Mayors press for piece of the infrastructure pie

WASHINGTON Mon Dec 8, 2008 4:56pm EST

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WASHINGTON (Reuters) - U.S. mayors on Monday urged President-elect Barack Obama to channel infrastructure spending directly to cities rather than state governments, saying that would speed assistance to an ailing economy.

Obama has proposed an economic recovery plan which aims to create at least 2.5 million jobs by 2011 and launch the largest U.S. infrastructure investment since the 1950s. Analysts say the proposal will cost at least $500 billion.

The U.S. Conference of Mayors told reporters it has identified 11,391 infrastructure projects worth $73.2 billion in 427 cities that the plan could fund. The mayors' group said that would create more than 800,000 jobs in 2009 and 2010.

Many of those projects are small, have already received local approval and could be started the moment a check is signed, New York Mayor Michael Bloomberg said.

But the mayors said those projects would be delayed if the flow of money is directed through the states' governments.

Rep. James Oberstar, the Minnesota Democrat who heads the House of Representatives Infrastructure Committee, said funding under Obama's plan would likely be distributed using a formula such as one used to give federal surface transportation funds to both states and cities.

Most cities should not have to apply to the states for their share of that money, Los Angeles Mayor Antonio Villaraigosa said, arguing that current formulas can often leave cities out.

Villaraigosa said his city makes up 26 percent of California's economy, but it only receives 17 percent of the federal funds currently given to the state.

Bloomberg warned that money given to states could end up simply plugging the large gaps in many of their budgets, instead of going to capital improvement.

According to the National Conference of State Legislatures, 31 states and Puerto Rico currently have deficits of $31.8 billion for fiscal year 2009, and more than half of the states project a total shortfall of $64.7 billion for fiscal 2010.

LOOKING FOR THE MAGIC NUMBER

Last week, U.S. governors met with Obama about economic recovery, and also pushed for more spending on public works. They, too, have "shovel-ready" capital projects, Maryland Governor Martin O'Malley told MSNBC on Monday, including $150 million worth of transportation construction in his state.

The National Governors Association has said it would like Obama to include $136 billion in infrastructure backing in his recovery plan. The mayors' conference is asking for $180 billion over two years.

Nearly half of a $60.8 billion stimulus bill that passed the House of Representatives in September but stalled in the Senate was dedicated to public works spending. Another measure to jolt the economy currently stuck in the Senate puts $13.5 billion toward road, bridge, mass transit and other construction projects out of a total tally of $100 billion.

Obama has acknowledged that costs would be substantial and would hike the federal budget deficit -- which in October hit a record high of about $237 billion -- at least in the short term. But an aide said the plan must be accompanied by a commitment that over the long term the deficit will come down.

"Any given amount of money spent on the economic recovery will be more effective if it's accompanied by a conviction that the deficit is coming under control and that as the economy recovers the deficit will come down," the aide told Reuters in an interview.

The aide did not give a time frame for when the deficit must start getting smaller, but added that worries about a deficit in 2012 or 2013 could have the effect of "undermining confidence, which drives up interest rates."

Bloomberg said that every $1 spent on infrastructure will creates $1.50 in economic activity.

But the mayor, who formed the "Build America's Future" coalition with Pennsylvania Governor Ed Rendell and California Governor Arnold Schwarzenegger last year, said that not all of the 10.3 million Americans currently out of work have the skills needed for construction jobs.

Bloomberg also said that the U.S. government should look into alternatives to paying directly for projects, namely by helping cities borrow.

If the U.S. government allows commercial banks to take tax exemptions for municipal debt or becomes a "buyer of last resort" of the bonds, then it will make it easier for cities to issue bonds, Bloomberg said.

(Additional reporting by Deborah Charles in Chicago)

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