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President Obama Shouldn’t View Infrastructure Spending as a Jobs Program

Cathy Reisenwitz
March 31, 2013, 7:56pm

At PortMiami Friday, President Barack Obama proposed ways to include private investment in his "Rebuild America Partnership," which seeks to spend $40 billion in public money repairing roads and bridges.

The president suggested allowing states and local government to issue more bonds for a wider variety of projects, exempting foreign pension funds that invest in infrastructure and real-estate from taxes, giving $4 billion in loans and grants to public-works projects and a National Infrastructure Bank.

On the National Infrastructure Bank, which made another comeback Friday, Reason’s Robert Poole has written

Proponents of a National Infrastructure Bank (NIB) present it as a solution to two major problems: insufficient investment in transportation (and other) infrastructure and poorly targeted (read politicized) infrastructure spending. It is plausible that some version of an infrastructure bank could help address both problems.

Today, America pays for most public sector transportation infrastructure (e.g., highways) out of current cash flow. Shifting to a model that finances that investment would be a way to do a large one-time catch-up, even if there was no significant increase in the ongoing cash flow. But if the investment was in major projects that generated net new revenues (e.g., from tolls or other new user fees), then total investment would increase, in addition to being front-loaded.

Second, if the NIB were set up as a genuine bank, operated on commercial principles, it would fund only projects that met pretty rigorous investment criteria, including well-documented revenues that would repay the bank’s investment. That way the NIB would be a going concern, like state revolving loan funds for infrastructure. As a national entity, the bank should be chartered to concentrate on projects too large to be readily funded by a state department of transportation, projects involving multi-state corridors, etc. So this whole set of factors would target the investments to projects with high ratios of benefits to costs.

These ideas come as part of Obama’s “Rebuild America Partnership,” a program that aims to spend $40 billion in public money repairing roads and bridges, which the president featured in his State of the Union address. President Obama claimed the infrastructure spending would boost the economy and create jobs, although the White House cannot provide an estimate on how many.

However, as a Reason paper, Ensuring Productive Investment in Transportation Infrastructure stated: “Research shows that this kind of ‘job creation’ seldom involves real economic growth; it simply redistributes resources from one use or location to another use or location.” 

More importantly, infrastructure funding should be focused on improving the mobility of people and goods. Road, port and aviation projects should be selected for funding based on how much they’ll improve mobility, not on how many jobs they’ll create. As Poole recently wrote about the president’s “Fix-it-First” plan to repair roads and bridges, all road repairs aren’t created equal and transportation spending needs to increasingly focus on cost-benefit analysis:

…the Federal Highway Administration runs an array of capital investment strategies through its detailed models to identify investments whose benefits exceed their costs. Were fix-it-first a sensible national policy, these models should identify most or all justified highway and bridge investment as “rehabilitation,” rather than as “capacity expansion and enhancement.” But the actual results of this analysis are strikingly different...A national policy of fix-it-first would misallocate resources very significantly, even if there were a federal funding source available for it.

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Photo by Auggie.Wren


Cathy Reisenwitz is Digital Publishing Specialist


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