Discover more from Back of the Budget
State & Local Govt Infrastructure Investment Increased in 2020
Contrary to initial expectations, state and local government infrastructure investment increased in 2020 according to BEA data.
Last week state and local elections were held across the U.S.: from governors, to mayors, to numerous ballot questions, voters made their voices heard. Among the initiatives were questions on issuing government debt for new infrastructure projects, and in Albuquerque, whether to finance a new stadium. Billions of dollars in projects were approved (the stadium wasn’t).
Infrastructure investment comes in two forms: investment in expansion or maintaining current assets. People like to see the big expansive projects, but the basic stuff often gets neglected. By failing to keep-up with deferred maintenance, projects typically end up costing more to fix with each year of delay.
This week we look at some notable transportation initiatives approved last week, stadium projects, and the chart of the week looks at the new BEA data.
What this week doesn’t look at: the recently passed bipartisan infrastructure plan.
Voters Approved New Debt for Infrastructure …
And Reject Financing New Stadiums
It’s Time to Continue to Think Big
Leaders take first full-length ride on Mid-Coast trolley Encinitas Advocate
CHART OF THE WEEK
Last year, I worked on a report that used a simple method to estimate what level of state and local government (SLG) infrastructure investment had been lost following the great financial crisis (GFC).
Had SLG investment continued on its pre-GFC path, the amount of additional investment from 2009 to 2019 that would have occurred is:
Given the effects of last year, in which some capital projects were delayed or scaled back, I would have expected SLG investment to again decline (or at least remain flat) in 2020. However, the BEA data recently released shows SLG investment actually increased in 2020.
What Happened After the GFC:
State and local governments tapped their reserves, cut expenditures, and reduced their debt burden.
Following 2009, it took years for government revenues to recover as fixed costs for Medicaid and retirement benefits consumed more of state budgets.
The deepest downturn since World War II resulted in a “Lost Decade” for states because of missed economic and revenue growth.
What Happened in 2020:
SLGs received large amounts of federal aid and a quicker recovery in revenues than estimated.
The Urban Institute estimated that state government tax revenues showed year-over-year growth at 7.3% for the fourth quarter of 2020, which is stronger than the 2.6% average growth for the prior four quarters.
States needed to find uses for federal funds before they expired. For example, West Virginia used $50 million of CARES Act funds for improving roadway access to hospitals.
Why It Matters:
There are two key types of infrastructure spending: expansion and maintenance. By reducing investment in fixed assets SLGs broadly didn’t keep pace with either. Maintenance and expansion of basic infrastructure assets is the most essential.
Capital investment is often a discretionary expense for SLGs. When the next recession occurs, future reductions in infrastructure investment are likely unless offset by fiscal aid.
It’s Time for States to Invest in Infrastructure Center on Budget and Policy Priorities (2019)
The Issue: “Every state needs infrastructure improvements that can pay off economically in private-sector investment and productivity growth.”
Even when the economy is at or near full employment, investment in infrastructure increases the productivity of companies and workers and thus the rate of growth of the economy. This is especially true now when there is such significant room for improvement in the country’s transportation, water treatment, and other assets.
Any opinions expressed herein are those of the author and the author alone.