Investing Our Way To Recovery

 
National investments in infrastructure—especially transportation infrastructure—have been criticized as being too slow to have an impact in an economic downturn. There are several reasons why such criticism is less founded today, and why a properly designed recovery package can have a swift impact on jobs and the economy.

Economists often point to what are called “inside” and “outside” lags. The “inside” lag includes the time it takes to consider and pass legislation and to plan projects. The “outside” lags include the time it takes for those projects to put people to work and to be completed.

In the past, both the inside and outside lags have often meant that spending on infrastructure comes too late to help the economy.

For example, a 1986 study by the GAO found that only about a third of infrastructure spending has been put to use within a year of the 1983 jobs package, and about half was spent within two years.

First, Congress itself can reduce the “inside lag” by quickly passing a recovery package. Congress can also require that states and localities must begin projects within a certain time period, such as 90 days, from date of enactment. A strong signal from Congress today would allow states to begin to craft their priorities so they can be ready to go when stimulus is passed.

Second, in a time when there are huge unmet needs, spending can have a more immediate impact.
Virtually every state, locality, and school district will have already identified a variety of “ready-to-go” projects that are simply waiting for funding.

Many of these projects include maintenance and repair backlogs that exist because of inadequate funding. Congress need not dream up new projects, but can simply rely on projects ready to go.

Third, recent experience has demonstrated that major projects can be implemented quickly. Consider, for example, the tragic collapse of the I-35 bridge in Minneapolis that occurred in August 2007. The concrete for the replacement bridge began flowing last winter, and the bridge was recently opened for traffic—just over one year later and well ahead of schedule.

A survey by The American Association of State Highway and Transportation Officials finds that “state transportation departments could award and begin more than 3,000 highway projects totaling approximately $18 billion within 30-90 days from enactment of federal economic stimulus legislation.” Further, funding for school repair and construction could be put in place by this summer.

According to an NCES survey in 1999, 76 percent of all schools reported that they had deferred maintenance of their buildings and needed additional funding to bring them up to standard.
The total deferred maintenance exceeded $100 billion, an estimate in line with earlier findings by the Government Accounting Office

Fourth, given that a well-maintained infrastructure is in the national interest and that there are many projects that will need to be undertaken anyway (for example to repair or replace aging sewer systems), an acceleration of funding for the projects will address those needs.
Even if a project is not perfectly timed, the funding should not be considered to be wasted or ineffective.

Finally, infrastructure investments should be seen as an insurance policy against a prolonged downturn.

The stimulus package passed last January consisted primarily of rebate checks that have already been paid out and either spent or saved by consumers. Had that package included a boost to infrastructure investments (as EPI recommended at the time), we would today be seeing some job creation as a result of that investment boost.

While the future path of the economy is uncertain, we do know that employment weakness will continue for a substantial period of time, and that including an infrastructure component can provide some insurance against a prolonged downturn. If the economy is still weak in nine months, we don’t want to be in a position of again looking back and asking “what if…”.