The House Appropriations Committee yesterday amended its proposal for the spending portion of the economic recovery package, easing a use-it-or-lose-it provision that would have required states to obligate their funds from the stimulus bill within four months.

The committee was poised to vote on the entire bill as amended yesterday evening. It included $30 billion for highway and bridge projects, a combined $8 billion for clean and drinking water state revolving funds, and $1 billion for community development block grants, among other things.

When the bill came before the House spending panel yesterday, it included a requirement for states to obligate funds - by entering into contracts - within 120 days or else lose them. Under the amended bill, states would now have 180 days after enactment of the legislation to obligate at least half of their stimulus funding and two years to obligate the remaining amount.

Another amendment that was to be considered would remove the provision's deadline and put in its place a bonus and penalty system, rewarding states that followed the guidelines with a 5% bonus of state highway formula funds, and penalizing those that failed to meet the target by rolling back their funds for the following year by 5%.

The revisions were in response to recent criticism by the Congressional Budget Office that most of the bill's provisions would not provide stimulus in the near term, according to committee chairman David Obey, D-Wis.

"We'll do it the other way so that CBO cannot possibly justify an argument that we would be slowing down that money," Obey said of the bonus-and-penalty provision.

The CBO this week issued a report casting doubt on the efficacy of the stimulus plan being pushed by congressional Democrats. The office scored the proposal - projecting total costs and outlays through 2019 - and predicted that less than 50% of the funding would be spent within the next two years.

The CBO's analysis of the Appropriations Committee's stimulus spending provisions projected a two-year lag on outlays of more than 60% the total $358 billion budget authority that the committee's proposal would give to fund highways, state governments, housing, community development, and various infrastructure projects. There would be $110 billion in outlays in fiscal 2010 under the Democrats' plan, followed by $103 billion in fiscal 2011. Only $26 billion would be spent during this fiscal year, which ends on Sept. 30.

The Congressional Budget Office assumed for the purpose of its analysis that the package would be enacted in mid-February.

Obey dismissed the CBO's findings as "off the wall" during the markup session and said the office had "conveniently" focused on spending provisions that are "traditionally slow moving," instead of looking at the economic recovery impacts of Medicaid and tax cut provisions in the entire proposal.

Additionally, the office predicted that if the federal government set a deadline of 90 days for states to obligate their stimulus funding for highway, bridge, water and sewer, and other infrastructure projects, or risk losing its funding, that states would be unable to make the deadline and the funds would go unspent.

Obey said the committee set the deadline at 120 days in response to that argument, but the amendment eliminating the use-it-or-lose-it provision would remove the timeline altogether.

Sen. Jon Kyl, R-Ariz., cited the CBO's report during a Senate Finance Committee hearing yesterday, saying only $12 billion of the $30 billion appropriated for highway construction would be spent by 2012. Kyl said he questioned the use of such spending if it may not be spent immediately.

But President Obama's nominee for Treasury secretary, Timothy Geithner, said the report looked backward at how infrastructure aid was spent in the past.

"We think we can do substantially better than the CBO estimate suggests," Geithner said.

Kyl suggested that the federal government provide states with loans rather than grants to facilitate more fiscal responsibility.

Geithner said that approach may not be practical. "The overall thrust is to make sure that states are not forced to cut back dramatically at a time of national weakness and peril," he said.

Obey warned yesterday that unless the committee passed its spending bill by the end of the day, it would have no hope of being enacted into law by the end of the month.

However, Obama and congressional leaders have indicated for weeks that the wait for a stimulus bill may be stretched into February.

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