While Washington and other levels of government act as though they are being fiscally prudent, in fact, some budget statistics show that some important aspects of government spending are being ignored….at our peril.
Here is a graph showing public spending on construction:
The monthly rate of public spending on construction in March 2015 was $264.17 billion, one of the lowest levels seen since the end of the Great Recession and about the same level as was last seen in late 2006. It also becomes quite apparent that the rate of government spending on construction has been flat for the past four to five years in nominal terms.
Here is a graph showing public spending on construction as a percentage of GDP which makes things look far worse:
While the economy as a whole has grown, as a percentage of GDP, public spending on construction is now at its lowest level since the beginning of 1993.
Let's focus on public spending on highways and streets as a percentage of GDP since 2002:
Once again, public spending on our road infrastructure as a percentage of GDP is at its lowest point since 2004 and well below levels seen just prior to the Great Recession.
According to the American Society of Civil Engineers, America's overall infrastructure receives a grade of D with ASCE estimating that at least $3.6 trillion in investments are needed to improve the condition of our national infrastructure. Here is a screen capture showing the grade given to each major category of infrastructure:
Grade B infrastructure is classified as being in good to excellent condition with some elements showing signs of general deterioration and a few elements showing significant deficiencies. This grade of infrastructure is considered safe and reliable and minimal risk is associated with using it.
Grade C infrastructure is classified as being in fair to good condition with general signs of deterioration and requires attention to remediate deficiencies. This grade of infrastructure is showing increasing vulnerability to risk.
Grade D infrastructure is classified as being in poor to fair condition and is mainly below standard with many elements approaching the end of their service life. This grade of infrastructure exhibits a strong risk of failure.
Here is a screen capture showing the total funds needed to improve America's infrastructure, the current funding level and the funding gap out to 2020:
A recent poll by Mineta Transportation Institute concluded that 69 percent of respondents would support higher taxes for transportation if the tax revenue raised was spent on road maintenance. In one example, 69 percent of respondence agreed that a national gasoline excise tax increase of 10 cents a gallon (the current rate is 18.4 cents per gallon) would be acceptable if the additional funds were used strictly to improve road maintenance as shown on this graphic:
As you can see, when the increased gasoline excise tax revenue is used for other purposes, support levels drop.
One thing that is of great concern is the current health of the Highway Trust Fund. The Highway Trust Fund (HTF) is the major source of federal money that has traditionally been used to fund road, bridge and transit projects. As you can see on this screen capture from the Congressional Budget Office, the HTF is scheduled to run out of money sometime during this fiscal year:
Let's close this posting with a quote from former Secretary of the Treasury Lawrence Summers said about the current level of spending on infrastructure:
"There are a set of further rationale for increased infrastructure investment. Can it possibly make sense that at this moment, as I speak to you, the share of public investment in GDP, adjusting for depreciation, so that’s net share, is zero. Zero. We’re not net investing at all, nor is Western Europe. Can that possibly make sense, given the demand issues, given the productivity of public investment, and given that if we have a moral concern about my children’s generation, deferring maintenance is just as surely passing the burden onto them as issuing debt. The burden of deferred maintenance compounds at a rate much greater than zero in real terms. There are other measures that I describe here to promote spending."
Here's what he said about increasing the level of government spending on infrastructure:
"I’ll just close with what I think is probably the most remarkable IMF document in the 25 years that I’ve followed the IMF closely. This is not some Keynesian economics professor. This isn’t some guy with some model, arguing for some thing. This is the IMF. It’s not a research-working paper of the IMF. It’s the flagship publication of the IMF. It asks the question, for industrialized countries, if they spend 1% of GDP more on infrastructure, what would the consequence be for their debt to GDP ratio after five years? This is their estimate, not mine. They say that it would be 6% of GDP lower. Why? Because increased economic growth means increased cash revenues. Increased growth in the short run means increased potential in the long run."
For the sake of taking on the appearance of fiscal responsibility, governments of all levels are sacrificing a great deal of future economic growth and are just pushing the need to upgrade our highways, streets and roads, bridges, airports, public buildings and other key infrastructure items to some unknown point in the future. Unfortunately, rather than wisely spending public funds on our deteriorating inventory of infrastructure necessities, our elected ones prefer to spend our hard-earned tax dollars on high profile pet projects that we could well live without.
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