The right way to spend billions on infrastructure

December 10, 2008

diana-furchtgott-roth1– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The opinions expressed are her own. —

With President-elect Obama and the Democratic congressional leadership both viewing infrastructure spending as a magic stimulus that will end the recession, such spending will happen.  But will Congress write a sensible, well-targeted bill—or will timeliness and efficiency lose out to old-time politics?

Obama declared in his December 6 radio address that he wants “the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”  Moreover, House Transportation and Infrastructure Committee Chairman James Oberstar, Democrat of Minnesota, has outlined plans to spend $45 billion on transportation projects alone, never mind the schools, computers, and other public facilities listed hopefully by Obama.

No matter that the economy needs stimulus right now, and infrastructure expenditures take time to plan and execute, with funds spent over many years.  Nor that the country’s 10.3 million unemployed workers might lack the skills needed to lay down roads and erect bridges.

In the past, federal and state governments allocated infrastructure spending politically rather than by return on investment.  Taped conversations of Illinois governor Rod Blagojevich suggest that an engineering company raised $60,000 for the governor in exchange for his support for an infrastructure bill, and a concrete company was asked for $500,000 for approval of a $1.8 billion toll road.

We can do better than allow transportation spending to be guided by politics and influence-peddling.

Here are some guidelines for an effective, sensible infrastructure bill:

•    Repair existing infrastructure first.

Infrastructure maintenance saves money, gets funds out faster, and should be a top priority.  If bridges and roads are allowed to deteriorate, not only do they become dangerous, but their future repair will be far more expensive.

•    Aim for long-run employment and efficiency results.

We can seek projects that not only create construction jobs in the short run, but that will increase Americans’ mobility, enabling them to have a wider choice of jobs in the future by widening economic markets.

•    Evaluate costs and benefits in advance.

It’s disappointing that of the Department of Transportation’s $68 billion in spending in 2008, only its relatively small $1.7 billion New Starts program for public transit systems uses evaluation criteria to measure prospective effectiveness.  New Starts could be a model for evaluating future infrastructure spending. Projects must demonstrate projected economic effects such as mobility improvements; environmental benefits; cost effectiveness; and operating efficiencies.

•    Leverage federal funds through public–private partnerships to multiply their payoff.

Through partnerships with private companies, federal and state government can get more accomplished.  Not only do partnerships result in additional funding, but private companies, through price signals, have a better idea of what consumers need and are willing to pay for.

Price signals are especially useful in highway transportation, where public-private partnerships are already working, because of new technology that collects tolls without slowing down drivers, already applied in Europe.

•    Develop new toll systems to reduce congestion

We can invest in new road pricing GPS-based technology to reduce time wasted waiting in traffic jams on congested roads. Driving at peak hours, or along certain congested roads, would cost more, encouraging motorists to shift to off-peak times for less-urgent trips.

For example, Southern California’s SR 91 has express lanes with electronic tolling at variable prices designed to maximize traffic flows. These lanes carry twice as many vehicles as free lanes during hours with the heaviest traffic. And vehicles go three times faster than in free lanes.

It’s difficult to generate short-run economic stimulus through infrastructure spending.  But if we’re going to spend billions on infrastructure, let’s make sure we do it right.

You can contact Diana Furchtgott-Roth at dfr@hudson.org. For previous columns by Diana Furchtgott-Roth, click here.

4 comments

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Infrastructure spending is a bit like public-participation. Everybody feels that with more of it, our problems will disappear. Some folks think only if we could apply more regulations to protect the public, our problems will disappear. But surely all of us have encountered cities designed for growth that have great infrastructure but low populations and high unemployment.

Infrastructure is a means to an end rather than an end in itself. There is significant likelihood of wasted infrastructure spending. My argument is, if we focus on innovation, infrastructure will take care of itself. When people consider something important enough, they will build roads and highways. So beyond the basics, I would be really careful about going overboard on infrastructure spending.

Posted by Don | Report as abusive

The inherent problem with infrastructure maintenance and building is that it is an elitist project. Big unions working for big companies (same problem as the auto industry) are inefficient, bloated, politically connected and prone to indifference. Big union jobs do not help the poor working stiff on main street. In fact, they do quite the opposite by restricting the labor pool. The same with big companies which repatriate their profits back to headquarters, and leave nothing in the local economy because the local guy can never get the contract. Infrastructure sounds like a good idea – in practical terms, it never works. The fat get fatter, and the poor get poorer – which is not an economic stimulus.

Posted by turismo | Report as abusive

Bailing out extremely sick financial world is not a soluton to this reccuring problem.Main culprit is corporate-capitalist LPG culuture Govts who are squandering away poor-middle classs people money to give a life boat to the Culprits-CEO,Auditors,Bankers who have been cream awawy the juice.Occassional mumur of control is heard but not so loudly.Everyone is happy with Neo-Kenesyia ecconomy fuelled by incresing consumer spending based on greed & lust- which will ead to modern civilisation demise. JRB

Posted by Dr.J.R.Banik | Report as abusive

The question is whether or not infrastructure projects will create short to medium term jobs for American workers. There is no doubt that much infrastructure work needs to be done, but financial service workers or retail workers will not be building bridges. Construction workers will do the building. Even if efforts are made to ensure hiring of legal workers for government projects, the deficiency created in the private sector will be filled by undocumented workers.

Posted by george | Report as abusive