How to Increase Infrastructure Investments in Era of Budget Cuts

State and local transportation are ever more important to America's global competitiveness, but in a climate of budget cuts and deficit reduction, policymakers have to make a better argument about the importance of infrastructure investments and find alternate ways to fund those projects.
by | September 19, 2012

State and local transportation are ever more important to America's global competitiveness, but in a climate of budget cuts and deficit reduction, policymakers have to make a better argument about the importance of infrastructure investments and find alternate ways to fund those projects.

That was the consensus at Governing's Cost of Government summit Wednesday in Washington, D.C.

“Infrastructure is so important that, yes, we should go and borrow money now and invest it," said Washington, D.C., Chief Financial Officer Natwar Gandhi. "This is not spending the way you spend in programs. This is investment.”

Of course, federal deficit reduction means that pool of money is at risk. If the federal government aligned its spending with its revenue, federal transportation funding would be cut by 35 percent, said Josh Shank, CEO of the Eno Center for Transportation. Congress passed a two-and-a-half-year transportation bill this summer and essentially bailed out the Highway Trust Fund in the process.

But because the bill included no new gas tax revenue, critics derided the legislation for relying on accounting gimmicks that only postpone the problem and fail to provide sustainable long-term funding mechanism. Sequestration also looms at the beginning of 2013. And right now, states and localities aren't prepared to replace lost federal funding, Shank said.

“It’s either going to be cut spending or raise revenue," he said "The challenge over the next two years is to find out if we can make the case that federal transportation funding should be increased."

On the one hand, that argument shouldn't necessarily be that hard to make, said Keith Reester, director of public works in Loveland, Colo. Unlike social services or public employee salaries, money spent on infrastructure produces a tangible product that benefits the entire community. It also creates an environment that makes it easier for companies to do business.

"For the average citizen, it doesn’t just go into the black hole of government,” Reester said.

So states and localities shouldn't be shy about seeking alternate funding for transportation projects, the panelists agreed. Public-private partnerships have showed potential in cities like Chicago, Indianapolis and San Francisco. State and local gas taxes and sales tax set-asides (like the one that saw mixed results at the ballot box in Georgia last month) could be sought. The much-maligned vehicle-miles-traveled fee could make a resurgence.

As for messaging, the pitch to the public should be one of global competitiveness. The United States spends 2 percent of its public money on infrastructre, said Gandhi. Europe spends 5 percent on average; China is spending 9 percent.

“If we don’t prepare our infrastructure to be part of an advanced economy, we are losing our competitiveness,” he said.

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