The Consequences of Underinvestment in Infrastructure

trafficTraffic jams may be the least of our worries according to a recent report released on Tuesday by the American Civil Society of Engineers. The report, entitled “Failure to Act,” focuses on the economic cost of continued underinvestment in our nation’s infrastructure. It estimates that by 2020, infrastructure woes could cost the U.S. 3.5 million jobs and a projected $3.1 trillion loss in GDP. Overall, according to the report, “The results show that deteriorating infrastructure, long known to be a public safety issue, has a cascading impact on the nation’s economy, negatively affecting business productivity, gross domestic product, employment, personal income and international competitiveness.” However, with an additional investment of $157 billion a year between now and 2020, the U.S. can eliminate this drag on economic growth.

Similarly, the San Francisco Federal Reserve has found that increasing federal highway grants can provide substantial economic benefits. The article states that highway grants led to a fiscal multiplier in which “each dollar of federal highway grants received by a state raises that state’s annual economic output by at least two dollars.”

While appropriate infrastructure spending is an essential part of economic growth and prosperity, Washington also must reign in its out-of-control deficit and focus on essential budget cuts. The current situation has made talks of spending across the board less likely. However, this tension between budget cuts and necessary spending is a thorny issue that must be addressed if the US is to maintain high level economic productivity.

Posted by: Matthew Goldberg

Sources: Reuters, American Society of Civil Engineers, Federal Reserve Bank of San Francisco

Photo Credit: New York City Traffic courtesy of flickr user Scott Mcleod

The Tangible Effects of Austerity

One of our recent blog posts discussed the debate about austerity in Europe and here in the United States.  But what specific components of the economy will be affected by austerity measures and what effect would those measures have on the U.S. economy as a whole?

Both Europe and state economies within the U.S. have tried their hand at significant budget cuts so it’s worth examining the fallout in both cases.  Budget cuts have been heavily focused on areas like public education (both higher and lower), infrastructure, and research and development.  This is not by coincidence.  These areas, especially education, along with social welfare programs usually make up the majority of discretionary spending in state governments (particularly in large states like FL and PA) and state legislators and many governors have made public promises to not raise taxes under any circumstances.  Without the prospect of raising revenue through taxes, austerity (i.e. reducing deficits) can really only come in the form of budget cuts, and those cuts are most likely to come from those sections of the budget listed above.

Unfortunately, spending in education, infrastructure and manufacturing, and innovation is necessary for American competitiveness in a global economy and many have argued, most notably President Obama and his economic team, it is a surefire way to stimulate the economy.

The macroeconomic effects of the austerity experiment in Europe and at the state-level are muddled enough in terms of growth and job creation that it has been declared both a success and failure.  As such, the debate is still in full swing at the federal level as the U.S. approaches its so called “fiscal-cliff” at the end of this calendar year.

The cliff, and the debate itself, will have several components.  The first is whether or not to extend the Bush tax cuts and if so, to whom?  Similarly, programs for payroll tax deduction ($120 billion) and extended jobless benefits ($40 billion) will expire at yearend unless they are renewed.  And lastly, the types of budget cuts that have occurred in state and European governments discussed above are set to go into effect with mandatory 10% cuts on all discretionary spending beginning January 2013– reducing federal expenditures by $85 billion.  The mandatory cuts are part of the Budget Control Act that was passed last year after the debt-ceiling fiasco; the compromise that ended the standoff mandated that the cuts begin in January 2013 if Congress had not agreed to a debt reduction plan by that time (which of course, they have not).

With that date approaching, the austerity debate will become as prominent in Washington as it is in Brussels and in state capitols across the country.  If the mandatory cuts and tax increases occur, the nation’s GDP will likely lose several percentage points.  But even if there is a resolution, budget debates will continue and education, infrastructure, and R&D will all be on the chopping block.  The budget proposed by Rep. Paul Ryan (R-WI), the Chair of the House Budget Committee, has become the de-facto fiscal platform of the Republican Party and proposes significant cuts to all the areas discussed above.  Meanwhile, President Obama continues to insist that spending in such areas is a national priority.

The role of things like education, innovation, and infrastructure are central to America’s economy in a globalized market.  Policy makers would do well to carefully consider and debate any cuts to those areas and not simply sacrifice them for politically harder issues like defense spending and tax reform.

Posted by: Sean Norris

Sources: The New York Times, Forbes, CNN, The Guardian, The Telegraph

Photo Credit: Paul Ryan courtesy of flickr user Gage Skidmore

Post-Mortem on the Congressional Transportation Bill

Capitol Hill was in a self-congratulatory mood at the end of June when they managed to pass a transportation bill right before the session came to an end.  The bill was passed one day before current federal transportation funding was set to expire and it authorizes an additional 27 months of spending at current levels (about $120 billion).  The bill’s authors claimed it will save approximately 3 million jobs that would have been lost if funding dried up.

Obviously, the bill is better than not continuing funding at all (which was a distinct possibility). But no one is pretending that this is an ideal bill.

The bill is pretty bare-bones.  In negotiations to get the necessary votes from both sides, negotiators cut important reforms like giving new monies to aid mass-transit systems (which more and more Americans are utilizing), shifting more money to fixing existing roads rather than building new ones (analysts have long argued that it’s more cost-effective to repair the roads we already have) and establishing a new coordinated policy that linked up freight and ports.  At the end of the day, all the bill does is extend current spending levels for another 27 months on mostly the same highway projects.

But that is where the real problem is.  Congress could not bring themselves to lower federal transportation spending at a time when the construction sector is clamoring for jobs.  But they cannot responsibly increase it either because the funding mechanism is broken.  Revenue for the Highway Trust Fund is derived almost entirely from the federal gas tax and distributed to all 50 states. It covers nearly 80% of the capital costs of federally-funded transportation projects, with states carrying the remainder.  But the gasoline tax isn’t what it used to be.  The tax currently stands at 18.4 cents a gallon but it hasn’t been raised since 1993, which puts it at about 11 cents, adjusted for inflation.  This, combined with the fact that cars are becoming more and more fuel-efficient, means that the source of revenue the federal government uses to pay for this kind of spending is disappearing.  For this bill alone, the gas tax will only bring in $72 billion of the $120 billion allocated for the next two years of spending.  The rest has to be taken from future revenues to fund current spending and other fiscal gimmicks such as collecting $2.8 billion that came from ending the tax deduction for “black liquor,” a byproduct of paper manufacturing.

Not only does funding transportation is such a way prevent any long-term bill that would give the states long-term infrastructure plans and long-term assurances to the manufacturing industry, but it also ignores the fact that the problem is only going to continue to get worse.  Congress will have to eventually raise the gas tax — or, alternatively, index the current gas tax for inflation. A few senators, like Mike Enzi (R-Wyo.) tried to offer amendments to do just that. But those went nowhere.

Infrastructure spending is a key facet of economic competitiveness for the United States.  More immediately, is also offers an area for strong job growth.  The fact that federal funding for that sector is in such poor health is something that needs to be addressed sooner rather than later.

Posted by: Sean Norris

Sources: The Washington Post, CNN, The New York Times

Photo Credit: Highway courtesy of flickr user chberge

You are Invited: Beyond Smart Cities: How Cities Network, Learn, and Innovate

Please join the Comparative Urban Studies Project for a discussion of

 

Beyond Smart Cities: How Cities Network, Learn, and Innovate

featuring

Tim Campbell, The Urban Age Institute

 Neal Peirce, Citiscope Project and Washington Post Writers Group

 Fernando Rojas, The World Bank

Thursday, May 24, 2012

3:00 – 4:30 p.m.

6th Floor Moynihan Boardroom

Woodrow Wilson International Center for Scholars

To achieve the real promise of smart cities—that is to create the conditions of continuous learning and innovation that has led cities like Seattle, Barcelona, Ahmedabad and Curitiba to keep pace with economic change—we need to understand what is below the surface of smart and connected places. Yet, city learning is a blind spot in policy on urban development and city innovation. Few cities and even fewer national institutions give much attention to the civil mechanisms behind innovation. Collective learning is one of them, but it is not only what is learned; a key factor is how learning takes place in cities.

Join us in a discussion of the findings of Tim Campbell’s latest work. Beyond Smart Cities raises as many questions as it answers. Some of the most important for future work involve a deeper analysis of networks of learning elites, the elements in efficiency of learning, how a market of exchange might be organized and regulated, and longitudinal and cross-city experience of learning outcomes

For more information, click here.

 

Posted by: PAGE Staff

Investing in U.S. Infrastructure

America’s infrastructure is aging.  What were once world class facilities and engineering marvels are now severely outdated behemoths in need of revitalization.  Most experts, from economists to engineers agree that significant new investments that strengthen the skeleton of the American economy are needed to remain competitive into the future.  This includes everything from energy grids to water systems to transportation.

The transportation system tends to be the most widely discussed aspect of infrastructure investment and redevelopment.  It is critical to both the health of the United States economy and its citizens at large.  Given current high levels of unemployment, investment in rebuilding transportation infrastructure also has the added benefit of job creation because much of the construction work still remains labor-intensive.  Because these projects are expansive and long-term, they have the ability to employ persons on a large scale, something the American economy needs desperately.  A plan for opening the door to greater infrastructure investment in transportation was outlined in a recent briefing by Scott Thomasson of the Renewing America Project.

According to Thomasson, a comprehensive, long-term investment plan still eludes policymakers to the detriment of the American economy and its workers.  As an example, he notes the continued failure to pass a surface transportation bill since 2009 as a complete plan that would lay the groundwork for this massive undertaking.  He estimates that the costs of modernization will total at least $2.3 trillion over the next ten years, yet public investment infrastructure remains half of what it was fifty years ago.  These budget problems at all levels of government continue to pose the biggest obstacles to necessary investment.  There are already many good options on the table to promote investment such as President Obama’s infrastructure bank, the leveraging public-private partnerships (PPPs) to spread costs and risks, and developing alternative forms of financing.  However, Thomasson recognizes that these are likely to fail due to disagreements in Congress.  “Grand bargains” are increasingly unlikely to succeed as well.

To unlock investment, Thomasson argues that Congress can take smaller steps to get the ball rolling through alternative financing and more streamlined regulation.  First, states should be given greater flexibility to finance various projects through new revenue sources and the increased use of PPPs while taking steps to reduce state borrowing costs.  Second, enhancing existing financing programs and cutting bureaucratic tape to hasten project proceedings would do well to ensure that many proposals are put into practice.

Thomasson admits that none of these steps are silver bullets, but they at least begin to substantially address infrastructure needs and encourage initial investment that the country desperately needs.

Posted by Brian Gowen

Sources: Council on Foreign Relations

Photo credit Viaduct Demo courtesy of flickr user WSDOT

Budgeting Innovation

Today marks the release of President Obama’s proposed budget for Fiscal Year 2012.  Every year the budget announcement  is marked by jockeying and spin on both sides of the aisle.  While the annual unveiling of the budget serves to spark ample discussion as to what an administration is prioritizing, it is worth exploring what the budget has to say about innovation.

Within this year’s budget is a section titled, ‘Competing and Winning in the World Economy.’  The proposals in this section, focused on innovation and American competitiveness, include preparing 100,000 STEM teachers, increasing investment in R&D, updating infrastructure, and doubling American exports.  However, a number of the President’s proposals appear to face an uphill battle in Congress, including investments in energy innovation.

Given the current fiscal constraints the federal government is in, the President’s budget also takes into account the costs of these investments.  In order to increase revenue the budget proposes to reduce the deficit by $10 billion through spectrum reallocation.  Critics, meanwhile, claim that this figure might not be accurate as the estimates vary as to the  revenue to be generated.

Posted by: Clark Taylor

Sources: marketplace, the hill, whitehouse.gov

Photo Credit: P071310PS-0302 courtesy of The White House’s photostream

Education, Innovation, and Manufacturing Outlook in the Lame-Duck Session

Before the Republicans prepare to take the gavel in the House, and as Democrats emerge with a smaller majority in the Senate in the 112th Congress, lawmakers will return to a lame-duck session filled with a number of unfinished legislative matters.  While most of the attention has been devoted to the status of the Bush-tax cuts, which are set to expire, there remain a number of other pieces of legislation that could potentially come up before the end of the year.

One is the Department of Education’s (DoE) 2011 spending bill.  While both chambers of Congress have agreed on specific appropriations within the bill, no compromise has been made as of yet.  One specific provision, the Investing in Innovation Grants, which provide funding to schools to create innovative programs and techniques for educational development, was slated for $400 million in the House but only $250 million in the Senate version.

Pivotal to the DoE is the reauthorization of the Elementary and Secondary Education Act (ESEA), which has thus far stalled due to differences in how to implement standardized testing and how to deal with low performing schools. Also included in the reauthorization is a renewed focus on STEM based education backed by $300 million in appropriations in an attempt to re-take the lead in science and math.

Another item is President Obama’s infrastructure proposal, which is designed to upgrade the deteriorating highway, railroad, and airport systems across the country.  When making the case for this proposal, Obama highlighted the link between infrastructure and maintaining America’s innovative and competitive edge.

In addition to infrastructure and education the lame duck also may take up clean energy fuelimmigration reform, and patent reform.

Posted by: Michael Darden

Sources: CNN, Council on Foreign Relations, Department of Education, Education Week, Huffington Post, IPWatchdog.com, Seeking Alpha

Photo credit: Washington DC – Capitol Hill: United States Capitol courtesy of flicker user wallyg