According to this USA Today column, it certainly appears to be the latter:
Under pressure to spend stimulus money quickly, many states are using the federal funds for short-term projects and to fill budget gaps rather than spending on long-term improvements, according to a report by congressional investigators.
The report, scheduled to be released Tuesday by the Government Accountability Office (GAO) at a House oversight hearing, also says many states aren't meeting some goals and requirements of the economic recovery program. Some states, for example, are not sending transportation funding to the most economically distressed areas, and they are using education funds to prevent layoffs rather than fund innovative new programs, the report says.
As required by the $787 billion stimulus law, the GAO is monitoring stimulus spending in 16 states and the District of Columbia that will receive two-thirds of the federal funds. It reports to Congress every two months.
The report says that as of mid-June, states had received about $29 billion of the estimated $49 billion in stimulus funding they are scheduled to get before the federal budget year ends Sept. 30. More than 90% of the money given to the states so far is for Medicaid and a fund meant to prop up states' budgets for schools and other basic services such as public safety.
Republicans such as Rep. Darrell Issa of California, the ranking GOP member of the oversight committee, have said the nation's rising unemployment rate means the stimulus package isn't working. "By any standards, the expectations that accompanied the stimulus have fallen far short," Issa spokesman Kurt Bardella said in an e-mail Tuesday.
Some Democrats, such as Sen. Sheldon Whitehouse of Rhode Island, have raised the prospect of a second stimulus package. In an interview with ABC News on Tuesday, President Obama said improving the economy is "something we wrestle with constantly" but did not say whether he would support a second spending package.
Read the whole thing for a sobering reminder of how easily politicians deceive the gullible and how pressure for government to "do something" never fails to produce bad policy and worse spending.
Recall that D.C. politicians sold the stimulus as an investment in America, an investment in vital infrastructure, transforming our economy, yada yada. Instead, what we really got was a large bag of fiscal crack handed over to spending-addicted state policymakers to burn on sustaining the largesse that already exists. At the very same time that they need to be taking dramatic steps to cut spending, reduce the size and price of government, and get their fiscal houses in order, the feds stepped in like an emotionally weak mother to enable state policymakers to avoid the necessary pain of breaking the addiction. Instead of wads of cash, the states needed some tough love from D.C., and D.C. utterly failed.
In fact, only in the dystopia that is D.C. could one look at such an obvious failure and have the stones to suggest that we actually do it all over again. Luckily, new polling suggests that 60 percent of the American public, at least, isn't ready to repeat the insanity.