Any economic stimulus plan considered by Congress should include proposals for infrastructure spending and state aid, economists told members of the Senate Budget Committee at a hearing yesterday.

Senate Democratic leaders unveiled a $100 billion package this week with infrastructure and housing program spending, with the intention that it be considered over the lame-duck session this month. But lawmakers have said that Republican opposition to a large stimulus bill will delay consideration of the measure until January, when President-elect Barack Obama and a Congress with a larger Democratic majority take office.

Mark Zandi, chief economist and co-founder of Moody's, said a stimulus package containing at least $400 billion, or about 2.5% to 3% of the gross domestic product, would make the economic downturn "more manageable."

Tax cuts would be helpful in general but would be diluted in the current environment, making temporary spending the better option, Zandi said. About $100 billion in aid to state governments to help with their budget shortfalls "is vital," he said, adding that a decision by the Federal Reserve to purchase munis "if state and local fiscal conditions continue to erode" would be a plausible use of the troubled asset relief program.

Zandi also recommended $100 billion for infrastructure investments, especially to start projects that are unfunded but ready to go.

"Extending unemployment insurance benefits, food stamps, and aid to state governments would be the most effective spurs to economic growth," he said. "Increased infrastructure spending could be desirable considering that the economy's problems are likely to last long enough to give such spending enough time to be of help."

Committee chairman Kent Conrad of North Dakota also expressed support for an economic stimulus package but worried about increasing the deficit.

Ranking minority member Judd Gregg of New Hampshire was skeptical about infrastructure spending, saying that building "better roads, sewer systems, water systems, transportation systems, is a good investment for our nation. But ... if you look at the proposals, it looks like less than 20% of the dollars that are proposed for infrastructure stimulus would actually be spent in 2009. If that's the case, is it really a stimulus, or is it a capital improvement program for the long-term?"

But other senators, and economist Simon Johnson of the Peterson Institute for International Economics and Massachusetts Institute of Technology, said infrastructure investment would bring near-term consumer confidence and long-term improvement in the economy as well as the country's transportation, water and sewer systems.

Zandi said the economy's problems could extend "well into 2010, which weakens the case against infrastructure spending in the current downturn."

The top four best stimulus options are temporary spending on food stamps, unemployment insurance, infrastructure, and aid to states, in that order, according to Zandi's testimony. The lowest returns would come from permanent tax cuts.

John B. Taylor, an economist with the Hoover Institution and Stanford University, said that if lawmakers believed infrastructure projects were vetted and ready to go, they should bring them forward, but "don't forget the private sector is by far your biggest source of job creation."

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