Obama's New Infrastructure Proposal

At a Labor Day rally in Milwaukee, Ohio, Tuesday, President Barack Obama announced that he will pursue an aggressive new initiative to increase infrastructure investment to help turn the U.S. economy around.

More details about the infrastructure proposal and other economic recovery policies will be unveiled at a speech in Cleveland, Ohio, today. However, from what the White House has said publicly so far, the plan is a combination of front-loaded surface transportation spending and longer-term infrastructure investment that aims to rebuild 150,000 miles of roads; construct and maintain 4,000 miles of rail; and rehabilitate or reconstruct 150 miles of runway.

Those goals would be accomplished through:

  • An up-front investment of $50 billion to “help jump-start additional job creation, while also laying the foundation for future growth.”
  • A new “long-term framework to reform and expand our nation’s investment in transportation infrastructure.” SAFETEA-LU, the most recent multi-year highway authorization law, expired last September. After almost a year of inaction, the White House is now urging Congress to “complete a long-term reauthorization that expands and reforms our infrastructure investments and returns the transportation trust fund to solvency.”  

The White House is proposing some significant policy changes as part of the initiative, including:

  • Establishing an Infrastructure Bank to “leverage federal dollars and focus on investments of national and regional significance that often fall through the cracks in the current siloed transportation programs.”  The White House is urging a break with the federal government’s traditional distribution of transportation money through earmarks and state formula-based grants. Instead, Obama wants an Infrastructure Bank that will base investment decisions on “clear analytical measures of performance, competing projects against each other to determine which will produce the greatest return for American taxpayers.”
  • Putting high-speed rail “on an equal footing” vis-à-vis other surface transportation programs to “ensure a sustained and effective commitment to a national high speed rail system over the next generation.”
  • Streamlining, modernizing, and prioritizing surface transportation investment by consolidating more than 100 different programs and focusing on using performance measurement and “race-to-the-top” style competitive pressures to drive investment toward better policy outcomes.
  • Expanding investments in areas like safety, environmental sustainability, economic competitiveness, and livability – helping to build communities where people have choices about how to travel, including options that reduce oil consumption, lower greenhouse gas emissions, and expand access to job opportunities and housing that’s affordable.

So what does it all mean?
There’s a strong nexus between highway investment and equipment sales. A 2008 Associated Equipment Distributors (AED) study found that each dollar spent on roads created 6.4 cents in market opportunity for equipment distributors (sales, rental, product support, etc.).  That’s why highway reauthorization has been AED’s top legislative priority for several years.

We’ve been disappointed by the administration’s failure up until this point to focus on long-term infrastructure investment. The construction industry would almost certainly have been worse off without last year’s stimulus bill. But a one-time infusion of cash is like giving a sick patient a pain killer: It makes them feel better for a short time, but it doesn’t address the underlying problem.

The collapse of the housing market and the general economic slowdown have wreaked havoc on the equipment industry. Unfortunately, inaction in Washington and the uncertainty surrounding future federal highway investment has made matters worse. Without a clear sense of how money will be coming through the pipeline, states can’t plan major projects and contactors don’t know how much work they’ll have. As a result, they’re sitting on their hands and not buying new machines. That’s part of the reason that the equipment industry has lost 37 percent of its workforce since the recession started.

For more than a year, AED has been working with the Association of Equipment Manufacturers (AEM) through our Start Us Up USA! campaign to aggressively lobby Congress and the administration about the urgent need to reauthorize the highway program. We’re also working with other organizations, including the U.S. Chamber of Commerce, the American Road and Transportation Builders Association, and the Associated General Contractors through various other coalitions. In a time when construction unemployment has been pulling up the national jobless rate, we’ve all been scratching our heads about why the administration hasn’t made construction industry recovery a higher priority.

Obama’s announcement yesterday suggests that the message has gotten through: The White House has finally connected jobs, long-term economic growth, and infrastructure investment. In the administration fact sheet announcing the new effort, the Obama administration is also now acknowledging the need for a long-term reauthorization and the need to shore up the Highway Trust Fund (HTF). That’s great news.

Assuming it’s paired with action on a long-term investment plan, another $50 billion infusion of infrastructure money could make a big difference for the industry as stimulus project money starts to run out. Also, some of the reforms the president is proposing could improve public perceptions about the road program. Creating more transparency and efficiency may help restore public confidence, which could make the public more willing to support user fee increases in the future. And streamlining the distribution of money could help get projects underway more quickly.

But the details released to-date suggest the plan has some shortcomings:
First, while acknowledging the need to strengthen the HTF, the administration has so far said nothing about how to create new, sustainable revenue streams. This will inevitably lead to more uncertainty down the line. AED supports significant increases in infrastructure investment, but we’ve long said it should be done in a fiscally responsible manner. Given the current economic situation, deficit financing in the immediate term makes sense. We understand that the White House has done what’s politically feasible at the moment. But ultimately we can’t borrow our way to better roads.

Second, the White House proposal suggests the need to increase investment in “livability.”  That’s political shorthand for transit and pedestrian programs that channel highway money away from highways. Urban mobility and transit must be part of the comprehensive transportation plan, but we also need to be mindful of the fact that rural economic development – not to mention personal and freight mobility and national security – depends on roads that go through sparsely populated areas. If the new investment is truly going to lay the foundation for America’s future economic growth, it needs to be carefully balanced.

Third, the president has proposed changing how the money is distributed and allocated between the states. Basing investment on performance sounds good in the abstract, but does that mean we won't be building roads in rural areas just because they’ll have fewer users?

Finally, we’re disappointed that water infrastructure isn’t part of the package. Our nation has hundreds of billions of dollars in sewer and drinking water needs that are largely ignored because the systems are underground. Recent House votes demonstrate there is strong, bipartisan consensus on Capitol Hill that we need to increase water investment. Adding water infrastructure to the plan could make it a more attractive overall package.

So where is it all going?
The story will obviously keep unfolding as the White House releases more details this week. In addition to the new infrastructure money, the president will also apparently be unveiling aggressive new tax stimulus. We’re hearing that could include 100-percent bonus depreciation for the rest of 2010 and for 2011. If paired with infrastructure spending, major new capital investment incentives could have a major impact on equipment distributors and manufacturers.

Of course, there are some pretty significant barriers to getting any legislation through Congress before the end of the year, not to mention dramatic new tax and infrastructure proposals. First, there’s a matter of time. Congress doesn’t return from the August recess until next week and is scheduled to adjourn in late September to give lawmakers plenty of time to campaign. Although Congress will likely return briefly after the elections, lame-duck sessions rarely accomplish much.

Then there’s the question of getting enough votes to pass a bill. With the political winds strongly at their backs, Republicans have no incentive to cooperate with the White House or Democratic leadership on this or any other legislation. GOP leaders have already started hammering the president’s new infrastructure proposal.

And despite general support for infrastructure in the Democratic caucus, given the mood of the voters, there may be many members of the majority party who are reluctant to vote for anything that will add to the deficit or raise taxes on certain industries and individuals.

In the final analysis, we’re glad the president is making the connection between infrastructure and jobs. If the rumors about 100-percent bonus depreciation are true, that could be good news too. But whether the new initiatives mark a real shift in White House focus or just last-minute election year posturing remains to be seen. Ultimately, actions will speak louder than words or fact sheets.

Rest assured that AED will continue working with the administration and Congress to get long-term highway, airport, and water authorization bills done as quickly as possible to restore stability to construction markets and get the equipment industry back on the road to recovery. Stay tuned for action as this story unfolds.

About the Author: 

Christian Klein

Christian Klein is the vice president of government affairs and Washigton counsel for the Association of Equipment Distributors. AED is a trade association representing companies involved in the distribution, rental and support of equipment used in construction, mining, forestry, power generation, agriculture and industrial applications.