Transportation Investments in Response to Economic Downturns (2014) / Chapter Skim
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1 Introduction
1 Introduction
Pages 9-32
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From page 9... ...
Actions by Congress included a package of temporary tax cuts in 2008, the Troubled Asset Relief Program enacted in 2008, $831 billion in spending and tax relief provided in the American Recovery and Reinvestment Act of 2009 (ARRA) , and temporary reductions in the Social Security payroll tax in 2011 and 2012.
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From page 10... ...
The Transportation Research Board formed the Committee on Economic and Employment Benefits of Transportation Investments in Response to Economic Downturns to conduct a study to aid state and federal officials who may in the future plan a transportation spending program intended as economic stimulus during a recession. The committee was to provide guidance on how to design an effective program and evaluate the results and on the choice between transportation spending and other forms of stimulus during economic downturns.
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The first will describe experience with stimulus spending in general (theory of how a fiscal stimulus program is intended to work, methods of evaluat ing stimulus impacts, and past estimates of impact)
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A fiscal stimulus program is understood to be a package of extraordinary federal government expenditures or tax concessions, funded by borrowing, with the goals of reducing the rate of unemployment, increasing employment, and speeding economic recovery from a recession. Most of the ARRA transportation provisions and earlier federal countercyclical public works programs fit this description: they were intended to spur spending for infrastructure construction and maintenance at the time of a recession.
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Stimulus spending for transportation would present more challenging problems if a prior federal– state relationship were absent. The committee did not attempt to assess quantitatively the appropriate share of transportation spending in a stimulus program.
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One of the potential attractions of using transportation spending as stimulus is that it may produce both kinds of benefit: reduced unemployment in the short run during recovery from a recession and mobility benefits in future years. Evaluation of transportation stimulus spending is complicated by uncertainties about the overall effectiveness of fiscal policy and about the value of transportation investments.
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ARRA made appropriations to support a program of direct federal spending, grants to state and local governments for various specified purposes, transfers to individuals, and temporary tax relief. The act includes a statement of purposes [Public Law 111-5, Section 3(a)
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TIGER II discretionary grants, Extended TIGER program of $0.5 authorized November 2011 ARRA: grants for road, tran sit, rail, and port projects Extension of Bush administra- 2-year extension of temporary $690 tion tax cuts (TRUIRJCA, tax cuts enacted in 2001 and Estimated revenue loss in Public Law 111-312) 2003 that were scheduled 2011–2020 from tax relief to expire in 2011; other mis provisions other than Social cellaneous tax relief Security tax reduction (JCT 2010)
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Other Actions Federal Reserve interventions, Purchases of Treasury securi- -- 2008–2012 ties and mortgage-backed securities, loans to banks, and other actions to support financial sector and reduce interest rates Troubled Asset Relief Program Treasury aid to financial firms -- in Emergency Economic and the automobile industry Stabilization Act, October through purchases of stock, 2008 loans, and lines of credit Note: TIGER = Transportation Investment Generating Economic Recovery; TRUIRJCA = Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010; -- = magnitude may be measured in terms of quantities of assets purchased or of credit extended but is not shown because these measures do not correspond to the federal budgetary costs shown for the fiscal stimulus actions.
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DOT, ARRA created a new kind of federally subsidized government bond, the Build America Bond. State and local governments could issue Build America Bonds to finance transportation projects and other kinds of public works.
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Congress failed to reenact the regular multiyear federal highway and transit aid programs that expired in 2009, instead continuing the programs through a series of temporary extensions.
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. • The Emergency Jobs Appropriation Act of 1983, after the 1981–1982 recession, provided $9.0 billion in stimulus spending.
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The past public works stimulus programs were controversial. Skeptics argued that local governments substituted the federal funds for their own funds, reducing the net increase in spending, and that the time required to enact legislation and commence construction meant that spending was too late to achieve the needed stimulus (Levine 2009, 1–2)
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The conclusions were as follows (Vernez and Vaughan 1978, i–xiv) : • The available estimates of job creation were not reliable because the extent to which federal grants replaced state and local government expenditures was uncertain.
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Finally, it proposed that allocation favor regions with relatively large losses in employment in the recession rather than regions with a relatively high level of unemployment, and regions where employment is continuing to decline. A second evaluation of the 1977 federal stimulus program, based on a simulation model relating changes in state and local government expenditures, taxes, and budget balances to changes in federal grants and in economic and demographic variables, concluded that states responded to the federal stimulus grants initially by reducing spending of their own funds and allowing surpluses to grow and eventually by a combination of tax reductions and spending increases, but only after a delay.
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. To improve performance, GAO recommended that future stimulus spending legislation • Favor activities that have projects available for immediate implemen tation, • Provide deadlines for obligating and spending funds, and • Require federal agencies administering programs to maintain infor mation on expenditures and employment.
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Federal highway and transit aid to state and local governments normally has been provided in multiyear authorizing acts, which also establish federal motor fuel taxes and other taxes on highway users and dedicate the revenue of these taxes to highways and transit. Federal highway and transit aid in the 2000s equaled about 40 percent of total state and local government capital spending for highways and transit.
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Increases in federal grants and in proceeds from bond issues allowed the states to avoid reducing transportation spending in 2008–2010 while user tax revenue and contributions from the states' general funds were declining. The increased federal aid included not only the ARRA
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States performed 63 percent of spending in 2009, nearly all covered by state user tax and fee revenue and federal aid. Local governments collect little in user taxes.
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appropriations but also extraordinary contributions to the federal Highway Trust Fund from the federal general fund totaling $29.6 billion in 2008–2010. As a result of declining revenue, the added federal aid, and increased state bonding, the ratio of user tax and fee revenue to current disbursements for highways fell from 76 percent in 2006 to 62 percent in 2010.
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The act required GAO to review periodically state and local government uses of stimulus funds and to comment on the job creation estimates reported by recipients. GAO published a review of the ARRA programs administered by the U.S.
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In the remainder of this report, Chapter 2 describes the purpose and means of federal stimulus programs in response to recessions and considers the role of transportation spending in a stimulus program. Chapter 3 examines the experience of the ARRA transportation programs, and Chapter 4 presents the committee's conclusions and recommendations.
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2010. Estimated Budget Effects of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010," Scheduled for Consideration by the United States Senate.
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2011. Treasury Analysis of Build America Bonds Issuance and Savings.
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