How can more revenue create more debt? You spend your money to commit to things you know are going to cost too much in the long term, like infrastructure. From the Recovery Act to the American Jobs Act to the president’s 2013 budget proposal, transportation infrastructure spending has been a mainstay of White House economic policy. What does spending on transportation infrastructure get us?
Large-scale infrastructure projects take a long time to get started, they can require staggering financial commitments, and the employment impact is far from immediate (see: A Federal Infrastructure Bank: Stashing Cash for a Jobless Tomorrow). We gave infrastructure investment a shot with billions in Recovery Act spending,¹ but this is the sort of investment that keeps on spending.
Washington digs a hole with transportation infrastructure spending.
The more destitute the state, the more survival depends on public money from Washington. When states are broke and Congress is warring over spending is it wise to make commitments on expensive projects with uncertain futures and regional benefits, at best? House Republicans don’t think so and have loudly voiced their opposition to high-speed rail funding.
Throwing Recovery Act seed money to states for infrastructure projects does not mean that there will be enough money to finish what planners started. White House hyperbole like this creates debt, not revenue:
The Recovery Act grants are not only expected to have an up-front job and economic impact, but help lay the groundwork for a nationwide infrastructure expansion that will spur economic growth in communities across the country, provide faster and more energy-efficient means of travel, and establish a new industry in the U.S. that provides stable, well-paid jobs.²
It also leads to transportation infrastructure spending like a high-speed rail project in destitute California, a grand scheme in search of funding:
The California high-speed rail project faces many challenges. Chief among these is obtaining project funding beyond the first 130-mile construction segment. While the Authority has secured $11.5 billion from federal and state sources, it needs almost $57 billion more.³
Lost cause or not, California is a Democratic favorite, netting $3.5 billion of the $9.9 billion set aside for high-speed rail projects by the High Speed Intercity Passenger Rail program.4 This is a good thing for California, because even though projects like high-speed rail can have big payoffs, they are also very expensive:
In summary, we found that while the potential benefits of high speed rail projects are many, these projects—both here and abroad—are costly, take years to develop and build, and require substantial up-front public investment, as well as potentially long-term operating subsidies.5
What do transportation infrastructure and the Medicaid expansion have in common?
How do states worrying about money for their schools feel about residents’ federal tax dollars going to pay for a high-speed rail project to improve life in Los Angeles or San Francisco? Should taxpayers in the other 49 states bear the burden for infrastructure improvements in a state driven to bankruptcy by special interests favored by the president? His Office of Management and Budget has warned us where our money will go:
We must transform our economy from one focused on speculating, spending, and borrowing to one constructed on the solid foundation of educating, innovating, and building.6
Education and building means teacher salaries, public pensions, and infrastructure spending. After we have bailed out California’s pension system, will the country be in a mood to cough up some more for their rail system?
The Supreme Court decision on Obamacare opened the door for states to opt out of funding the Medicaid entitlement expansion. Transportation infrastructure spending is a time-honored stick when Uncle Sam needs something from states, and the president is going to need lots of cooperation when it comes to Medicaid. California will scurry to do the president’s bidding no matter what, but how about states that resist the Medicaid public option and have their own infrastructure projects waiting for another infusion of cash from Washington? If states want to get paid, they better be willing to pay up.