WASHINGTON (Reuters) - U.S. policymakers who want to use transportation projects to create jobs and foster the economic recovery face one big roadblock: how to pay for them.
President Barack Obama on Monday proposed spending $556 billion on road, bridge, transit and rail upgrades over six years - the largest transportation plan in U.S. history.
It includes an “up-front $50 billion economic boost” for 2012 that would immediately pour money into financing, new construction starts, and grants for states and municipalities.
“The key to getting it done will be figuring out how we’re going to pay for it,” said Jack Basso, director of program finance and management for the American Association of State Highway Transportation Officials.
He expects the administration to unveil a bill in a few weeks that will provide more details. Transportation Department officials would not discuss a timeline.
Obama hopes a spike in investment will reap thousands of jobs like the $34 billion for highways and transit in the massive 2009 economic stimulus plan.
Many states, cities and trade associations look to Obama’s plan to lower joblessness and get local economies churning, especially as one in four construction workers is unemployed.
“It would be a real boost to the states,” Basso said, adding the $50 billion would help with pressing infrastructure problems such as bad roads. “It would start addressing some real defined needs across the country.”
But with the U.S. budget deficit projected at $1.65 trillion this year and Obama under pressure to make budget cuts, it could be next to impossible to expand spending.
Tensions over revenue are sure to mount since Republicans recently took control of the House on promises to slash the budget, while Democrats control the Senate and White House.
At a briefing this week, Transportation Secretary Ray LaHood offered few answers. He reiterated opposition to hiking gas taxes and did not endorse recommendations to charge motorists by the miles they drive.
Obama supports creation of an infrastructure bank and revival of popular bond and loan programs but, again, where will the money come from to capitalize them? LaHood said Congress would have to decide where to raise the money.
The gap between sources of funding for transport infrastructure and funding needed to maintain and improve the system is at least $134 billion per year, a team of experts led by the University of Virginia found last year.
U.S. transportation investment as a percentage of GDP is 0.6 percent, lagging well behind major trading partners.
Senator James Inhofe, the top Republican on the Environment and Public Works Committee, said Obama failed to show leadership by not proposing specifics on paying for his plan.
“I can only call this a setback,” Inhofe said.
On Wednesday that committee, which will write the transportation bill in the Senate, reviewed possible revenue sources at a hearing but did not find a solution.
The chair, Barbara Boxer, said the Transportation Infrastructure Finance and Innovation program could help states leverage dollars from their stretched budgets. Boxer also discussed charging motorists for miles travelled, suggesting an annual fee.
Richard Trumka, president of the AFL-CIO, wants everything on the table and believes Congress should revive the expired Build America Bonds program used by states and local governments to finance infrastructure projects “or expand other bonding mechanisms.”
Trumka suggested taxing financial transactions to raise more than $100 billion a year, and said unions are creating a $100 billion transportation investment fund.
U.S. Chamber of Commerce President Thomas Donohue wants to raise the gas tax, which underwrites most highway construction but has been an insufficient source in recent years.
AASHTO proposed funding solutions in September that included freight and vehicle-related taxes as well as tolling options.
D.J. Gribbin, a Macquarie Capital managing director and former Transportation Department general counsel under President George W. Bush, said he was encouraged by “the spotlight the administration has put on infrastructure.”
Gribbin believes Obama’s plan to reform or depoliticize funding is on the right track. He backs an infrastructure bank and creative financing through TIFIA, competitive grants, Build America Bonds, and a higher cap on private activity bonds.
But Clifford Winston, a Brookings Institution expert on transportation economics, said the administration “can have its grand vision” for infrastructure but privatization is the only way to ensure efficiency and value.
“You have to change the economic operation,” Winston said, noting that “public sector involvement is a mess” and recommending that initial change could include small, privately run projects to see what works best.