Bailout strains: If we're going to invest in infrastructure, let's do it right

November 30, 2008

By Richard G. Little in TheReporter.com

With the many recent feature articles and opinion pieces calling for increased government spending for public works as a way out of our deepening economic gloom and rapidly growing unemployment, perhaps we ought to step back and look before we leap.

Of course, there are some very good and sound reasons for investing in infrastructure. First, much of what we've built since the end of World War II is in deplorable condition and needs extensive renovation or replacement. Inadequate infrastructure can definitely be a brake on the economy, and the current slowdown is a good time to start addressing decades of neglect.

Second, with the housing industry at a standstill and the rest of the private sector hunkered down, having the government make major capital investments for useful things we need anyway is not a bad idea. It certainly has more political appeal than bailing out the denizens of Wall Street.

Third, public works spending does indeed create jobs. Again, in the face of looming recession and growing unemployment, this is a good thing.

With so many plusses, why aren't I overjoyed to finally be seeing what everyone in the infrastructure business has been waiting years for?

What makes me uncomfortable is all the channeling of FDR and the New Deal that's going on without much apparent recognition that the facts on the ground today are clearly different than they were 75 years ago.

Unemployment was 25 percent when Roosevelt took office in 1933, compared with 6.5 percent at the end of October. Gross domestic product fell almost 25 percent between the Stock Market Crash of 1929 and his inauguration, compared to a 0.3 percent decrease for the third quarter of 2008. In other words, things aren't nearly as bad as they were in the 1930s, and I believe that this calls for a more nuanced strategy.

It's not that the situation doesn't demand action; it's just that we have some time to think before we act and we should take the opportunity to do so.

First is the matter of employment. Despite all the projects supposedly waiting on the shelf and ready to go, we don't have nearly enough trained people for the skilled craft jobs that modern infrastructure projects require. This isn't the pick and shovel work of the Depression; we need a lot more electricians, steamfitters, welders and heavy equipment operators, to name but a few.

A well thought-out public works program should include support for training in the construction trades for the vast number of young and underemployed people for whom college is not the career solution. These are good-paying jobs with the added benefit that they can't be outsourced; construction, like politics, is local.

At the same time, we need to be careful that we don't pump money into the economy so fast that California ends up competing with Arizona or Nevada for labor and materials, driving up the prices for both.

Second, without creating a huge new bureaucracy, we need a way to identify good projects that meet reasonable economic, environmental and social performance criteria and demand results and accountability.

Just opening up the treasury in the interest of "getting the economy going again" is precisely the wrong thing to do. We're going to be raising a lot of long-term debt to have any kind of serious effect on either our infrastructure backlog or the economic indicators we want to turn around. Throwing good money at bad projects is not what's called for here. Building "Bridges to Nowhere" will no doubt stimulate the economy and create jobs locally, but we must be smarter than that.

Finally, we need to be more creative with how we fund and finance all this work. The sooner the states(and Congress) realize that the traditional federal funding role is no longer sustainable, the sooner we might make some real progress in this area.

Many projects of truly national import, such as tying renewable power sources into the electrical grid, and improving the multi-modal goods movement system will require putting public money into private systems, heretofore capitalist heresy.

However, the blurring lines between the public and private sectors that have emerged during the ongoing financial crisis provide an opportunity to re-envision the federal role in infrastructure as investor as well as underwriter.

We also need to explore how we might invest U.S. private pension and Social Security trust funds in revenue-backed U.S. infrastructure projects so that they not only generate economic and employment benefits today, but provide real financial returns for U.S. retirees tomorrow.

The federal government has a wonderful opportunity to expand and improve our longneglected infrastructure and at the same time beneficially intervene in our worsening economic and financial crisis. Under the circumstances, should California be satisfied with just a new deal, or should we demand that the rules of the game be changed?
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The author is director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California in Los Angeles and a member of the National Academy of Construction.