Stimulus is now $75 billion more expensive

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- The Congressional Budget Office hiked its forecast Tuesday for how much the stimulus bill will add to the nation's deficit, raising its estimate by $75 billion to $862 billion.

The American Recovery and Reinvestment Act, passed in February 2009, was initially believed to have a price tag of $787 billion. With the glaring exception of skyrocketing unemployment compensation costs, the CBO said the Recovery Act's effects on government spending and revenues have closely followed its initial estimate for 2009 and 2010.

The vast majority of the increased deficit impact is linked to anticipated spending in 2011 to 2019. It now appears to the Budget Office that stimulus will have a larger impact on the deficit in the years to come based on changing economic factors since the bill was signed into law 11 months ago.

Unemployment compensation: In CBO's initial estimate for the Recovery Act, the unemployment rate was expected to cap at 9%, but the rate rose above 9% in May and soared above 10% in October.

As a result, the CBO said unemployment compensation in 2009 and 2010 will cost $58 billion. That's $21 billion more than initially expected.

Food stamps: Nearly half of the additional $75 billion comes from more spending on food stamp benefits than originally anticipated. CBO said in its February 2009 estimate that the government would spend $20 billion on increased food stamp benefits through 2019, but it now believes that amount will be closer to $54 billion.

Food stamp benefits are adjusted incrementally every year as inflation rises but the maximum food stamp benefit for a family of four was jacked up by 13.6% to $668 per month as part of the Recovery Act. That maximum benefit was to remain at $668 per month until inflation caught up, at which point the normal incremental adjustments would begin again.

Last February, CBO had a much higher inflation projection than it does now. It believed that inflation would catch up with the $668 benefit by 2013. "But CBO now believes inflation won't catch up with the benefit until 2019, which means the Recovery Act's food stamp benefit increases will add $34 billion more to the deficit than initially anticipated.

Build America Bonds: The rest of the $75 billion comes from the Build America Bonds initiative. The popular stimulus program allocates federal money to pay state and local governments for 35% of their interest costs on taxable government bonds issued in 2009 and 2010 to finance capital spending.

CBO said that more than $60 billion in new bonds have been issued since the program began in April, which is "significantly higher" than original estimates. As a result, CBO added $26 billion to its projection for the cost of the program, which grew to a total of $30 billion. That's more than seven times higher than the initial estimate.

Lower projections: The CBO report also included several lower projections from its original forecast.

The largest decrease in cost was for the Medicaid match program, in which the government helps states pay for Medicaid expenses. The CBO now estimates that the program will cost $3 billion less than originally thought. To top of page

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