Transportation Investments in Response to Economic Downturns (2014) / Chapter Skim
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Pages 131-152
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FACTS Fact 1 The transportation infrastructure component of the American Recovery and Reinvestment Act of 2009 represented a tremendous dollar commitment, relative to federal transportation aid during typical times.
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was the $800 Making Work Pay tax credit.2 This tax benefit amounts to only 11 percent of the typical household's federal tax bill before the act. Thus, the Recovery Act provided a 76 percent boost in highway aid relative to one year of typical federal aid but only an 11 percent easing of the taxpayer burden relative to one year of typical federal taxes.3 Fact 2 Despite the size of the act's transportation component, the relevant statistics for either industry inputs or output show little movement in the years following the Recovery Act's passage.
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The employment decline in the BLS series is likely greater than the decline in the FHWA series because the FHWA does not include street construction. Note that street construction, for the most part, was not covered by the Recovery Act's transportation component.
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The figure plots national spending on highway, street, and road construction between 2007 and 2011 under several scenarios. These series include expenditures from all funding sources: the federal Highway Trust Fund, Recovery Act grants, state fuel tax revenue, as well as other state and federal sources.
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(Source: FHWA.) 90 80 70 Billions of Dollars 60 50 40 30 20 10 2007 2008 2009 2010 2011 FIGURE B-4 Value of construction put in place for public highways before and after passage of the 2009 Recovery Act.
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In each of the three years following the act's pas sage, the line plots the sum of 2008 spending plus one-third of the Recov ery Act highway allotment.6 The gap between the line with circles and the 6 Thus, in this hypothetical scenario, the Recovery Act highway dollars are outlaid at an equal rate over three years.
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. This reduction includes highway spending from the state's funds, Recovery Act funds, and non–Recovery Act federal aid.
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Census Bureau Annual Survey of State and Local Governments. For many of these states with reduced highway spending, the declines were not part of an overall government cutback.
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Fact 5 Many states cut their use of non–Recovery Act federal highway dollars coincident with their receipt of Recovery Act highway dollars. Total federal aid for highway construction (i.e., summed across Recovery Act and non–Recovery Act dollars)
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POLICY IMPLICATIONS Policy Implication 1 Suppose policy makers pursue a stimulus spending program with a transportation component in the future. They should consider set ting hard-and-fast spending floor requirements for states rather than a Recovery Act–style "maintenance-of-effort" requirement.
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Recovery Act grants administered by the U.S. Department of Education were given to a state on the condition that the governor ensured that his or her state would maintain K–12 and higher education support at least at their FY 2006 levels for the first three years following the act's passage.
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Instead, I believe that any future stimulus spending program should give state DOTs some flexibility. For example, continuing with the Recovery Act example -- the act could have been written such that, beginning two years after the passage of the act (i.e., February 2011)
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It is my opinion that lawmakers should give it to them if future stimulus laws are enacted. Policy Implication 3 The committee recommends that state DOTs create and maintain a queue of "shovel-ready" project plans that would be prepared in case stimulus transportation spending were undertaken again.
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At the end of 2009, 32,252 homes had been weatherized using Recovery Act funds. This component of the act quickly employed private contractors, who may have been in excess supply given the housing market downturn, as well as program administrators, many of whom worked at nonprofit/nongovernmental community action agencies.
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.13 12 See http://www.fta.dot.gov/12297_10518.html. 13 It is important to note that, for the most part, macroeconomists would agree that in the short term stimulus spending increases output because government spending is included as part of gross domestic product (GDP)
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The CBO issued its first Recovery Act report in late 2009. In it, the CBO gave an interval range of mul tiplier estimates for "federal transfers to payments to state and local governments for infrastructure." The multiplier range was between 1 and 2.5.
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. As such, the CBO estimates are not useful for evaluating the policy effects of the Recovery Act; however, they are useful for summarizing one organization's view of the state of existing economic research on the topic.
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As in Wilson (2012) , the paper analyzes the p cross-state employment effect of the Recovery Act.
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• I offered other papers to the committee on time-varying dynamic responses to stimulus spending: those by Pereira and Lopes (2010) and Kirchner et al.
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• If policy makers are set on enacting stimulus programs with a transportation component, I have provided several practical sug gestions to at least partially avoid the deficiencies that arose dur ing the Recovery Act episode. 20 There are sensible reasons besides increasing short-term economic activity to enact a Recovery Act–type program.
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It is worth highlighting one theme that reoccurs in my dissent: how economic theory permitted economists to foresee some of the problems with the Recovery Act beginning decades ago. These economists include Gramlich (1978, 1979)
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2013. Are Government Spending Multipliers Greater During Periods of Slack?
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