America’s Infrastructure

Analysis of the American Recovery and Reinvestment Act of 2009

America’s history tells a story of innovation followed by periods of significant investment in technology and infrastructure that created competitive advantages for the United States in the global marketplace. In the 1950s, significant investments were made to create the United State’s transportation networks, which became one of the nation’s greatest assets. Today, America’s infrastructure is in poor condition, deteriorating rapidly, and in desperate need of significant investment.

Other more urgent funding priorities have squeezed out the important infrastructure allocations in state and federal budgets. Further, the purchasing power of the dedicated funding sources (mostly federal fuel taxes) have not kept up with demand, requiring an $8 billion injection from general revenue funds into the Highway Trust Fund in September 2008. These long-standing funding shortfalls are compounded by the country’s current deep recession, severely reducing federal, state and local government spending on infrastructure at a time when it is needed most.

In an attempt to create jobs, stimulate the economy, and partially address the infrastructure funding problem, the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009. The stimulus package will provide a short term boost to the construction industry, although current levels will not compensate for the cutbacks from state and local spending. Ultimately, a comprehensive approach to expand the much needed total investment in infrastructure is vital to preserving this asset while ensuring future growth and global competitiveness.

Despite disappointment over the lower than expected allocations within the plan, the ARRA does include an estimated $130 billion in spending for construction-related programs, $49.3 billion of which is devoted to the transportation sector. Additional allocations are made for energy ($30.6 billion) and water ($20.1 billion).

The ARRA requires that half of the bill’s construction-related allotment be spent on “ready-to-go” projects vetted by the federal government by the middle of June 2009 as a way to quickly stimulate the economy and create jobs. The bill directs the Department of Transportation (DOT) to take away any unused money and redistribute it to other states if a state doesn’t commit at least 50% of its allotments within 120 days after the DOT apportions the money. The DOT and Environmental Protection Agency funds will be distributed using currently established formulas while the Defense, Veterans and General Service Administration funds will be allocated based on contracts though the departments. Even with a mandate to rapidly implement the stimulus package, the Congressional Budget Office estimates that only $34.8 billion, or 11% of the bill’s $308.3 billion in actual appropriations outlays, will be used in the fiscal year ending September 30, 2009. In fiscal 2010, spending will rapidly increase to an estimated $110.7 billion in appropriations-related outlays.

Unfortunately, investment through the ARRA will not accomplish the critical task of fully revitalizing infrastructure in the United States. The stimulus bill will only cover a small portion of the total investment needed to repair, maintain and improve the country’s infrastructure. As the data demonstrate, there are substantial needs in all parts of the country as are the dispersion of projects and budget shortfalls. This combination demonstrates the national nature of the issue and substantiates the need for increased spending.

Conclusion

The ARRA does provide a jolt of spending towards a gaping and ever increasing demand for infrastructure investment. While helpful, the ARRA is not of the magnitude once anticipated. Fortunately, the process of passing the ARRA has shined the spot light even brighter onto the importance of American infrastructure and the funding required to fix it, leaving the door open for subsequent infrastructure initiatives by the administration.

In order to maintain its global economic prominence, America will need to develop a long term strategy and funding mechanism for fixing and expanding its infrastructure. The pending demand for construction services continues to build as these inevitable expenditures are delayed and deferred. A steadily growing level of investment in infrastructure will provide benefits throughout the economy, which will lead to new growth in all segments of the construction sector and the economy as a whole.

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Michael Rosendahl

Investment Banking
mrosendahl@pcecompanies.com
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