Spur economy with public spending? Many say yes
WASHINGTON (Reuters) - A plan to revive the gasping economy that was unveiled by the White House and lawmakers on Thursday is unlikely to stem mounting pressure for the federal government to immediately increase infrastructure spending.
While economists warn that efforts to spur the economy with a big dose of public spending may not kick in fast enough to help, state and local officials -- and some influential members of U.S. Congress -- argue it could be one of the best ways to stave off recession.
"I believe, and I know a lot of mayors agree, that the best way to pump money into the economy in the short-term and get something out of it in the long-term is to finance immediate infrastructure projects that cities and states can't afford," New York Mayor Michael Bloomberg told the U.S. Conference of Mayors on Wednesday.
Bloomberg said that he and California Governor Arnold Schwarzenegger and Pennsylvania Governor Edward Rendell had formed a coalition to push for "a new national commitment to infrastructure."
There are infrastructure projects that could be started by next month, if only the federal government would provide the funds, according to Douglas Palmer, the mayor of Trenton, New Jersey, and president of the mayors' group.
In a study of possible stimulus tactics released last week, the Congressional Budget Office said infrastructure projects typically take such large amounts of time to put in place that they are not effective as a quick means to stimulate the economy.
Outside of road resurfacing, there are few projects where money could be spent in three months, CBO Director Peter Orszag told a congressional hearing on Tuesday. Choosing which projects to fund would eat up time, as well, he said.
Former Treasury Secretary Robert Rubin told the mayors' annual meeting on Wednesday that even projects which can be started soon might not be much help to the economy in the near term since infrastructure undertakings often face delays.
Still, at the meeting the buzz word was "WPA," or the Work Projects Administration that employed Americans to maintain the country's roads and other infrastructure during the Great Depression.
With city and state budgets stretched from the housing market downturn and the federal government also in economic pain, it will be hard to find money to employ people in a similar manner, Palmer said.
"We can't borrow our way out of this," he said, adding that private-public partnerships could generate some backing.
While infrastructure spending was not included in the stimulus package announced by President George W. Bush and House of Representatives Speaker Nancy Pelosi on Thursday, a number of federal legislators have pointed to pending legislation that could quickly propel new spending.
Sen. Christopher Dodd, a Democrat from Connecticut, and Sen. Chuck Hagel, a Republican from Nebraska, introduced legislation to establish a national infrastructure bank last summer after an interstate highway bridge in Minnesota collapsed in August.
While that legislative effort had largely stalled, Dodd, chairman of the Senate Banking Committee, said on Wednesday that the legislation was now a priority for Congress.
At the hearing on Tuesday, Democratic Sen. Ron Wyden of Oregon said a separate bipartisan bill to issue $50 billion worth of Build America Bonds for transit improvement funding, which he introduced last fall, could be helpful.
Wyden argued that tax rebates, such as those included in Bush and Pelosi's plan, may take a long time to enter the country's cash flow, as well. The U.S. Treasury has said rebate checks could be mailed within three months of congressional approval of stimulus legislation.
(Reporting by Lisa Lambert; Editing by Tom Hals)
