Why federal construction spending doesn’t translate to GDP growth

September 8, 2011

On Labor Day, President Barack Obama vowed to put “our construction workers back to work rebuilding America ,” a theme he is expected to repeat in his address to Congress tonight.

There’s plenty of rebuilding to be done. But a combination of top-heavy bureaucracy, union rules, cost-plus profits and graft have made recent federally funded construction projects insanely expensive and slow. The result is more national debt without much contribution to economic growth. Consider:

*Boston’s Big Dig, mostly funded by the federal taxpayer though benefits went exclusively to Massachusetts, was supposed to take 10 years at a cost of $6.2 billion in today’s dollars. Instead it took 21 years and cost $22 billion.

*Seattle wants a 1.7 mile highway tunnel, a kind of Little Dig, that would mainly be paid for by federal taxpayers though the benefits would go exclusively to Washington State. The tunnel is priced at $2 billion, more than a billion dollars per mile. A billion dollars per mile is $16,000 per inch.

*San Francisco wants a new 1.7 mile subway line that would mainly be paid for by federal taxpayers, though the benefits would go exclusively to California. The line is priced at $1.6 billion, just shy of a billion dollars a mile.

*The Washington, D.C. metro is building a mainly federally funded extension from its current Virginia terminus to Dulles Airport. The next leg of the project was just priced at $3.1 billion for 11.5 miles – that’s $270 million per mile, not for subway but for above-ground rail on the median of a highway the public already owns. The price is so extreme that even Secretary of Transportation Ray LaHood, representing an administration that loves to spend borrowed money, says the price must be cut.

*My home county, Montgomery County, Maryland, just outside Washington, D.C., wants $1.9 billion for a 16-mile trolley line which would be mainly funded by federal taxpayers though the benefits would go exclusively to Maryland. That’s $121 million per mile for simple above-ground construction of trolley line.

*The federal government just gave contracts to renovate the Reflecting Pool that fronts the Lincoln Monument. The renovation is expected to take 18 months — longer than it took to build the pool in the first place, 90 years ago when machinery was much less efficient.

*Baltimore wants the federal government to fund a new light-rail line for the city. Set aside why taxpayers in Nebraska or Wisconsin should pay for a system solely for the convenience of Marylanders. In line is projected to cost $2.2 billion for 14.5 miles, about $2,400 per inch, entirely for above-ground work. Construction is projected to require nine years. That’s a pace of 1.6 miles per year. At that pace the First Transcontinental Railroad, completed in 1869 using far less machinery than available today, would have taken more than a thousand years to build.

*On the George Washington Parkway that runs along the Potomac River in the nation’s capital, there is a Depression-era humpback bridge that needed replacement. In January 2008, federally funded contractors began work on this small, low, four-lane, short bridge (80 yards) that crosses a shallow channel. Almost four years later, the job still is not finished. In the 1950s, the three-mile long, 140-foot high, seven-lane Tappan Zee Bridge, spanning the Hudson River at a deep point, took less time to construct. At the pace of the humpback bridge project, the Tappan Zee Bridge would have taken two centuries to build.

There are more examples in this vein. There are pots full of federal funny money – what Nancy Pelosi and others in Congress want Obama to back. Okay, she calls the idea an “infrastructure bank,” not a “pot of funny money,” but the principle is the same. When the funding comes from borrowing by Washington: then businesses, unions and local petty officials have a self-interest in running up the cost while dragging their feet on completion.

Another reason such wasteful and time laborious projects can occur is because of the Project Labor Agreements – what once were called Davis-Bacon regulations – which essentially mandate union wages and work rules on most federal construction projects. Studies show that PLAs add at least 20 percent to construction costs. And it’s work rules, not wages, that are the killers. If you’ve ever driven past a highway rebuilding area where there are large numbers of laborers but no one doing anything, chances are you observed a work rule that required most tradesmen to stop until some trivial task was performed by a specialist.

Congress has gone back and forth on Davis-Bacon/PLA regs for a generation, usually requiring them under Democratic but not Republican administrations. Shortly after taking office, Obama imposed PLAs on most federal construction jobs. This is a reason the infrastructure funding of $830 billion in the 2009 stimulus bill didn’t buy much infrastructure: though it did pay lots of workers to stand around, and lots of construction company executives to sit in air-conditioned offices browsing the Internet.

The taxpayer-be-damned aspect of inflated, slow federal construction work is only one problem. Because projects take so long and cost so much, only a few projects can be afforded and their contribution to economic growth is small. Unless there is fundamental reform in federal construction contracting, having Washington throw more borrowed money down this hole will not benefit the economy much.

The horror stories in this column do not mean government agencies cannot do good work. Have a look at the sparkling new Patriot High School in Nokesville, Virginia, a magnificent 94-acre state-of-the-art facility for 2,300 students, with energy-conservation features, a turf stadium, a large pond for science classes and on-site driver-education range. The school cost $84 million and was completed in two years, which means taxpayers got their money’s worth. Prince William County, Virginia, had to fund the school itself from local taxes so drove a hard bargain. When federal construction contracting is involved, the perverse incentive is to drive the worst bargain possible.

Oh, and the 55-year-old Tappan Zee Bridge? It needs replacement. New York state officials recently asked the federal government to pay most of the projected $16 billion for a new bridge. Converted to today’s dollars, the existing Tappan Zee Bridge cost $655 million.

Photo: The U.S. flag is seen near a work crew demolishing a destroyed apartment building in Joplin, Missouri August 15, 2011. REUTERS/Eric Thayer




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Um… GDP = C + I + G + NX

This is an accounting equation which means, by definition, it must balance. I’m at a loss as to how, or why, you think federal government spending (even if it’s wasteful) should be removed from that equation and not contribute to GDP. That formula is what one learns within the first ten pages of any Macro 101 book. You, as a ‘visiting Brookings scholar’ and ‘public intellectual’ ought to be able to grasp that.

Posted by Sprizouse | Report as abusive

Just listing a bunch of projects that ended up costing more money than they projected doesn’t prove anything. I agree that many of the federal rules and regulations end up making projects cost more and take longer, but that can be fixed. People and foreign governments are literally paying the US government to borrow money (10 year treasury yield is down to record lows),we have millions of unemployed and we a trillion dollars worth of repairs and upgrades, there really isn’t a legitimate reason not to be doing infrastructure work. The Obama team really failed when most of the stimulus money was used for poorly designed tax credits and not construction spending.

Furthermore, and infrastructure bank should, in theory, provide much more coordination between federal, state and private dollars which will lead to more private funding for infrastructure which is a good thing.

Posted by MV53 | Report as abusive

Only 3 Republican Senators voted for the stimulus bill, back when the economy was in a free-fall. And those 3 were barely brought in. Without them, there would have been no stimulus at all.

Calling it Obama’s stimulus is both dishonest and stupid. Yes it was flawed. It was flawed, the healthcare legislation was flawed, the financial regulations overhaul was flawed, the debt crisis was flawed NOT because Obama wanted them to be flawed but because he was forced to deal with a nihilistic united opposition party the likes of which have not been seen in the Union since the 1850s. Obama got the best deals he possibly could. He never once has gotten what he wanted.

Look at the electoral map. It’s the North vs. the South, the Coasts vs. the Heartland. The United States is teetering on the edge of another Civil War. A much messier one without clean borders. The apocalyptic ignorant hyperventilating fundamentalist idiots are going to destroy us from within.

No, that’s wrong. They already have destroyed us. We are just watching the mountains crumble in slow motion.

Posted by BajaArizona | Report as abusive

I don’t frequently side with Mr Easterbrook without internal protest, but find myself gravitating toward His opinion in this case. I do think construction will get quite a boost from the year’s weather disasters, fueled by public, as well as private dollars. It’s a horrible way to help rebuild our economy, but at least a beaten down segment will get a chance to begin earning again

Posted by auger | Report as abusive

In response to a couple of posters. Counting deficit spending by the government in GDP is misleading. It would be like counting a loan as income. While both allow you to spend more today they have to be paid back which reduces future earnings. In addition the point of the article here is to make it clear that spending by the federal government is often times inefficient. We aren’t better off by having a $10 million dollar bridge cost $100 million. Though to count government spending in GDP would be to make that claim.

I find blaming Republicans for the stimulus bill a bit absurd. Democrats had unprecendented majorities in both Houses of Congress, including a fillibuster proof 60 in the Senate. Blaming Republicans for legislation in such a circumstance means that you will always blame them no matter what.

Posted by AustinG | Report as abusive