Must infrastructure spending shrink along with muniland?

By Cate Long
September 6, 2011

Paul Krugman at the New York Times has a good graph that shows a substantial withdrawal of government demand from the economy. He attributed this to the decline of federal government stimulus to state and local governments as the American Recovery and Reinvestment Act winds down. There is also another factor that is reducing government demand: state and local governments are issuing less debt, which in turn creates fewer building projects and construction jobs.

Municipal bond issuance is about $108 billion less this year than the same period in 2010. Several stories today highlight how states and cities continue to face fiscal challenges that cause them to lower the amount of municipal bonds that they issue for infrastructure projects.

Does reduced state and local infrastructure spending suggest a rationale for increased national infrastructure spending as hinted at by President Obama? Will his proposal be big enough to make up the shortfall of municipal spending on infrastructure? From Bloomberg:

Municipal bond sales this week and last are set to be the lowest for the period around Labor Day in seven years as issuers curb borrowing for infrastructure work.

Shrinking revenue prompted 69 percent of U.S. cities to delay or cancel infrastructure spending in 2010, according to a National League of Cities survey of local finance officers.

Cities also lowered spending with personnel cuts, service reductions, changes to health-care benefits and public-safety curbs, the October report showed. Eighty percent of finance officers forecast their cities will be less able to meet needs in 2011 than in 2010, the survey said.

Total municipal issuance so far this year has been $144.6 billion, according to data compiled by Bloomberg, $107.8 billion less than the same period in 2010, when federally subsidized Build America Bonds encouraged borrowing.

An AP story talks a little about the rationale for decreased muni bond issuance:

“There’s no question that this year some of the decline is simply budget problems that people have,” said John White, chief executive officer of the Public Financial Management Group, a Philadelphia-based investment advisory firm. “There is an atmosphere now where taxpayers are asking more questions about anything that’s debt-related than they have in the past.”

Muniland employment continues to decline

From the Bureau of Labor Statistics:

Government employment continued to trend down over the month (-17,000). Despite the return of about 22,000 workers from a partial government shutdown in Minnesota, employment in state government changed little in August (+5,000). Employment in local government continued to decline. Since employment peaked in September 2008, local government has lost 550,000 jobs.

Many states reduce school spending

School spending, passed through to school districts, is often one of the the biggest areas of state budgets. The Center for Budget Policy and Priorities has surveyed states on their school spending and published a report “New School Year Brings Steep Cuts in State Funding for Schools:”

Specifically, 21 of the 24 states analyzed are providing less funding per student to local school districts in the new school year than they provided last year, and 17 of the 24 are providing less than they did before the recession, after adjusting for inflation. In 10 of these 24 states, per student funding is down by more than 10 percent from pre-recession levels. The three states with the deepest cuts — South Carolina, Arizona, and California — each have reduced per student funding to K-12 schools by more than 20 percent.

@ Twitter Talk

Mark Thoma @MarkThoma Mark Thoma
Realtors should love school spending – Richard Green -icio.us/tzBzb9

Pedro da Costa @pdacosta Pedro da Costa

Golden Teeth: Medicaid Fraud in Texas Transfers Money From Poor to Wall Street  cjr.org/campaign_desk/…
Barrett and Greene @GreeneBarrett Barrett and Greene
Which U.S. #cities are gaining and losing the most #jobs @visually http://ow.ly/6lyH5
Health Literacy @Hlth_Literacy Health Literacy
US Natl Directory of Drug & Alcohol Abuse Treatment Programs 2011, Free http://ht.ly/6j8xk
Barrett and Greene @GreeneBarrett Barrett and Greene
Very cool website provides access to historical film clips from the National Archives  http://ow.ly/6l4y1 via @infodocket

 

+ Good links +

Washington Post: Postal Service warns it could lose $10 billion this year

Citiwire: America’s Gambling Craze: Playing with Fire

Plain Dealer: Ohio corrections system sells one prison to private operator, reorganizes four others

Sign On San Diego: SEC case dismissed against ex-San Diego official caught in pension scandal

Government Technology: Proposal Would Block Cell Phone Transmissions in California Prisons

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/