors and subcontractors begin gearing up.

"We're planting the seeds of innovation, but private companies and the nation's top researchers are helping them grow, launching entire new industries, transforming our economy and creating hundreds of thousands of new jobs in the process," says Vice President Joe Biden.

But the Energy Department's Inspector General Gregory Friedman wrote that only 8 percent of the $3.2 billion that has been set aside for energy efficiency projects such as weatherization of homes has been spent. Not only do the state and local government officials in charge of spearheading the improvements lack the qualified staff to oversee the gesture but some cumbersome federal rules are also standing in the way.

For example, the report says that only a small fraction of the 600,000 homes that are to be weatherized have been completed, although the tempo is picking up. All of the money is supposed to be distributed by 2012.

Regardless, the government does not want to be accused of rushing headlong into this whole thing, resulting in waste and fraud. The process was always intended to be deliberate. That's may be preferable given that economy is not expected to fully recover for a few years, necessitating a steady trickle of funds.

Still, "The amounts requested by recipients either to pay for projects and activities that had already been completed or were expected to be completed in the near future were insignificant compared to the amount of funding obligated by the Department to the recipients," writes Inspector Friedman. "Spending delays by these recipients dramatically affect the success of the Program."

Slow Pace

The inspector general's office goes on to say that such plodding has resulted in the saving of 2,265 jobs in the second quarter of 2010. That's just one job per grant delivered - something that Friedman calls "inconsistent" with the administration's goals.

President Obama's message is that only the federal government has the resources necessary to stimulate demand during deep recessions and that it must use that financial muscle to try and help restore confidence. Ultimately, however, the public sector must step aside after it has catalyzed the economy and let the private sector take over.

The aim has never been to unleash billions without first scrutinizing every project to ensure its worthiness. And beyond establishing calm and creating an aura of certainty, the funds are also intended to build a clean technology-based economy over time. Toward that end, the auditing process must describe the precise nature of the projects, the amount of money requested and who gets what. But it does not require recipients to say what subcontractors that they are paying.

At the same time, people need to be trained and the resources must be available so that the ideas actually reach fruition. Outside of the process hurdles, there are questions involving business development, tax policy and energy laws.

The nearly $1 trillion in federal stimulus monies were divided in roughly threes: tax cuts, block grants to state and local governments and investment in the nation infrastructure, which centers on modernizing electric utilities and fuel supplies.

Utilities, understandably, have an innate interest. About $83 billion in tax incentives, loan guarantees and government grants for investments in energy efficient technologies and renewable energy programs are being made available. An additional $4.5 billion is targeted to smart grids that allow for two-way communications between power companies and their customers as a way to reduce consumption and increase reliability.

Consider the Sacramento Municipal Utility District, which will install 600,000 smart meters and businesses there by the end of next year: It was awarded about $128 million to do so, one of about 100 utilities to get money. Those funds not only help refurbish the district's energy infrastructure but it also puts people to work.

"Before the stimulus bill passed in February 2008, we had lots of clients who were slowing down and mothballing projects until the financial markets cleared," notes Bill Holmes, partner in the law firm of Stoel Rives.

The stimulus plan is a hot political topic. Critics are focused on the pace of distribution but eventually they must evaluate the results. The process is no doubt frustrating. But if the strategy works to build a New Energy Economy while also lifting the nation out of despair, the president's objectives will have been met.

 

To subscribe or visit go to:  http://www.energybiz.com