Wall Street Bailout Money For Infrastructure? Maybe Not

President Obama will deliver a speech on job creation this morning in Washington, but one tactic that has won over quite a few Democrats of late -- redirecting unspent money from last year's financial bailout to transportation -- may not be as possible as lawmakers had thought.

374706082_7380904145.jpgWhite House economic adviser Larry Summers promised earlier this year that bailout money would not be used on "an industrial policy." (Photo: WEF via Flickr)

The Wall Street Journal has the story, including a rundown of the factors that could curtail the Obama administration's latitude to spend bailout funds on infrastructure:

An issue for the president is that the original TARP legislation mentions job creation only twice, and both references refer to stabilizing the nation's financial system, said Steve Ellis, vice president of Taxpayers for Common Sense, a watchdog group. The Treasury secretary is given some latitude in using the funds, but the legislation states he "shall take into consideration" first "the interests of taxpayers by maximizing overall returns and minimizing the impact on the national debt," the law states.

Second, the secretary is to use the funds for "providing stability and preventing disruption to financial markets in order to limit the impact on the American economy and protect American jobs, savings, and retirement security." ...

Lawmakers may be able to tap more than $100 billion in unspent TARP money, but that too is complicated. Because TARP was created primarily for lending, lawmakers could use only a fraction of the available funds for projects that will not give the money back, such as aid to states and spending on infrastructure.

The inability to pay for new transit, bridge, road and rail projects with repaid bailout funds, which are coming in at an unexpectedly rapid clip, does not mean that Congress is any less likely to make transportation part of its jobs bill.

In fact, significant infrastructure investment may be more likely to win GOP votes if congressional leaders change course and look beyond the bailout for spending offsets. The Wall Street rescue bill, pushed through during the waning weeks of the Bush White House and continued under Obama, "is not supposed to be a piggy bank for members of Congress," Sen. Judd Gregg (R-NH) said yesterday.

The next question on tap, then, is whether Democrats should pursue other avenues to pay for its jobs bill or begin persuading the fiscal conservatives in their party that more deficit spending is in order. No matter what happens, a strong speech by Obama today is the first step in herding the cats.