Haste Could Make Waste on Stimulus, States Say
Wednesday, December 3, 2008
With President-elect Barack Obama vowing to plow hundreds of billions of dollars into the nation's infrastructure, some state officials are warning that public works projects will fail to effectively lift the country out of recession unless they are chosen carefully and implemented rapidly.
In a private meeting yesterday in Philadelphia with 48 of the nation's governors, Obama stressed the importance of identifying projects that could put people to work quickly, participants said. He raised the specter of Japan, which languished in a decade-long recession in part because massive spending on construction projects in the late 1990s flowed too slowly to boost economic activity.
During the two-hour meeting, governors from both parties assured Obama that they could break ground almost immediately if Washington were to put up the cash to make up for state budget shortfalls. But less than half of the $136 billion in projects they said were ready to go could get underway within the next six months, according to the National Governors Association. And choosing among those projects could prove politically difficult, some governors said.
"The problem is going to be deciding in a rational and targeted way how to spend that money," Virginia Gov. Timothy M. Kaine (D) said in an interview. "We all know about the bridges to nowhere. But we also know the projects that are critical to moving people around."
With the nation's economy in recession, Obama has pledged to create or preserve 2.5 million jobs over the next two years, primarily by dedicating federal dollars to rebuilding the nation's roads, bridges, schools and airports and to expanding sources of alternative energy. Democrats hope to send a spending package that could exceed $500 billion to the White House by Jan. 20, when Obama takes office.
In a recession that lasts only a few months, economists say spending on infrastructure would do little to revive the economy; public works projects typically take years to get underway. Even with projects that are ready to go -- meaning they have been designed, engineered and have cleared environmental and other bureaucratic hurdles -- only about a quarter of the overall cost is spent within the first year, according to the Transportation Department.
Because this recession is projected to extend well into 2009, many economists see infrastructure spending as a viable way to put people to work and keep money circulating domestically. Unlike tax rebates, which might be spent on foreign goods or used overseas, money for road projects would be used to hire U.S. workers and to purchase domestic gravel and steel.
The need for infrastructure improvements is enormous. Federal transportation officials have estimated that the nation should spend $225 billion a year to modernize and maintain its crumbling roads, bridges and transit systems.
But with 41 states facing budget shortfalls, many governors are cutting scheduled projects. Maryland and Virginia recently cut more than $1 billion each from their six-year transportation programs. North Carolina expects to cut $200 million by next June. And New York plans to eliminate 10 percent of its projects, according to the American Road and Transportation Builders Association.
The slowdown in public spending, combined with the worst housing bust in a generation, has devastated the construction industry. The unemployment rate among construction workers was 10.8 percent in October, well above the national average of 6.5 percent. Currently, nearly 1.1 million homebuilders, steelworkers and highway contractors are out of work.
"This is not going to be a situation where we're going to be putting money into something the contractors can't handle," said Bill Buechner, chief economist at the American Road and Transportation Builders Association. "There's plenty of capacity, and there's a lot of workers."
The devil, however, is in the details. What emerged yesterday in Philadelphia, and in ongoing discussions in Washington and in state capitals, is the concern that injecting such huge sums into public works projects could prove more complicated than anyone yet imagines.