In Iowa we’ve been fortunate that construction money for highways is going to get out very quickly. The governor is making decisions now on education funding and Medicaid funding, which are the other two big pots of money. So I believe you’re going to see the stimulus impact of that taking place pretty soon.

I think with, for instance, in the state aid money — I should say the stimulus money that’s going to go through the state aid formula — you’re going to find some teachers that might otherwise be laid off maybe won’t be laid off. And the Medicaid money — I think you’re going to find some cutbacks at the state level that would have happened without the stimulus package won’t have to happen now.

Grassley voted against the bill in February because, among other things, he said the package didn’t include enough tax cuts for small businesses.

Secretary of Transportation Ray LaHood (dot.gov)

A controversial proposal to shore up federal transportation funds has set off a firestorm in Washington, with a high-profile disagreement between the transportation secretary and the White House leaving the nation’s strategy for combating an impending highway budget shortfall in doubt.

In an interview with the Associated Press last Thursday, Secretary of Transportation Ray LaHood proposed a vehicle miles traveled tax, which would charge motorists for each mile driven rather than fuel consumed, as an alternative to a higher gas tax. He called it a way of “thinking outside the box on how we fund our infrastructure in America.”

Illustration by: Matt Mahurin

The White House quickly shot down the proposal. In his daily press briefing Friday, White House Press Secretary Robert Gibbs said bluntly that the tax “is not and will not be the policy of the Obama administration.” A Transportation Department spokesperson, who asked to remain anonymous, clarified the discrepancy to TWI on Monday: “The Obama administration is not advocating a VMT [vehicle miles traveled] tax. In the interview with the AP, Secretary LaHood was simply stating a spectrum of ideas available for financing transportation infrastructure in the future.”

Still, the mileage tax remains on the table as a potential long-term solution to the revenue shortage, and LaHood’s apparently unilateral proposal triggered a flurry of debate on the merits of the tax. A Washington Post editorial on Monday came out strongly in favor of the plan, while on the same day a piece in the Baltimore Sun criticized it as the “height of stupidity” and other publications called it “impossible to administer” and “far from a ‘green’ policy.” Among industry leaders, the president and CEO of AAA praised the plan, while the CEO of Federal Express called it “ill-advised” and unfair to residents of rural states.

Although most of the media coverage has focused on the administration’s rejection of LaHood’s proposal and the tax’s pitfalls, a number of experts, backed up by a successful pilot program in Oregon, maintain that a mileage tax is a sound policy to reverse the highway budget shortfall without endangering environmental incentives or creating excessive logistical difficulties.

The discussion of alternatives to the gas tax comes at a critical time. On Monday, House Appropriations Transportation Subcommittee Chairman John Olver (D-Mass.) announced that the Highway Trust Fund, which provides for the maintenance of America’s highways and bridges, will run out of money by the end of September. The fund relies mostly on revenue from the gas tax, and according to Olver, it is headed for a deficit as Americans cut back on their fuel usage.

The Treasury Department has projected a $3.2 billion shortfall for the fund in the fiscal year 2009. Congress kept the fund solvent last fall with an $8 billion emergency spending bill, and while a similar cash infusion would help now, other solutions are needed in the long run to prop up what Olver called a “severely underfunded” program.

A mileage tax would be one possible route. Supporters of the mileage tax point to the success of a pilot program in Oregon, which demonstrated the viability of such a tax as a steady and practical long-term source of revenue. According to a November 2007 report by the Oregon Department of Transportation, the program was initiated amid fears that as more people started driving hybrids and cars that run on alternative fuel sources, “Oregon’s road system would be in jeopardy as the gasoline tax revenues necessary to preserve, maintain and modernize the system slowly but steadily drained away.”

The experiment began in April 2006 and included 285 volunteer vehicles and two gas stations. The cars were outfitted with mileage-calculating GPS devices, and the tax was paid automatically at the specified gas pumps, just like a standard gas tax.

The 2007 report declared the trial a success. Despite the limited scope of the program, participants found it fair and convenient, and 91 percent indicated that they would be open to a mileage tax if enacted statewide. Only three participants had privacy concerns, although the report conceded a “trade-off between privacy and information stored for enforcement and dispute resolution.”

Developing, manufacturing and installing each GPS device in the pilot cost $603 per vehicle, but the report estimates that if they are produced on a larger scale, the cost will be under $100 per vehicle. Likewise, the state spent $78,000 to replace some gas pumps, but it will require gas stations to use compatible systems if the mileage tax is enacted statewide. At 1.2 cents per mile, an average driver would currently pay about the same amount as under a gas tax. At first the state would break even as tax revenue recouped costs to initiate the program, but “after the initial start-up period, the mileage fee implemented statewide would begin to generate more revenue than the [standard] gas tax would be expected to generate since the gas tax erodes because of improvements in vehicle fuel efficiency, while the mileage tax does not,” according to the report.

The Oregon Department of Transportation also suggested that in order to avoid the expense of retrofitting all vehicles, the mileage tax could be phased in, with new vehicles paying the mileage tax while older ones continued to pay a gas tax.

After the success of the Oregon pilot, other states have begun to consider a mileage tax. Idaho, North Carolina, Rhode Island and Massachusetts are all debating some form of the tax, although the proposals have faced criticism.

Environmental advocates point out that innovation in green transportation policy tends to happen first on the state level. Nearly a century before experimenting with the mileage tax, Oregon pioneered the first gas tax in 1919, and all other states followed suit in the next decade. After the success on the state taxes, a national gas tax was put in place in 1932. “Traditionally the states have a little more flexibility,” explained Eli Hopson, the Washington representative for the Union of Concerned Scientists’ Clean Vehicles Program.

“The states have been leading the way on environmentally sound transportation approaches,” agreed Daniel Becker, director of the Safe Climate Campaign, an environmental advocacy group. “I think we’ll see more of this kind of [mileage tax] approach in states.”

Still, not all analysts believe that a mileage tax would be environmentally friendly. A chief criticism of the tax is that it would serve as a disincentive to purchase fuel-efficient vehicles. A high gas tax, in place in much of Europe and elsewhere, discourages people from driving gas-guzzling SUVs and pickups, which not only release higher volumes of greenhouse gases into the atmosphere, but also do more damage to roadways than smaller, lighter cars. A tax based purely on mileage, on the other hand, does not distinguish between high- and low-efficiency vehicles. According to Gilbert Metcalf, a Tufts University economist who specializes in energy issues, a mileage tax would “make it more expensive for the fuel-efficient cars, because they have the upfront expense” of a higher price tag at the dealership.

But Deron Lovaas, the federal transportation policy director of the Natural Resouces Defense Council, dismissed the notion that a move away from the gas tax would slow the trend toward hybrids and other energy-savers. “There’s no doubt that the gasoline tax provides an incentive for the purchase of more efficient vehicles, but let’s be honest, it’s a modest incentive at best,” he explained. “Gasoline taxes are in the single digits as far as the percentage of money you pay at the pump.” The gas tax is far outweighed by fluctuations in the price of crude oil, he noted.

To address the issue of incentives, some analysts advocate a mileage tax that takes fuel efficiency and other factors into account. By installing a GPS chip in every vehicle, Lovaas argues that regulators could use a “sliding scale” to charge drivers more for using larger vehicles or traveling on busy roads during peak hours. Monitoring of this sort, however, has raised privacy concerns, since it would allow a driver’s movements to be tracked.

Again, Lovaas is unfazed by this line of criticism. “Anyone who has a cellphone on their person has traded away a lot more privacy than you would lose through a program that had data collection in vehicles,” he said, adding, “By limiting the amount of data collected and encrypting that data, you can trump privacy concerns.”

In spite of the arguments in favor of a mileage tax, it appears that it will not be implemented in the short term, given Gibbs’ strong statement to that effect. It is clear, however, that something must be done to address the coming Highway Trust Fund deficit. The federal gas tax has not been raised since 1993, although inflation has led to higher maintenance costs. Increasing the tax is one possible solution, but President Obama has spoken out against “putting additional burdens on American families” with a higher gas tax.

The administration will continue to explore its options for raising additional infrastructure revenue, including new tolls and public-private partnerships, according to the Department of Transportation spokesperson. In the meantime, if LaHood has another proposal to unveil to the press, he might want to run it by the White House first.

I caught up with Brown today after he made an appearance at a sustainable energy research event at the National Press Club. With the Senate on the verge of passing the stimulus package, I asked him what he saw as the biggest holes in the bill that need to be filled.

Sen. Sherrod Brown speaking at the National Press Club

“I would like to see more direct spending on infrastructure, but I think that’s a major component of it,” he responded. “I think there should be fewer tax breaks for businesses. … I think you want to kick the demand side a little bit more, but, you know, we can debate all day what’s better and what’s worse. I like the bill overall, I think it’s very good, I think it takes us exactly in the right direction.”

I then asked him whether he preferred the House bill, which provided less money in the way of tax cuts and more for infrastructure spending, aid to states and green investments.

“It doesn’t matter what I prefer,” he said. “I mean, I’m going to vote for the Senate bill today and tomorrow — cloture today and the bill tomorrow. And then we’ll negotiate and we gotta get 60 votes in the Senate.”

In his speech at the Press Club, he emphasized the need to balance environmental and manufacturing concerns. Ideally, he said, a green agenda would create manufacturing jobs rather than hurting industry.

“We’ll literally grow our economy as we protect our environment,” he pledged.

Brown will be someone to watch after the stimulus passes and environmental concerns come to the fore.

A report released by the American Society of Civil Engineers estimates that America’s aging bridges, roads, sewers and other structures will require $2.2 trillion in maintenance and repairs over the next five years just “to meet adequate conditions.” If the country’s infrastructure were to be graded, the ASCE claims, it would get a “D.”

The report is likely to stir the already heated controversy surrounding the Obama administration’s spending choices under the $825 billion proposal, which House lawmakers are expected to approve today. In December, the House Transportation and Infrastructure Committee recommended $85 billion in new infrastructure spending, including $30 billion for highways and bridges, $12 billion for transit and $14 billion for environmental infrastructure. Supporters of that strategy say it provides the most bang-for-the-buck in terms of creating or sustaining jobs and stimulating the economy quickly.

Chairman James Oberstar (D-Minn.) has been vocal in pointing out that the Obama administration’s blueprint provides just $63.5 billion for those same projects. Reports have emerged that Obama economic advisor Larry Summers was behind the move to trim infrastructure spending in favor of tax cuts, which the administration included to entice GOP support — support that seems not to be forthcoming.

There’s another reason that the tax rebates — which constitute $275 billion of the package — have been controversial: Gifted with a similar tax rebate last year, many Americans simply saved the cash or used it to pay down existing debts — actions that do nothing to stimulate the economy in the short term.

As University of Maryland economist Peter Morici told CNN this morning: “That’s part of the controversy about this bill. A lot of the money may be wasted.”

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.

Indeed, the House Appropriations Committee yesterday tweaked the bill a bit, adding amendments requiring that projects funded by the stimulus use only U.S.-made iron and steel; providing $150 million in new funding for food banks; prohibiting Illinois Gov. Rod Blagojevich (D) from directing any of the funds; and forcing contractors to pay construction workers no less than prevailing local wages.

That won’t be all.

Today, both the House Ways and Means and the House Energy and Commerce panels are considering the bill. And the House Transportation and Infrastructure Committee is meeting as well, partly (we’re guessing) to vent frustrations about why the Democrats’ blueprint included $275 billion in tax cuts, but tens of billions less on infrastructure projects than the panel recommended last month. (Read: Transportation and Infrastructure Chairman James Oberstar (D-Minn.) is none too pleased.)

And this, of course, is all happening without input from Senate lawmakers, who are certain to have their own ideas about what the stimulus should prioritize. Stay tuned for more changes…

Speaking at George Mason University in Fairfax, Va., he warned of the hard times to come and emphasized the urgent need for decisive action, even as Republican leaders have indicated that they will not agree to a major spending increase without careful deliberation.

“For every day we wait or point fingers or drag our feet, more Americans will lose their jobs,” Obama said. “More families will lose their savings. More dreams will be deferred and denied. And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

He also warned that his plan, which is expected to cost upward of $750 billion, will increase the $1.2 trillion deficit the country is already facing.

“There is no doubt that the cost of this plan will be considerable,” he said. “It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy.”

In a possible indication that he will seek to change the dialogue on the role of government, Obama dismissed the virtues of small government and pressed the need for strong and steady intervention in the economy.

“Only government can provide the short-term boost necessary to lift us from a recession this deep and severe,” he said. “Only government can break the vicious cycles that are crippling our economy –- where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”

He also channeled President John F. Kennedy, albeit a bit less eloquently, insisting “that the first question each of us asks isn’t ‘What’s good for me?’ but ‘What’s good for the country my children will inherit?’”

Congress will soon begin hammering out the details of the recovery plan, which Obama hopes to sign into law within weeks of taking office Jan. 20.

UPDATE 12:10 PM: House Minority Leader John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) just responded to Obama’s speech. They were generally supportive, although they expressed some reservations about the details of the plan. Boehner insisted on “striking the right balance” between economic stimulus and fiscal restraint, while McConnell maintained that aid to states should be in the form of loans, not grants. McConnell said that at least two states don’t need any aid, and “it hardly makes sense to give money to states that don’t need it.”

Clearly, the Republicans find themselves in a tough spot. Obstructing the passage of a stimulus plan in a time of dire economic need would make them easy scapegoats for the country’s struggles. But they need to gain bargaining power in negotiating the details of the plan so that they can turn it to their ideological favor. It’ll be interesting to see how they pick their battles in the weeks to come.

As unemployment continues to skyrocket, the housing market continues to fall and consumers remain reluctant to open their pocketbooks, economists are now urging a package more to the tune of $1 trillion. In a statement set to be unveiled later today, more than 100 economists will make their case why President-elect Barack Obama should back at least $900 billion in stimulus spending over the next two years.

Obama is on board with the concept, saying repeatedly that his first act from the White House will be a huge spending program focused on state infrastructure projects and renewable energy technologies. But he hasn’t yet put a dollar figure on his plan.

Even without the new stimulus bill, the federal deficit is expected to hover near $1 trillion next year, due largely to the long string of Wall Street bailouts already orchestrated by Washington. It gives new meaning to the Keynesian theory that borrowing is the best way to pull through a recession.

Then again, at least we’ll sleep better knowing that bridge we’re driving over isn’t set to collapse.

Few are saying it out loud, but the issue has a ring of class distinction surrounding it. That is, the White House has been quick to secure hundreds of billions of dollars for white-collar workers on Wall Street, but so far it’s balked at much smaller sums for state infrastructure projects or Detroit’s automakers. The message is clear: Trickle down, in the eyes of the Bush administration, trumps trickle up.

State leaders, however, are beginning to wonder when that trickle-down strategy will benefit them. Pennsylvania Gov. Ed Rendell, a Democrat, said Monday that the long string of Wall Street bailouts has done nothing to help the middle class.

“We’ve seen a lot of federal help go to a lot of different organizations in the past few months but not any of that help has produced one new job,” Rendell told reporters. “Not any of that help has produced one new order of business for an American company.”

Rendell said the governors plan to push Obama for federal help with job-creating infrastructure projects and state-funded health-care programs.

States, faced with the burden of actually balancing their annual budgets, seem to have a legitimate need for both. Unemployment is up; home values are plummeting; retail sales are down; and the strain on social services is rising with every new jobless claim. In that environment, programs like food stamps and Medicaid, which cater to low-income folks, will be hit particularly hard.

“These are the safety net for our people across the nation, and the states are responsible,” said Joe Hackney, speaker of North Carolina’s state house.

In this fiscal year, states have already made cuts totaling $53 billion, Hackney said, with $90 billion in additional cuts projected to follow this year and the next. Faced with numbers like that, governors must feel like Jan. 20 can’t come quickly enough.

Obama is scheduled to attend a meeting of the National Governors Association Tuesday in Philadelphia, and the governors will reportedly be looking for a share of all that sweet, sweet federal cash spewing forth from Washington of late.

According to Reuters, Pennsylvania Gov. Ed Rendell, president of the NGA, said the governors will ask for “$136 billion in infrastructure funds to stimulate the economy.”

States are also looking to the federal government to help pay for food stamps, jobless benefits and health care for the poor — projects they cannot afford due to recession, said Ed Rendell, chairman of the National Governors Association [...]

He urged the incoming Obama administration and Congress to fund $136 billion in projects that are “ready to go” in the next six months. They include shoring up an estimated 73,000 structurally deficient bridges and repairing sewers. [Emphasis added.]

Wait a minute. I must have missed this when it was previously reported, but there are 73 THOUSAND structurally deficient bridges in this country?

I’m no economist, but it seems to me that, considering the Fed is handing out money like that’s its job and it only has a half-hour to do it, and also considering the nation is hemorrhaging jobs, I’m going to have to side with Rendell on this one. It might be worthwhile to spend a small fraction of this money as a direct investment in our infrastructure, you know, to make sure another one of these 73,000 bridges doesn’t collapse with a bunch of people on it.