Milken Institute Global Conference: Infrastructure Projects as Economic Stimulus

April 30, 2009

As I discussed yesterday, I participated in two panels at the Milken Institutes Global Conference in Los Angeles on Monday. The second panel was about Infrastructure Projects as Economic Stimulus. You can view the slides and webcast.

My main observationsat thissecond panelwere:

  • Some of the infrastructure spending in the stimulus package would pass a cost-benefit test even apart from the recession. For example, CBOs analysis of infrastructure investment last year concluded that additional spending of up to tens of billions of dollars each year on transportation infrastructure projects could be justified as having benefits that exceed the costs. We warned that economic returns on specific projects vary widely, so specific investments should be selected carefully. In addition, we explained that some of the additional spending could be avoided by creating incentives to use existing infrastructure more efficientlysuch as congestion pricing, which we analyzed more fully earlier this year. Still, additional targeted infrastructure investment could be appropriate even in normal times. Moreover, these are not normal times, and it may be appropriate to undertakemore immediateinfrastructure spending than otherwise in order to putidle resources to use.
  • CBO projected that infrastructure spending approved in the stimulus legislation would generate outlaysand thus economic stimulusonly gradually. For example, we are looking for increases in federal highway spending to be 10 percent of the amount appropriated in the rest of fiscal year 2009, 25 percent in FY 2010, 20 percent in FY 2011, and a declining share thereafter. Although the sluggishness of this projected spend-out surprised some observers, we explained that the need to draft plans, solicit bids, enter into contracts, and then to undertake the work (during appropriate weather) had led previous increases in budgetary resourcesfor highways to be followed by increasesin

Budgetary Resources and Outlays for Highways

    Source: Congressional Budget Office

    outlays with a measurable lag. Lags in other areas of infrastructure spending can be even longer, especiallywhere programsare new orreceive significant boosts in funding relative to recent yearsdescriptions that fit provisions in the stimulus package focused on weatherization and broadband expansion among others. CBO projects that total infrastructure outlays resulting from the stimulus package will peak in 2010 and 2011 but will remain significant for a number of years.

    Infrastructure Outlays as a Result of the American Recovery and Reinvestment Act

    Source: Congressional Budget Office

  • Very early data on the use of funds approved in the stimulus package are consistent with this perspective. For example, the Department of Transportation has reported that $7 billion has been obligated for highway spending but only a few million federal dollars have been spent.