Infrastructure must be part of the agenda

February 13, 2013

The need for more infrastructure must be brought back to center stage. Creating middle-class jobs “must be the North Star that guides our efforts,” President Obama said in his State of the Union address on Tuesday. More improved bridges, tunnels, ports and other shared infrastructure would be a great way to boost the economy, create jobs and improve the hard assets that support business and public activities.

Many infrastructure projects are taking place under the radar, guided and funded by state governments. These projects are usually designed and driven by states with some funding from the federal government as well as municipal bonds and toll or user fees. The bridge that carries I-75 and I-71 traffic over the Ohio River between Ohio and Kentucky is a perfect example of a joint project. This is a bridge in Senate Minority Leader Mitch McConnell and House Leader John Boehner’s districts that President Obama stood in front of last year to sell his $467 billion jobs bill. The bill was never approved by Congress. The bridge highlights the difference between the two parties on funding infrastructure. Bluegrass Politics blog covered the story:

Obama joked that it was “just coincidental” that he came to the bridge in the backyards of McConnell and Boehner.

He noted that one of four bridges in Boehner’s district is substandard and that McConnell has called for better infrastructure, but they have refused to endorse his plan.

McConnell made a floor speech on Thursday that dismissed Obama’s trip as ‘political theater’ and decried Obama’s jobs bill as a second stimulus package that would be no more successful than the first.

‘If a bridge needs fixing, by all means, let’s fix it,’ McConnell said. ‘But don’t tell us we need to pass a half a trillion dollar stimulus bill and accept job-killing tax hikes to do it.’

Who is right? Do we need a stimulus bill or national infrastructure bank to fund projects? Or can projects be funded from a mash-up of resources as they are now? Actually, we may not need either one. We don’t have a clear answer because there is no list of necessary projects and improvements that is available to the public. It seems a common approach in Washington, D.C. to ask for funding without any specifics on the way it will be spent. Do we need a trillion dollars in spending or three trillion dollars? We don’t know.

President Obama’s 2009 stimulus package, the ARRA, spent $783 billion over about two years through tax benefits, direct grants and entitlement spending. If the purpose of infrastructure spending is to give a shot of fiscal momentum to the economy, it is likely that spending needs to top $500 billion a year. The Associated Equipment Distributors commissioned a study at the William and Mary Thomas Jefferson Program in Public Policy to understand the short and long-term effects of public infrastructure spending on the U.S. economy. The report found (page 3):

Estimated Short-Run Effects

In the short-run, a dollar spent on infrastructure construction produces roughly double the initial spending in ultimate economic output.

The biggest effects of infrastructure spending occur in the manufacturing and business services sectors.

In better economic times, spending on infrastructure construction generates a larger return. Yet even in a recession, the overall effects of initial spending still double output as they ripple through the economy.

Estimated Long-Run Effects

Over a twenty-year period, generalized ‘public investment’ generates an accumulated $3.21 of economic activity per $1.00 spent.

Over twenty years, investing $1.00 in highways and streets returns approximately $0.35 in tax revenue to federal and state/local governments, of which $0.23 specifically accrues at the federal level.

Over twenty years, investing $1.00 in sewer systems and water infrastructure returns a full $2.03 in tax revenue to federal and state/local governments, of which $1.35 specifically accrues at the federal level.

So infrastructure spending has handsome returns, but it also has costs that are not always repaid economically. To achieve the strongest economic returns, we must examine projects using sound financial analysis.

The U.S. Chamber of Commerce is hosting a transportation infrastructure conference on February 13. The program says:

The U.S. still boasts some of the world’s finest infrastructure; however many of its global trading partners are advancing cohesive national strategies and making significant investments in identifying, prioritizing, and investing in public infrastructure.

This must be America’s first goal to identify and prioritize the additional infrastructure that  it needs. Finding the funding after our priorities are determined should be fairly easy.

Further: Bloomberg: Spending Won’t Fix What Ails U.S. Infrastructure: Edward Glaeser

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