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.
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