Transportation Investments in Response to Economic Downturns (2014) / Chapter Skim
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Pages 108-129
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From page 108... ...
CONCLUSIONS Effectiveness of Stimulus Spending Conclusions about transportation stimulus spending depend on assumptions about the general effectiveness of fiscal policy. Estimates of the magnitude of the effects of stimulus spending vary over a wide range.
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From page 109... ...
The conclusions that follow concerning the effectiveness of transportation spending compared with other kinds of stimulus spending and concerning the effects of the design of a stimulus program do not depend on the magnitude of aggregate multipliers, within this range. Value of Transportation Spending in a Fiscal Stimulus Program Credible grounds exist for including transportation capital expenditures as a component of a federal fiscal stimulus program, once the decision has been made to undertake such a program: • If projects are selected with proper consideration of the value of the trans portation services they will provide, the long-term benefits will offset the initial cost, so the expenditure may be justified even if the magnitude of the stimulus benefit is smaller than expected.
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From page 110... ...
The main arguments in opposition are that, first, the time required to enact legislation and commence construction will delay spending beyond the time when the stimulus is needed; second, local governments will substitute federal funds for their own funds, reducing the net increase in spending; third, accelerating spending increases the risk of poor project selection decisions; and finally, public works projects have relatively high government budget cost per job (e.g., compared with public service employment programs)
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From page 111... ...
The ARRA experience shows that transportation stimulus spending can be timely if the duration of the economic downturn can be predicted with some reliability and is expected to be protracted. Only 7 percent of ARRA's $8 billion for grants to states for intercity passenger rail had been paid out by March 2012; obstacles to implementing this program are identified in the section below on management of the transportation stimulus programs.
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From page 112... ...
The Economic Development Administration evaluation of the 1976– 1977 federal stimulus programs concluded that substitution for local spending was substantial. There is also evidence that, historically, in the regular federal highway aid program, increases in the amount of federal highway aid distributed to the states have not led to equal increases in state highway spending.
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From page 113... ...
For example, if states responded to federal transportation grants by diverting some of their own funds from transportation to restoring their reserve funds, the stimulus effect of the federal aid would be diminished because the state had diverted funds from spending to saving. Federal restrictions on substitution (or incentives not to substitute)
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From page 114... ...
The use of the federal transportation programs as instruments for stimulus spending may present a second kind of conflict with the quality of transportation investment decisions in the long term. The ARRA transportation programs as well as other federal actions to sustain the Highway Trust Fund since 2008 have relied on a series of special contributions from the general fund rather than on revenue from user taxes and fees.
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From page 115... ...
. Therefore, the relatively high cost per direct job reported for the ARRA transportation programs does not show that these programs were less cost-effective as employment stimulus than the others.
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From page 116... ...
Evidence of Stimulus Effectiveness of Transportation Spending Only a few empirical studies report estimates of government expenditure multipliers applicable during recessions or periods of high unemployment and disaggregated by kind of government spending. Available estimates, summarized in Chapter 2, indicate that multipliers can vary substantially among spending categories and that infrastructure spending can be at least as effective as other categories of stimulus spending.
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From page 117... ...
Limits are imposed by state and local transportation agencies' capacities to manage an unanticipated surge in funding, by the capacity of the transportation construction industry, by federal administrative agencies' capacities to manage and oversee new grant programs or expansions of existing programs, and by the opportunities available to invest the stimulus funds in worthwhile transportation projects. The optimum transportation share also depends on the relative stimulus effects of alternative kinds of government purchases and of other forms of fiscal stimulus.
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From page 118... ...
Allocation of Funding Within the Transportation Program ARRA allocated the total amount of transportation funds provided among highways, transit, passenger rail, other modes, and the TIGER competitive grant programs. Passenger rail's share of ARRA transportation funding was much greater than its historical share of federal transportation aid.
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From page 119... ...
Following the rules of the established federal transportation aid programs, ARRA transportation grants could be used only for capital expenditures (with the exception of a small share of transit aid)
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From page 120... ...
1. Expand Transportation Agency and Construction Industry Capacity to Absorb Stimulus Spending Congress and the states should consider changes in finance, administration, and planning practices that would increase the capacity of transportation programs to maintain spending in recessions and to absorb efficiently any future temporary federal assistance, such as the ARRA transportation programs, intended as economic stimulus. State and local government total capital spending and state and local noncapital transportation spending are procyclical; that is, they tend to accelerate when the economy is growing strongly and to decelerate during downturns.
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From page 121... ...
To the extent that avoiding cyclical swings in spending in transportation programs could improve the performance of these programs, the states also have an interest in stability. Modifications in the Primary Federal and State Transportation Programs Modifications of established programs that Congress and the states should consider to enable transportation agencies more readily to maintain or increase spending during economic downturns could include the following: • Providing stability in the established federal transportation funding programs.
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From page 122... ...
Each of these actions would require evaluation before a decision was made to implement it. Risks of such a policy, from the standpoint of the transportation program, include the possibility that some projects would be delayed, with loss of benefits, if funds were reserved for recession spending; the possibility that unspent funds would be diverted to nontransportation programs; overindebtedness; and the possibility that states would reduce their transportation spending if they came to expect increased federal aid, drawn from the general fund, during recessions.
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From page 123... ...
Finally, state and local agencies knew approximately how much funding to expect and faced no special application requirements to receive the bulk of the funds. However, distributing a portion of transportation funds in a stimulus program through competitive grants could help to achieve the objectives of the ARRA transportation grant rules.
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From page 124... ...
In the existing competitive grant programs, states and local governments submit proposals to the U.S. DOT for grants or credit assistance for capital expenditures for any kind of transportation project now eligible for federal aid.
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From page 125... ...
DOT to publish rules on maintenance of effort, project eligibility, and data reporting that would be available for future application. Allocation of Grants Any future transportation stimulus spending program should continue ARRA's practice of allocating most of the funds according to the procedures and formulas of the established federal transportation grant programs.
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From page 126... ...
In the design of any future transportation stimulus program, consideration should be given to alternative or additional means of ensuring timeliness: • Providing multiple obligation deadlines, for example, a short dead line applicable to a portion of the total funding to ensure immediate spending and deadlines equivalent to those in the regular federal-aid highway and transit programs for the remainder to allow states to undertake more complex projects with the stimulus funds; and • Allowing temporary accelerated review and approval processes to speed construction for certain kinds of projects. The proposals in the previous section for changes in the regular federalaid programs to make them more useful mechanisms for stimulus spending also would help ensure timely spending.
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From page 127... ...
Requirements for duplicative reporting to multiple federal entities should be avoided. 3. Measure the Effect of Federal-Aid Program Changes on Recipient Actions and Program Benefits The effect of the ARRA federal transportation grants on total state and local government transportation spending, total spending, and spending priorities cannot be definitively assessed with the available evidence.
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From page 128... ...
No objective method for evaluating this trade-off was available to guide planning or management of ARRA. As part of its assessment of the ARRA transportation programs, the U.S.
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From page 129... ...
The value of job creation would depend on the stage of the business cycle and would reflect the value that society places on helping individuals facing economic distress. Other categories of stimulus spending also yield benefits that are distinct from their stimulus effect -- they may provide services or directly aid persons in distress.
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