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CBO Echoes Obama’s Candor on the Pitfalls of ‘Shovel-Readiness’

During last month's White House jobs summit, President Obama carved out some common ground with critics of his first stimulus law's $47 billion in infrastructure spending -- which was distributed mainly by the book through state DOTs. "The term "shovel-ready," let’s be honest here, doesn’t always live up to its billing," he acknowledged.

website_graphic.pngThe CBO modeled the job-creation power of various policy options, including infrastructure investments.

Now, as the Senate mulls its response to the House jobs bill that included $27.5 billion for highways and $8.4 billion for transit, the independent Congressional Budget Office (CBO) is echoing some of Obama's concerns.

In a report released Thursday, the Capitol budgeteers concluded that most of the economic benefits of sending more transportation aid to states would not be felt until 2011 at the earliest.

The "large-scale construction projects" that could fundamentally reshape local infrastructure tend to take years before their impact is felt on the economy, the CBO noted:

[F]or example, building new transportation infrastructure that requires establishing new rights-of-way and developing and implementing alternative energy sources would probably have their biggest effects on output and employment after the recovery was well along. As a practical matter, the experience with [the first stimulus] suggests that fewer projects are “shovel ready” than one might expect ...

Moreover, given the substantial increase in infrastructure funding provided by [the first stimulus], achieving significant increases in outlays above the amounts funded by [the first stimulus] would probably take even longer. Thus, most of the increases in output and employment from this option would probably occur after 2011.

Overall, the CBO gave new infrastructure aid a "multiplier effect" of somewhere between 0.50 and 1.20, meaning that every $1 in spending would translate into $1.20 in economic benefits in the best-case scenario.

But in the end, the report was not wholly skeptical of transportation's power to create jobs. Only two policy options yielded a higher multiplier effect than infrastructure, according to the CBO's modeling: more aid to the unemployed (between 0.70 and 1.90) and payroll tax cuts for firms that add new workers (between 0.40 and 1.30).

The CBO's take is unlikely to dampen lawmakers' enthusiasm for adding infrastructure spending to the pending jobs bill, but it provides more fodder for House members who have contended that a new six-year transportation bill would serve as a better long-term "second stimulus."

In addition, lingering House-Senate tension over the timing for the upper chamber's jobs bill could keep the debate over particular provisions raging well into March -- past the February 28 expiration date for Congress' latest short-term extension of existing transport law. As this page noted back in September, transportation policy could be headed for another deja vu moment.

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