At a higher level, there are returns of many kinds for both public and private players from investing in infrastructure, says Joe Kane, Senior Research Associate and Associate Fellow at The Brookings Institution.
Stimulus spending packages, proposed or already approved to help mitigate the severe economic and societal effects of the pandemic, can vary just as much as they might share common elements. And the types of stimulus packages from previous, non-pandemic economic crises, might not necessarily be the best in this situation. In examining various models for infrastructure stimulus in particular, a July 2020 paper by the Brookings Institute stood out as it outlines a different approach than prior stimulus packages: one more focused on the specifics of the pandemic. While this particular proposal has not been adopted, the concepts it presents are certainly in the national conversation on planning for stimulus packages.
We present this Q&A with Joe Kane, co-author of the report: An Infrastructure Stimulus Plan for the COVID-19 Recession [brook.gs/3tH8XkG]. The Brookings Institution is an American research group that has been a prominent think-tank, nationally and globally, for over a century. It conducts research and education in the social sciences, primarily in economics, governance, foreign policy, global economy and economic development.
Infrastructure spending as stimulus gets proposed, and sometimes implemented, in reaction to nearly every economic downturn. What are typical approaches for such investments?
There is a tendency to fall back to a Keynesian approach: “Let’s just pump a lot of money into it, that will increase capital spending, that will lead to multiplier effects.” Especially when it comes to job creation. But any good economist would say, the best answer is “it depends”. And there are a number of assumptions baked into that idea, in terms of the level of investment, the duration of investments, etc. Say there is going to be a surge in federal spending for example, over a year, two years, three years… how it is going to be spread out? If there is an increase in spending, how is that spending going to be targeted? Is it going to go towards new capital projects in terms of expansion and connectivity? Is it going to go to maintenance and repair projects? And then, the question of where the money would go — this is a very big country. I often look at Europe and other global regions for comparison. But geographically speaking, the countries are a lot smaller. China obviously is not; it is quite large and has a variety of needs. Despite these differences, the opportunities to look at and analyze how such spending and how it has been handled, in other places is there.
Recessions can shock infrastructure demand, but structural factors have a more enduring impact
When we think of return on investment (ROI), if you want to call it that, when it comes to infrastructure, ROI is not in a traditional sense. Not in the sense of say private holdings; these are public assets that serve a public purpose. This is the whole thing that came up four years ago, when the new administration came in and proposed a lot of private investment and public-private partnerships, and the success would be based on revenue streams. But not all infrastructure is designed to generate revenue streams in that way. But at a higher level, there are returns of many kinds for both public and private players from investing in infrastructure. It is not that leaders are not saying the right thing in terms of campaign rhetoric, we need to see how such things actually work out in reality.
But the question that gets overlooked, when proposing big infrastructure stimulus is “why we are doing this?” How well would the various approaches work to address the core issues and short-and-long term impacts of a specific economic downturn? Be it the “build big”, privatize, state and local grants, or combinations — we have tried many — but which his right for this situation?
At their core, the pandemic and its associated recession are stories of human suffering. This means that any infrastructure stimulus program must put people at the center
In your proposal, you note that we should not simply replay past approaches. There were the New Deal investments of the 1930s, the huge public works, Civilian Conservation Corps, and more. The 1950s infrastructure investment boom, as you have mentioned, the Cold War infrastructure spending, the infrastructure bill in 1991 — why should we not model our current plans on those? Could you give examples from the past, elements of which may or may not work this time around?
For a long time in the United States, we have relied on a 1950s infrastructure vision, the interstate highway era: “we are just going to build out, more is better”. The idea is basically “just spend more and growth is going to happen”. And it is just going to kind of keep happening. I would argue that we are fundamentally at a different time now; when we do not have perpetual growth. We have built out a lot of stuff, but we need to take care of it. We need to improve the efficiency of it, the reliability of it, and the sustainability. I always add that we need to crucially answer the ‘why’. And really, throughout much of this current situation, we have had a lack of national vision to even understand what constitutes a “good investment” or a “bad investment”.
There is always an element of job focus. We have seen this across different parties’ administrations. You have infrastructure being advertised in terms of political sloganeering as “jobs, jobs, jobs”! And when it comes to infrastructure, pure spending in dollar numbers does not necessarily translate to sustainable jobs numbers. And federal action is not necessarily going to have as direct effect as people envision. We are actually seeing this with Covid; the fiscal pressures that are facing states and localities are not actually in the direct control of federal leaders.
Three quarters of public spending in terms of transportation and water infrastructure, is at the state and local level
What I always like to highlight is three quarters of public spending in terms of transportation and water infrastructure, which are two main types of public infrastructure in the country, at the state and local level. States and localities are the primary owners and operators of our infrastructure. The jobs related, the utility revenue, the operations and maintenance, the capital improvement programs, and the quality of services, the service equity, impacts on related businesses and communities, those directly relate to state and local resources and influences. In as much as the federal government provides strategic direction, obviously, like regulatory issues, safety issues, and of course if there is a stimulus or surge in spending. Whether it is grants, competitive discretion, etc., they have a role to play.
What Covid has highlighted is that the lag in when we spend something on infrastructure. What will instantly lead to “economic return?” These are generational investments, so it is not a simple matter of what you might see form direct stimulus payments. It might be different if you give that to a local small business; you might see open up, maybe like next week, and you could see people back to work. If you do the same for infrastructure, maybe you will see certain construction projects ramp up potentially in the next few months, but states and localities capital planning processes are stretched out over many months and years. The effects can be so much more dispersed. And we probably have not even seen the full effects of the pandemic, for example, in terms of the fiscal pressures. We have not even seen necessarily the widespread slowdowns in infrastructure projects just yet, even though some have been delayed or canceled outright.
Passage from the Brookings paper: “The country also should not simply replay the 2009 stimulus. While the term “shovel-ready projects” still tends to lead conversations about stimulus packages, few capital projects can move quickly enough to create substantial jobs or upgrade systems’ quality during a recession. Nor can the country afford to overlook environmental injustices that disproportionally impact our most vulnerable communities. Instead, federal lawmakers should adopt policies that can immediately benefit disadvantaged households and create training programs that lead to durable career opportunities.”
What should we be doing, and what is the focus for investments that your paper proposes?
We should be making these public investments to improve the long-term efficiency, reliability, and performance of our infrastructure networks. And during this crisis, for instance, many people have trouble paying bills; public transport use is lower. This impacts the revenue states, localities, and utilities rely on to keep everything operating and maintained, but it also disrupts the plans to modernize, upgrade, and build new infrastructure.
Complicating plans to better focus investments is the incomplete picture of our infrastructure and how it works. We just do not do a good job nationally, measuring and evaluating the long-term performance of assets. Asset management is a big deal, not just in the transportation space, but especially in the water space. In some places, utilities do not even know where their pipes are buried, let alone how old those pipes are. How can you begin to even quantify the performance of those systems and the improvement of those systems if we don’t even have a handle of what that performance is right now? I would emphasize, the relative paucity in good granular data, geographically speaking makes it difficult to be able gauge how well broad stimulus spending from the top down might perform.
Is this why your paper proposes a “Boost” program to help people make utility payments to help local entities keep up with operations, maintenance, and modernization?
Boost would bring stimulus at a 50 million household level to help cover essential infrastructure spending for transportation, power, and water. Like when we are seeing this with moratoria on utility shut-offs among some utilities. It is a twofold challenge from the standpoint of the operators; they have to collect revenues, and they’re running systems. They have to have that reliability in order to execute on the operations that are just so essential every day that we all depend on. We recently held a “Utility Bill Affordability Event” [Link: brook.gs/39A1vQr] which explores so me to the challenges of operationalizing such a proposal, but in this crisis, the economic pressure on utilities and infrastructure is enormous.
Passages from the Brookings paper: “Household spending on infrastructure services per lower income groups represents a large portion of household expenditures. Policymakers should make affordability a chief structural concern. The result can be a self-perpetuating cycle of economic disconnection. Diminishing means to come out of dire situations”
California just came out with a report on the level of what they call water debt facing households. And there’s more than a billion dollars just in water debt there. That is over 155,000 households just in the state of California. We know that there are ad hoc efforts being done, where they can get done, by individual utilities, or individual municipalities that have tried to create customer assistance programs and have tried moratoria on shut-offs.
But that as a long-term strategy, or even a medium-term strategy? That may not work for a long enough period—they have to collect revenues. For me, and my colleagues, this is an area where there could be additional targeted federal support. To provide that capacity, both for households with their affordability issues, but also potentially for operators as well.
Recommendation from the Brookings paper: “Launch a “Boost Program” to help cover the cost of essential transportation, water, energy, and broadband services for over 50 million households”
I see that your proposal includes “Keep America Moving”, which has things like direct grants to state and local governments for short term maintenance projects. This, along with utility bills assistance to buoy levels of revenue for utilities, is also to keep things going?
Yes, it is better focused than the “Gold Rush” effect that Infrastructure stimulus often suffers from, the “let’s just build a bunch of new stuff” mentality. States and localities would be the first to tell you that yes, we maybe have a new project to take care of, but our most immediate priority is fixing a treatment plant, or a bridge, etc. This was one of the criticisms, in retrospect, of the push for “shovel-ready” projects in a stimulus in 2009. The optics of pumping money into big new things is attractive. Ribbon cutting ceremonies for public visibility, but from a safety and operational standpoint it is crucial to get everything else done as well. The motivation for the Keep America Moving program we have proposed is to provide more emphasis on “fix it first”.
But it has to be done right. One of the potential problems with raining money down on states and localities is “substitution effects”. Would an influx of money effectively shift their spending in other ways? And not just spend more on infrastructure, but they would maybe cover other budgetary holes? That is something that the Congressional Budget Office (CBO) has been looking at.
Recommendation from the Brookings paper: “Pass a ‘Keep America Moving’ grant program to protect state-of-good-repair initiatives and labor markets by expanding direct grants to state and local governments with requirements to spend on short-term maintenance projects”
Why did you caution against simply trying to replay infrastructure stimulus plans from the past?
Not only do we have poor data, federally speaking in measuring the efficacy of these investments, but even how we categorize these investments. There was an interesting paper that examined what a trillion dollars of infrastructure really looks like [brook.gs/3aFQxs9]. In historical terms, that number I often floated around like “let’s just spend a trillion dollars or let’s spend $2 trillion”. What does that mean in inflation adjusted terms? How does that compare to the New Deal of the 1930s? What categories? Would that be spent on just a lot of confusion? The Office of Management and Budget has fascinating data and historical tables in this piece.
It helps put in perspective discussions that happen, or perhaps need to happen, around what are the budget categories that we would be spending this money on, as that might include archaic categories that we no longer even really use anymore. How do we discuss public lands, buildings, housing, and other types of things that are borderline infrastructure in a public sense, but what were included at that time in past stimulus like the New Deal? When you bring up current stimulus proposals and what has happened due to the pandemic, there are some obvious ones like airports and transit systems, or when it came to utility bill, assistance, that’s kind of easy to define. And I think that is why there has been a lot of push on this as when it comes to state and local aid. Again, states and localities are our primary owners and operators of infrastructure.
What challenges are there, in this current crisis, to mapping out the infrastructure portions of stimulus proposals?
Whatever money that would be in the stimulus bucket to go to states and cities, you better believe that a part of that is going to infrastructure. It is probably hard to determine exactly how much of that would go to infrastructure, because they have a lot of other challenges on their plates for education, Covid response, vaccines, and other related social and community services. It is really hard in terms of short-term recovery packages, despite their huge size, to get fund where they could be best utilized and bring both short and long-term benefits. We could be looking at packages of a trillion dollars or more, and it’s a lot of money. But infrastructure has, in relative terms, a lot of money sloshing around in it every year, when you look at if you look at departments of transportation budgets. I like to take a step back, and ask is it a question of are we spending enough? Or are we spending in the right ways in the right places?
Passage from the Brookings paper: “Federal infrastructure stimulus does not need to rely on traditional programming”
And that is how I think of any stimulus package. My colleagues study and write about this: you can’t mistake the window of opportunity for quick action for the need of thoughtful generational investment. You know, the reach of these investments so that they get to the right people, the right places, the right projects, versus the political expediency of, “let’s just get the money out there”.
I am sure that state departments of transportation and localities wouldn’t complain, just having extra money to loosen their belt their belts a little bit, they would give them less anxiety and more certainty. But will that truly maximize long-term experimentation, more resilient infrastructure, more technologically advanced infrastructure? Maybe not. We have to make sure we are not losing sight of the fact that we are really trying to hit a moving target. If we are just trying to hit the target from 10 or 20 years ago, we are missing the point, we have to hit the target that’s in front of us over the next 10, 20, or 30 years.
The next point in the proposal is music to my ears: the InfraCorps Program [brook.gs/3a2uEnQ]. The infrastructure segment struggles with growing and maintaining a workforce, even if there were suddenly so many more jobs in the sector, we need qualified people, and say more apprenticeships. Presently it is often difficult to get formal job training like that within the infrastructure segment. Your thoughts?
There are a lot of people being thrown at segment, and it is a good investment, but they have gone through the formal training. But we are not ready. Let’s say, all of a sudden, things get back to fairly normal, and then there is several billion dollars of “let’s just build a bunch of new stuff”. I do not think we are ready to do this efficiently. This is where investments in longer term strategies, building that workforce capacity, retraining displaced workers, upskilling and reskilling the infrastructure workforce and modernizing infrastructure technologies will be important.
Additional recommendations from the Brookings paper: “The InfraCorps Program to create and strengthen infrastructure career pathways for underrepresented and disadvantaged groups by securing multiyear funding for workforce development in the skilled trades and, potentially, full-time wages for 3 million apprenticeships”. “The ASCEND Program to promote long-run economic competitiveness by launching four public competitions and four private research investment programs that modernize water infrastructure, accelerate clean energy adoption, expand broadband networks and skills development, and address transportation and land use environmental injustices.”
