CBO Recovery Act Cost Estimate Rises to $862 Billion

[1]I'm sure you all already read all of the Congressional Budget Office's 2010 Budget Outlook since I blogged about it the other day [2], but in case you missed it, the outlook also included a special section [3] on the Recovery Act. The main take away from this section is that the CBO predicts that the overall cost of the Act will be higher than initially estimated, thanks to a couple of factors.

The first factor is higher unemployment. When the CBO initially estimated the Recovery Act's cost, it predicted an 8% unemployment rate, not today's 10% rate. This higher rate means that the unemployment insurance provision of the Act will cost more as more people qualify for unemployment; $21 billion more in fact, over the life of the Act.

The second factor is the food stamp program. There's a very complex reason why the program's cost is increasing, involving inflation and baskets, but explaining it would take up a couple pages, so just take CBO's word that it's going to cost an extra $34 billion.

Finally, another $26 billion in additional spending comes from the Build America Bond program which, according to the CBO, "pays state and local governments for 35 percent of their interest costs on taxable government bonds issued in 2009 and 2010 to finance capital spending." The program is more popular than the CBO initially estimated, generating more costs over the next ten years.

All told, the CBO is estimating that the Recovery Act will cost $862 billion over the Act's lifetime, up from $787 billion. The CBO helpfully provides the below chart to show how these costs are broken down over time by program.

[4]

Note that this year, FY 2010, will be by far the most expensive year of the Act. Although that shouldn't be too surprising since it's the first full year since Congress passed it.

Surprisingly, the news of a higher Recovery Act price tag has not created much of a stir. Earlier today (a full three days after this report came out!) I got a press release talking about Obama's "$787 billion American Recovery and Reinvestment Act." These things take time, I guess.