Why Were Infrastructure Improvements Not Paid For By The Last Stimulus? [Reader Post]

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President Barack Obama wants to improve infrastructure. His $447 billion “jobs bill” has in it $50 billion for infrastructure repair/improvement, and $10 billion to start a National Infrastructure Bank. So the questions are, Why were infrastructure improvements not paid for by the last stimulus? What happened to the money for infrastructure in his $787 billion stimulus bill? To answer these questions, let’s examine both stimulus bills, stimulus spending, and infrastructure spending.

Stimulus Spending

Obama’s original $787 billion stimulus bill left America’s economy in disarray. Having learned nothing from this failure, Obama recently unveiled another stimulus bill – the American Jobs Act, proposed to cost $447 billion. “Obama spent $787 billion of our money on his first stimulus, and the economy sickened,” says Grover Norquist of Americans for Tax Reform. “Now he is back with another $400 billion in stimulus. Leeches! He gives us more leeches!”

On July 8, 2011, economist Veronique de Rugy, in her excellent article, offered three myths about stimulus spending. She says:

  • Myth 1: Stimulus spending can jump start the economy and fix unemployment
  • Myth 2: Additional infrastructure spending is an effective way to stimulate the economy and create jobs
  • Myth 3: Tax rebates will stimulate the economy

Infrastructure Spending

President Obama, in his “American Jobs Act,”is asking for $50 billion additional infrastructure spending, such as grants and guaranteed loans, investments on highway and rail projects, high-speed rail projects, and Amtrak. But, as economists Veronique de Rugy and Matt Mitchell point out:

  • In 9 out of 10 transportation infrastructure projects, costs are underestimated
  • For rail projects, actual costs are on average 45% higher than estimated costs
  • For fixed-link projects (tunnels and bridges), actual costs are on average 34% higher than estimated costs
  • For road projects, actual costs are on average 20%higher than estimated costs
  • For all project types, actual costs are on average 28% higher than estimated costs
  • These same cost overruns exist in all public work projects

When Democrats passed the $787 billion stimulus bill in February 2009, they promised an historic investment in roads, bridges and rail. Obama’s next stimulus won’t do any better than his last one. Only 3% of his last stimulus went to infrastructure spending because such programs are not politically popular. Once the stimulus money is gone, the jobs are also gone. This “stimulus” calls for 11.2% spending on infrastructure. The original $787 billion “stimulus” called for 6.4% to be spent on infrastructure, but 3% (less than half) was actually spent on infrastructure (see above). And, according to a Washington Times article, infrastructure projects were supposed to be “shovel ready.” But we all know how Barack Obama laughingly dismissed that requirement. Infrastructure spending will not provide much of a stimulus, and it will not provide the jobs promised by Obama.

The White House said that President Obama, in Ohio on September 22, 2011, would visit the Brent Spence Bridge, described as “functionally obsolete,” in order to highlight the “urgent need” for infrastructure improvements. The 48-year-old bridge is a double-decker inter-state bridge. But there is absolutely nothing wrong with the bridge upon which infrastructure money could be spent. Federal and state officials have been moving ahead with a repair plan for the bridge. But despite the attention given by Obama, the timetable suggests it is not “shovel ready” and won’t spur increased employment right away.

In an article in Investor’s Business Daily, John Merline, on September 15, 2011, cited five myths about infrastructure spending.

  • Infrastructure spending is declining
  • Our infrastructure is falling apart
  • We’re falling behind China
  • More federal money means more jobs
  • The money can be spent fast

Even though Mark Zandi, chief economist of Moody’s Analytics, claims that when the government spends $1 on infrastructure, it yields $1.44 in growth (a 1.44 multiplier), that’s his opinion. Economists are far from a consensus on what the actual return on infrastructure spending is. As economists Eric Leeper, Todd Walker, and Shu-Chum Yang said in a paper for the IMF: “Economists have offered an embarrassingly wide range of estimated multipliers,” from -1 to 3.7.

Further, in the case of rail projects, a study of 208 projects in 14 nations on five continents shows that:

  • 9 out of 10 rail projects overestimate the actual traffic.
  • 84 percent of rail-passenger forecasts are wrong by more than 20 percent.
  • For rail, passenger traffic average 51.4 percent less than estimated traffic.

This means that there is a systematic tendency to overestimate rail revenues. Remember that when the president explains how much demand there is for these new rail projects he wants taxpayers to pay for.

National Infrastructure Bank

A National Infrastructure Bank was proposed in 2007 by Senator Christopher Dodd (D-CT) and former Senator Chuck Hagel (R-NE). According to Senator Dodd, an Infrastructure Bank would fund large-scale projects, with funds going to the most qualified projects, not projects with the most political clout. Every $1 billion spent on highways and transit projects would create about 47,500 jobs.

President Obama proposed legislation to create a national infrastructure bank to create jobs. Senator John Kerry (D-MA) applauded the president’s plan in a statement, saying,”There’s almost $200 billion in private capital sitting on the sidelines that could be invested in our infrastructure, but it will take this bank to unlock private investment for bridges, roads, and rail.” Obama, in his “American Jobs Act,” proposed a $10 billion infrastructure bank and $50 billion in expedited infrastructure spending to help stimulate the economy. Said Obama, “Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads?”

We already have a national infrastructure bank – it’s called the TIFIA program,” Geoffrey S. Yarema, a partner with Nossaman LLP in Los Angeles said, referring to the Transportation Infrastructure Finance and Innovation Act program.

So, Obama wants to establish an infrastructure bank and raise taxes to spend money on infrastructure to revive the economy. Yeah. His first “stimulus” plan didn’t work, but for Obama and his Keynesian economists, “hope (with our money) springs eternal.”

But that’s just my opinion.

19 Responses to “Why Were Infrastructure Improvements Not Paid For By The Last Stimulus? [Reader Post]”

  1. 1

    Nan G

    1. In New York there is a $400 million renovation project on the Alexander Hamilton Bridge.

    2. In California, there is a $7.2 billion project to rebuild the Bay Bridge connecting San Francisco and Oakland.

    3. In Alaska, there is a proposal for a $190 million bridge project.

    Much of the work on each of these three projects is going to Chinese government-owned firms.

    1. The renovation of the Alexander Hamilton Bridge in New York is being overseen by China Construction America, a subsidiary of the China State Construction Engineering Corporation.
    The company uses mostly U.S. labor, but many coveted skill jobs such as engineering and design work are Chinese.
    The profits will also go overseas.

    2. The state of California rejected federal funding for a major portion of the Bay Bridge in order to go with a Chinese company that offered the lowest bid.
    The move cost Americans almost 3,000 jobs — jobs that cost the struggling California economy millions of dollars in wages, taxes and potential consumer spending.
    An official from the California Department of Transportation said that most of the bridge is being made in America, and that U.S. companies could not have done the work that was contracted abroad on time.

    3. In Alaska, they are set to spend millions on foreign materials for the Tanana River Bridge Crossing and would largely fabricate the bridge overseas.

    ABC News

  2. 4

    Wm T Sherman

    Why do they justify the spending the money by saying it will go for a particular purpose, and then spend it on something entirely different? Because they can.

    They will string together whatever combination of English words that they think will bring in the money, and then spend it on whatever they think will buy votes, and there will be no consequences for doing so.

    Which is yet another reason not to have these giant and dramatic special programs.

  3. 6

    Buffalobob

    But didn’t oabma say we built the intercontinental railroad. Maybe he is spending this money to Chinese firms to build intercontinental bridges. Do you think he will call on the courps of engineers to oversee the projects in all 57 states. His blinding brilliance is, well blinding.

  4. 7

    James Raider

    @Nan G: #1,

    Great pick-up Nan – China is winning the war all over this continent. The Chinese are using “fronts” to win many of the bids, and government bureaucrats with pressure from paid-off politicians, take the Chinese bids.

    @Toothfairy: #3
    Absolutely. Chinese quality control is almost non existent.

  5. 11

    MataHarley

    premium_subscriber

    LOL, Smokey… not to mention all the federal jobs from new agencies he’s created with O’healthcare and Dodd-Frank. But I’m waiting for the libmann to even walk over to their favorite Bible, Wikipedia, and figure out that their records for non farm payroll have Bush at 1.1 mil after the 2008 crash, and the O’bummer at 2.4 mil jobs LOST as of July 2011. Politifact has it smaller, but still a net loss of 1.8 million under Obama as of August of this year. They give Pelosi thumbs down because she cherry picked time with unequal periods to make Obama look good instead of the loser he is.

    Then again, math never has been a strong suit of some of our resident, and elected, lib/progs.

  6. 18

    Ditto

    call me suspicious, but I would hesitate to trust any such “bank” ideas from Dodd unless it were gone over carefully by an independent team of experts in architectural engineering, financial experts, traffic or city/rural planning experts (whichever is applicable to the project,) or professionals in the field for which the project is planned*. none of them being political appointees.

    *I’ve seen far too many performance venues that “look great” but totally suck when actually used for performances. Many problems being simple little things that professional performers, directors and technicians would have known better. (Like a way to get from the stage to the back of the house without having to jump off the stage and walk through the audience, or the fact that an 5000-seat outdoor amphitheater is going to need sound reinforcement for anyone beyond the first eight rows.)

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