Yes, You Should Read the U.S. Treasury Report on Infrastructure

Post date: Apr 23, 2012 10:12:46 PM

State DOT policy folks and anyone interested in transportation finance should read the Treasury report “A New Economic Analysisof Infrastructure Investment,” published in late March.

I haven’t posted anything on this report before now, as I’ve been trying to decide how to respond to some of the shortcomings in it. Shortcomings aside, however, this is a valuable piece and should be taken seriously. I mention state policy people in particular because although the report is intended to influence the congressional debate, I doubt that it will penetrate the dense fog on Capitol Hill. Those toiling on transportation finance and revenue problems in the states, however, may find it a useful tool.

Why useful? All too often the discussion of the economic impact of transportation investment is superficial at best, usually dominated by a figure for the number of jobs created by a project or program (based on a mutiplier that someone came up with at some time in the past). The Treasury report, on the other hand, draws our attention to the real and substantive contribution that investing in transportation makes to economic growth.

Some of the key points:

· Transportation investments have long-term economic benefits in addition to short-term job creation.

· Investment is very timely now, as there are major underutilized resources.

· We are underinvesting in transportation compared to the need, the investment levels of other countries, and the expectations of our citizens.

· These investments have a lot of side benefits, including promoting public health.

There has been surprisingly little work done on these issues, and state DOTs haven’t done much to pursue research at the state level either. (When I was at NJDOT I commissioned Rutgers Professor Joe Seneca to do just this, which has yielded some excellent results: short version here, long version here.)

My main quibble with the Treasury report is that it manages to ignore the obvious point that a revenue plan is needed to support this highly desirable investment in transportation infrastructure. I believe that a strong argument could be made that a significant gas tax increase, if phased in properly, could (1) finance an infrastructure-led economic recovery, (2) buy a huge amount of infrastructure for the price, (3) have minimal economic drag, and (4) promote long-term budgetary stability. That argument – or any argument related to revenue – is not to be found in the Treasury paper.

Instead, we see another argument for a national infrastructure bank. Now, I am generally OK with the idea of an NIB. What I don’t like is the notion than an NIB will take the place of the revenue we really need. And as Ihave pointed out before, there is usually an unspoken assumption in these discussions that private investments are adding new revenue to the mix, when in fact they are loans that are going to be repaid – with interest – by the tollpaying public.

I also continue to be somewhat perplexed at how the argument for an NIB gets mixed up with the argument that we need better project choices. I have been a strong supporter of the TIGER program, which has used discretionary funding to stimulate innovative projects. But NIB projects would seem likely to be scored by the predicted return on investment from tolls, not how well they contribute to innovative solutions. And TIGER and NIB together would surely never account for more than a small fraction of the total transportation program. More important for the total program is a focus on performance objectives.