Not So Fast…Rethinking Infrastructure and the Stimulus

Thursday, January 22, 2009 at 5:19 pm

Various interest groups are touting infrastructure investment as a particularly effective economic stimulus strategy because, they claim, such projects can devour money and create jobs quickly, delivering a quick jolt to the economy. But it’s doubtful that the billions of dollars allocated for infrastructure in the economic stimulus package will be spent quickly, despite guidelines in the bill designed to just that.

A number of convergent interests are highlighting the speed angle as part of their push for stimulus dollars. Such groups include cash-strapped state and local governments, the construction industry, and trade unions. They find ready allies in legislators who hope to steer projects to their districts.

Under the proposal only so-called “shovel-ready” projects would be eligible for funds. This means projects must have cleared certain preliminary hurdles, including completing environmental impact studies and getting their plans approved by the relevant authorities and certified by engineers.

House Democrats say these guidelines will force recipients of infrastructure money to spend the money quickly. But just because a projects is “shovel-ready,” that doesn’t mean that digging can start today. These safeguards appear to ensure that money is spent faster than usual, relative to public works projects, not necessarily fast in the traditional sense.

A report released by the non-partisan Congressional Budget Office casts doubt how quickly infrastructure projects can actually get going.

“Practically speaking, however, public works involve long start-up lags,” the report cautions. “Large-scale construction projects of any type require years of planning and preparation. Even those that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”

Plenty of powerful groups are gearing up for a fight against such warnings, saying infrastructure projects can move quickly and they have plenty of them lined up.

In December, the U.S. Conference of Mayors spoke up for the interests of local government, releasing a report that says there are 15,221 local infrastructure projects with an estimated cost of $96.7 billion “ready to go”. The group claims that if these projects were funded, they would create 1.2 million jobs between 2009 and 2010. Local and state governments have been hit hard by the economic downturn, cash-strapped mayors have a real incentive to talk up local projects as beneficial to the overall economy.

Construction groups, also suffering from the housing fallout, are eager to show Congress they can have a stimulating effect on the country’s economy. The official website of the American Association of General Contractors, a prominent trade association, looks ready to devote resources to getting stimulus money. It has already created a special “economic stimulus” page on its site listing the reasons it says the stimulus should focus on infrastructure, particularly ready to go infrastructure projects.

The bill contains safeguards to ensure that the federal government moves quickly allocate the money once the bill becomes law. Formula grants must be allocated within 30 days and competitive grants within 90 days of the bill becoming law. But competition is fierce, and it will surely take time for federal agencies to sort through thousands of applications. Many doubt these timelines are realistic.

Once a project is approved contractors have a limited amount of time to commit to how they’re going to spend the money and sign the appropriate contracts. But even so, if the bill were to become law tomorrow, and everything happened exactly on time, the first competitive grants couldn’t get started for at least four or five months. Big projects like roads and dams can take months or years to complete.

Some economists, like Dean Baker of the Center for Economic and Policy Research, argue that if speed is the top priority for stimulus projects, then construction looks downright shabby compared to some other forms of spending. (Baker supports infrastructure spending as part of the stimulus, but he’s skeptical about some of the overblown claims of quickness.) The stimulus also includes billions of dollars to increase the federal government’s contribution to Medicaid and to extend COBRA health insurance benefits for laid-off workers. That type of spending could happen almost instantly. All that would take is a money transfer, no shovel required.



Dick Hertz
Comment posted January 22, 2009 @ 6:52 pm

What some people call lags, we call ” the environmental impact assessment process.” It's what keeps us from building stupidly because we were desperate to get something, anything, going. It also employs vast numbers of professionals and scientists who ensure as best they can that the process is fair, works, and takes into account the needs and desires of the communities.

Lindsay Beyerstein
Comment posted January 22, 2009 @ 7:16 pm

Environmental impact studies are a good thing. I'm glad projects won't be eligible or federal stimulus dollars until the planners have already done the study. Like Dick says, we shouldn't be building stuff without first studying the impact on the environment. Saves us a lot of sewage in the drinking water over the long run. Also, there are billions of dollars of projects that have already been assessed and not built yet–so, taxpayers shouldn't have to wait for studies to be done before the money starts flowing.

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Comment posted January 22, 2009 @ 10:12 pm

Never underestimate the power of a lobby with no opponents. Though it went billions over budget, was the pork barrel of the century for Boston and STILL did not provide us much in the way of public transportation, the Big Dig went on and on. Everyone had a complaint but no one could even slow it down. This note of caution about infrastructure, especially hastily planned infrastructure, is entirely well deserved and I hope some congresspersons are reading this.

M. Schmidt
Comment posted January 23, 2009 @ 12:19 pm

California recently suspended ongoing construction projects to address the budget crisis. If these projects aren't shovel-ready, I don't know what is. We have a new building at our University for which the site has been prepared and for which the contract has been awarded. Construction was to start within days of when the building freeze was imposed. I suppose some of the building freeze motivation was the notion that the money for the construction could come from the Fed stimulus package.

Alon Levy
Comment posted January 23, 2009 @ 3:10 pm

According to Paul Krugman, the current depression is likely to last for several years, so it makes sense to engage in some medium- and long-term infrastructure spending. Even projects that will take until the mid-2010s to bear fruit, like Second Avenue Subway, have good stimulus value. It's also a good idea to do them now, when the global recession is reducing raw material costs. Remember that just a year ago, raw materials were so expensive that some US cities had an epidemic of people stealing manholes and selling them as scrap metal. Once global economic growth starts to pick up, commodity inflation will resume, making construction unreasonably expensive.

I'd rather believe Nobel-winning economist such as Krugman than someone who doesn't publish any research articles in peer-reviewed journals such as Baker.

Lindsay Beyerstein
Comment posted January 23, 2009 @ 5:34 pm

Good point about the suspended construction projects. Those are definitely shovel-ready. But if the goal is economic stimulus, I have to wonder whether there are enough half-finished projects in the US to spend the kind of money we need to pump into the economy. One of the problems with infrastructure as stimulus generally was that when all wishlists for pseudo-shovel ready projects were tallied up, there was still only $150 billion worth, which wasn't nearly enough to be an actual stimulus.

Another option to consider for quick infrastructure jobs: There are billions of dollars of deferred maintenance projects on our existing infrastructure that could probably get underway much faster than new projects, with the added bonus of being work on stuff we already have and want to keep. If you read the stimulus bill, there are all these mentions of how unfunded maintenance backups are X and money allocated to maintenance is X/10. The reason money is getting spent on new projects rather than maintenance is plain old patronage. Every one of those reps wants a road for their district whether anyone needs it or not.

Lindsay Beyerstein
Comment posted January 23, 2009 @ 5:36 pm

I think Baker and Krugman are on the same page here. Baker strongly supports smart infrastructure spending, and he vehemently disagrees with the CBO's WAG that the recession is only going to last two years. His point is just that if sheer speed is your top priority, then a lot of infrastructure spending looks slow compared to other ways stimulating aggregate demand and saving jobs in the short term. I don't want to give the impression that Baker thinks we can't, or shouldn't, do both shorter and longer term stimulus.

Clive Jones
Comment posted January 23, 2009 @ 10:37 pm

The orthodox view probably is that public works are slow to start, often getting in motion after the recovery starts, and contributing more to inflation than job recovery per se. However, this recession looks like it will be longer than average. Housing prices are projected to continue their descent into 2010 and possibly 2011. Drops in housing prices will cause more foreclosures and further problems for the financial industry. In this context, short term stimulus in the form of various handouts, cash, etc., are likely to exert transient effects – pretty much like the $300 – $600 checks issued to many taxpayers in the 2nd quarter of 2008. So, the advantage of infrastructure spending (public works) may be precisely that it continues and builds over a longer period, stabilizing an otherwise chronically weak economy.

Alon Levy
Comment posted January 24, 2009 @ 12:08 am

Krugman actually just mentioned more mass transit funding. He hasn't talked about any cash benefit like unemployment insurance or more money for Medicaid. Medicaid will fall under health care reform, which Obama has indicated he'll pursue soon. Unemployment insurance is essentially a cash benefit, like a targeted tax cut; it's good from the point of view of helping the poor, but not from this of stimulating the economy.

Comment posted January 24, 2009 @ 10:35 am

So if I'm reading this correctly, interest groups with the ability to sell themselves effectively are trying to get their paws on stimulus funds by claiming to support infrastructure improvements. In reality, though, they'll be better at lining their own pockets than they will be at giving us lasting value for our money.

Why do I get the impression that their ability to lobby is going to trump our long-term (and even short-term) needs? Thanks for shining a spotlight on this. Good show.

Comment posted January 24, 2009 @ 6:35 pm

So if I'm reading this correctly, interest groups with the ability to sell themselves effectively are trying to get their paws on stimulus funds by claiming to support infrastructure improvements. In reality, though, they'll be better at lining their own pockets than they will be at giving us lasting value for our money.

Why do I get the impression that their ability to lobby is going to trump our long-term (and even short-term) needs? Thanks for shining a spotlight on this. Good show.

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