Infrastructure paybacks

By Dave Anderson

Counter-cyclical spending by the government for needed infrastructure does two things. The first is that it fills the gap in demand that the recession caused. This is the basic argument for most stimulus spending --- it puts people to work who otherwise would not be working.

The second and potentially more important, is that it buys public goods and services at a discounted price compared to either normal trend prices or boom time prices when everything is more expensive. And given the political system's propensity to delay and defer maitenance, a python lump of maitenance and new construction probably moves the system closer to its designed time between overhauls instead of the stretched out schedules.

We are seeing this in Pennsylvania as the Tribune Review reports that PennDOT is using its ARRA money on even more projects than it had originally anticipated:

Low bids on stimulus-funded projects allowed PennDOT to spend the savings on another 33 road and bridge projects, Gov. Ed Rendell announced Friday.

PennDOT received $1.026 billion from the American Recovery and Reinvestment Act for 293 highway and bridge projects, and is paying for more work with $69.3 million it saved on bids that came in lower than expected, said PennDOT spokesman Rich Kirkpatrick.

The projects listed are widespread and fairly small. The largest project in SW Pennsylvania is a $9.2 million dollar bridge reconstruction. That bridge is rattly and has been shaky since I moved to Pittsburgh more than a decade ago. Ideally, normal preventive maitenance would have been performed at some point in the last generation, but that has not happened as the combination of the region being broke, federal funding formulas that strongly favor new construction, and the political goodwill generated by spending on new projects instead of spending the same amount on maitenance led to a deterioating infrastructure in the region.

PennDOT was able to use its countercyclical money to get an extra 7% value in infrastructure spending. There may be mild time shifting discounts (I doubt it because so much maitenance has been deferred) but the public has received that 7% increase in infrastructure and will continue to receive benefits from this additional spending for the next twenty five years or more.