Now's the time to invest in infrastructure, but U.S. plan is too modest
Saturday, October 2, 2010; 8:24 PM
People say that the government should be run more like a business. So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn't even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.
Sorry, chief. No one said being CEO was easy.
But there's good news, too. Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do?
If you're thinking like a CEO, the answer is easy: You invest. You get it done. Happily, that's what the administration is proposing to do. But its plan is too modest. The $50 billion bump in infrastructure spending it has proposed is only for surface transportation. The infrastructure bank envisioned in the proposal is also likely to be limited to transportation. And as for our water systems, our schools, our levees? This is not a time for half-measures. It's a rare opportunity to do what we need to do and to save money doing it.
In 2009, Congress passed the American Recovery and Reinvestment Act, known to its friends (and enemies) as the stimulus. Billions of dollars went to the Transportation Department to improve our roads, rails and runways. That money was in turn given to the states, which quickly drew up lists of what they needed to do and how much it would cost.
When the feds checked in on the funds, what they found shocked them. The project costs were coming in at 18 to 20 percent less than estimated. The Transportation Department then looked at the share that went to the Federal Aviation Administration for runway repairs. The money that the FAA had thought would complete 300 projects was going to finish 367 projects -- about 20 percent more than projected.
The stimulus, they realized, had blundered into an incredible bargain. The recession was driven by the collapse of the construction sector. People who built things were now out of work. The materials used to build things were now on fire sale. The companies that organized the building of things were suddenly desperate for jobs. As a result, building things was suddenly dirt cheap.
And it still is. Unemployment in the construction sector is at 17 percent -- and that doesn't even count the construction workers who've simply given up looking for new jobs. Steel, gas and lumber prices are all well below their pre-crisis highs.
"There's work that needs to be done," says Larry Summers, outgoing chairman of the National Economic Council. "There are people there to do it. It seems a crime for the two not to be brought together."
Delays are same as debt
But what about the debt, you might ask? Well, what about it? Delaying a dollar of needed infrastructure repairs is no different than racking up a dollar of debt.
"You run a deficit both when you borrow money and when you defer maintenance that needs to be done," Summers says. "Either way, you're imposing a cost on future generations."
Plus, if America has to borrow money, now is the time. The interest rate on 10-year Treasuries is less than 3 percent - the lowest it's been since the 1950s. So a dollar of debt is cheap, and a dollar of infrastructure investment goes far.