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American Shipper

Stimulus: What happened to infrastructure funds?

Stimulus: What happened to infrastructure funds?

   A rising chorus of experts is drawing attention to the fact that the $825 billion stimulus package being debated on Capitol Hill is much lighter on infrastructure investment than originally promised by President Obama prior to taking office.

   The final House bill has $607 billion in direct spending and appropriations and $212 billion in tax cuts. Of that, only about $90 billion is directed for construction of traditional infrastructure projects — repairs and upgrades for roads, bridges, water treatment systems and flood control. There is roughly $46 billion for the transportation infrastructure subset under which about $30 billion would go for highways and bridges. Another $12 billion is set aside for transit. That equates to 5 percent of the total amount for surface transportation infrastructure.

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   There is also a $142 billion basket for education, which would likely cover some new school construction, as well as billions for weatherizing federal buildings, modernizing the electric grid and alternative energy.

   But few of those categories represent pure concrete-pouring projects. In fact, public works only comprise about 13 percent of the bill. The rest is for social programs and tax cuts.

Obama

   During the presidential campaign, Obama talked about creating a $60 billion infrastructure bank that would use merit-based criteria to identify worthy projects to fund, but the legislative package does not include such a body.

   In December, the National Governors Association requested $136 billion for 'ready-to-go' infrastructure projects to repair and upgrade highways, ports, railroads, broadband connections and other key systems.

   Many members of the transportation community and others are now expressing disappointment with the limited amount of transportation infrastructure included in the current House and Senate versions of the bill.

   The public works component of the stimulus package was “grossly oversold,” said James H. Burnley, a former secretary of transportation in the Reagan administration, at a Capitol Hill discussion Wednesday hosted by the RAND Corp. policy institute.

   The $46 billion in surface transport and aviation spending represented in the House and Senate stimulus bills is roughly the amount Congress appropriates in a single year. Accelerating the money through the pipeline is beneficial, but doesn’t address the real investment gap, he said.

Cramer

   The infrastructure appropriation should be 10 times larger than it is, CNBC TV personality Jim Cramer agreed on the “Chris Matthews Show” carried on sister station MSNBC.

   “One city alone, Boston, could eat through this money,” he said, pointing out that the much-maligned Big Dig tunnel project there eventually ballooned to $22 billion and employed 5,000 people.

   Burnley, now a partner at the Venable law firm in Washington, said the bigger threat is that the Highway Trust Fund is poised to go in the red again by October. Last year Congress supplied an $8 billion bailout from the general fund to allow the Department of Transportation to meet commitments for state highway assistance. Lawmakers this session are expected to begin work on a six-year surface transportation reauthorization bill intended to address long-term transportation policy and funding issues.

   On Wednesday, the American Society of Civil Engineers (ASCE) issued its quadrennial report on the state of the nation’s infrastructure and painted a picture of a society that is rotting from within. The average grade across 15 sectors of infrastructure was a D. Inflation and deterioration have increased the total estimated cost of repairing and upgrading existing systems — levees, hazardous waste facilities, dams, bridges and so on — to $2.2 trillion from $1.6 billion in 2005, it said. The funding deficit between what is currently spent and what is needed is $1.1 trillion over five years.

Flynn

   Homeland security authority and author Stephen Flynn, interviewed on CNN’s “AC360,” said the stimulus is “a very small down payment on what we really need to do.”

   Not investing in infrastructure “is a bit like not changing the oil in your car” and then paying more for engine failure, he said.

   Getting cash to states to do projects quickly makes sense as a Band-Aid, Flynn said. “But the real challenge is we’re not looking at the infrastructure as a nation. It’s a patchwork quilt of local projects. Some bridges are more important than others.”

   Of the 150,000 bridges identified by state transportation departments as structurally deficient, “there are probably 100 of them that are more important than the other 150,000,” said Flynn, who warned about the national security implications of brittle infrastructure in his 2007 book, The Edge of Disaster: Rebuilding a Resilient Nation.

   “We don’t even have a system in this country to do this kind of analysis ' because historically the federal government hasn’t played that role,” he said.

   Many transportation policy experts believe an independent arbiter is needed because explosion of earmarks over the years has badly damaged the credibility of the government to raise money to fund transportation. Projects that are earmarked may be commendable but undergo no cost-benefit analysis at the federal level.

   Flynn reiterated the recommendation found in his book for a bipartisan commission to prioritize needed projects, with the input of states, and make funding recommendations to Congress. The commission would rely on experts from the ASCE, the National Academies of Science and its own professional engineering staff.

   Flynn has previously called for the United States to invest about $250 billion per year during the next decade to maintain and upgrade critical physical infrastructure, equivalent to less than 2 percent of the nation’s Gross Domestic Product.

      “We have shovel-ready expertise in the citizens of this country. We can do that,” he said.

   Burnley said that vetting capability already lies within the DOT and needs to be tapped. He proposed that cities and states first go to the department to get projects certified for merit. Projects that meet the criteria can be presented to Congress to decide how to apportion the money.

   President Obama intends to make transparent the stimulus project grants to states by posting them on a Web site and requiring states to provide details of projects and their merits. Burnley said that idea is laudable, but doesn’t fix the problem because there are many projects that can’t pass the rational test but are popular in the states that proposed them.

   While House Republicans voted against the stimulus on the grounds that it cost too much and didn’t include enough tax breaks for businesses and individuals, some Democrats are also warning that waste could be a byproduct of the rush to finalize the legislation.

   Alice M. Rivlin, budget director during the Clinton administration, told the House Budget Committee on Tuesday that the plan should be divided into quick cash dispersal efforts to combat the recession, including genuinely “shovel ready” projects, and longer-term investment in transportation, workforce training, communications and other economic foundations.

   “Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away,” said Rivlin, a fellow at the Brookings Institution.

   According to the Washington Post, administration officials have said they did not push for more infrastructure projects because of questions about how many projects are teed up for contracting. But public works supporters like Rep. Jim Oberstar, head of the Transportation and Infrastructure Committee, and the American Association of State Highway and Transportation Officials, say states have fast-forwarded any bureaucratic requirements and have hundreds of projects that can be started within 90 days.

   Some House Democrats believe the real reason that infrastructure got shorted was to make room for the tax cuts Obama agreed to as part of an effort to compromise with Republicans, the paper said.

   “Every penny of the $825 billion is borrowed against the future of our kids and grandkids, and so the question is: What benefit are we providing them? What are we doing for the country? It’s the difference between real investment that will serve the nation for 30, 50 years and tax cuts, and that’s a very poor tradeoff,” said Rep. Peter DeFazio, D-Ore., in the article. “I go to my district and people say, ‘Yeah, I can use 10 extra bucks a week, but I would rather see more substantial investment.’ We’ve gone through a couple bubbles that were borrowing and consumer-driven. We want a recovery that’s solid and based in investment and productivity, and that points us at building things that will serve us decades to come.”

   Republicans such as Reps. Jerry Lewis of California, and Florida’s John Mica, the ranking member of the Transportation and Infrastructure Committee, tried to push during floor debate for additional investment in highways and other infrastructure projects while reducing the overall cost of the bill. He was quoted by the Post calling the infrastructure spending “almost minuscule.”

   “They keep comparing this to Eisenhower, but he proposed a $500 billion highway system, and they’re going to put $30 billion” in roads and bridges, he said. “How farcical can you be? Give me a break.”

   Vice President Joseph Biden, in an interview on CNBC on Thursday, said the economic recovery package would be improved in the Senate with more infrastructure spending and tax cuts. The Senate is expected to vote next week on a package worth close to $900 billion.

   In an op-ed in the Washington Post, conservative Harvard University economist Martin Feldstein urged the Senate to delay the stimulus legislation by a month or two to improve its ability to raise national spending and employment.

   Each $1 billion in transportation infrastructure spending supports 30,000 jobs, according to the DOT.

   The overall impact of the bill’s tax cuts and spending will be minimal in a $13 trillion economy, Cramer said, noting that the big corporate layoffs making the headlines are dwarfed by the more invisible losses happening at smaller companies.

      “It’s not going to put a lot of people to work ' You gotta be thinking like China, which is thinking much bigger. You gotta be thinking about 20 percent of GDP. If we get to 10 percent unemployment, all bets are off in this economy,” Cramer said.

   The former Wall Street hedge fund manager and current host of “Mad Money” praised China, and even fiscally conservative Singapore, as being much more aggressive with their own economic stabilization plans.

   “I don’t regard us as serious with this amount of money,” he said.

   Noting that production capacity is down 50 percent in the steel industry, he said, “We’re not going to even dent our steel production. We’re not going to put even 10 percent of our orders in steel.

   “Why aren’t we buying everything they (Caterpillar) make so that we know we can build roads? You need a Caterpillar to build a road.”

   The construction machinery manufacturer announced 20,000 layoffs this week. ' Eric Kulisch

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