CBO Report Notes Decline In Infrastructure Spending

States and localities pay for a much larger share of transportation and water infrastructure projects than the federal government, but in recent years the total amount of money spent on these projects by all levels of government has declined significantly, according to a 62-page report issued this week by the Congressional Budget Office.

The CBO, which provides economic and budget analysis to Congress, also said in its report that tax-credit bonds are more cost-effective than tax-exempt bonds to finance infrastructure “because every dollar of federal revenue forgone through the tax credit is transferred to borrowers.”

The report also said, “Because the tax credit can be set at any amount, the federal subsidy can be adjusted to match the expected gains federal taxpayers receive from different infrastructure projects.”

It noted that three pending bills in Congress would extend the Build America Bond program, which was created by the American Recovery and Reinvestment Act in February 2009 and will expire on Dec. 31 if it is not extended.

The report said that federal support for infrastructure would be more effective if tax-credit bonds were substituted for tax-exempt bonds, which “would allow the amount of federal subsidy to be determined independently of other federal policy decisions” and deliver “subsidies of any amount in a more economically efficient manner.”

All levels of government spent a combined total of $356 billion on transportation and water infrastructure in 2007, the CBO said. There is not yet enough data to assess total public spending for years 2008 through 2010, it added.

The assets that were evaluated in the report include highways, transit, rail, waterways, aviation, dams and levees, and water and sewer treatment systems.

State and local governments account for about 75% of total public spending on the projects, according to CBO. That share generally has remained steady over the past two decades. But total spending from all levels of government declined by about 6% between 2003 and 2007, and the federal government contributed even less than usual during those years. That is a sharp contrast to previous years when infrastructure spending was on a steady incline, the report said.

Highways, transit, and aviation projects suffered the largest losses during those four years, partly because of spiking costs for construction in those sectors, while rail and water-related capital spending “remained stable or rose,” it said.

However, the federal government opened its wallet more than usual in 2009, when the ARRA authorized billions of dollars to be spent on infrastructure. Federal transportation and water infrastructure spending was about $87 billion last year, a roughly 7.5% increase over 2007.

Stimulus spending under ARRA provided about $4 billion for infrastructure in 2009 and will provide $49 billion more by 2013, when an estimated 90% of the funds will have been spent, the report noted.

In addition, the report suggested that the federal government could “make its current funding more effective” by distributing it based on where the benefits would be, instead of pouring federal funds into projects that, for example, would inordinately benefit localities instead of larger regions or the nation as a whole.

People and businesses might also overuse infrastructure “relative to the cost of providing those services,” the report said, “because the federal share of that cost is largely borne not by local residents but by taxpayers throughout the country.”

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Transportation industry Washington
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