Failing to Fill the Holes in State Budgets: Why the Recovery Act Spending on Infrastructure Fell Short

…We are remaking the American landscape with the largest new investment in our nation's infrastructure since Eisenhower built an Interstate Highway System in the 1950s. Because of this investment, nearly 400,000 men and women will go to work rebuilding our crumbling roads and bridges, repairing our faulty dams and levees, bringing critical broadband connections to businesses and homes in nearly every community in America, upgrading mass transit, building high-speed rail lines that will improve travel and commerce throughout our nation.

President Barack Obama, Signing of the American Recovery and Reinvestment Act [1]

Contrary to public perceptions, only a small portion of the Recovery Act was dedicated to infrastructure investment.  According to our calculations, of the $787 billion originally allocated for the Recovery Act, only about $92.5 billion was spent on infrastructure, or roughly 12% of the final package (see chart below).  The majority of the funding provided by the Act took the form of tax cuts, transfer payments to individuals, and assistance to state and local governments.

Although the Recovery Act played a significant role limiting the depth of the Great Recession during 2009, the infrastructure spending included in the Act was not sufficient to materially improve the quality of America’s infrastructure.  The infrastructure spending in the Recovery Act was small relative to the overall need for additional infrastructure and there is significant evidence that infrastructure spending at the federal level merely displaced some of the cutbacks at the state and local level, rather than increasing overall infrastructure spending or quality.

Relative to current funding and the estimated shortfall of infrastructure spending, the spending in the Recovery Act was small (see in red below).  The American Society of Civil Engineers estimates that after Recovery Act funding, the infrastructure deficit still needs $1.2 trillion during the next five years.

We estimate that the Recovery Act allocated $92.5 billion toward infrastructure investment. This includes traditional infrastructure such as freight, transportation, water, and energy.  Larger estimates from Recovery.gov relied on broader definitions of what constitutes infrastructure spending and included spending on science.  (Click here for our detailed estimates of infrastructure spending in the Recovery Act.)

While the Recovery Act allocated infrastructure funding to seventeen government agencies, over half of infrastructure spending, $48 billion, was allocated to the Department of Transportation.  $27.4 billion went to highways, $8.4 billion to transit, and $12.1 to other modes of transportation, such as high-speed and rail, railways, and air travel.[3]

The spending in the Recovery Act made a relatively small down payment on America’s infrastructure deficit.  For example, the Recovery Act allocated $3.2 billion to bridge construction and repair, even though the American Association of State Highway and Transportation Officials (AASHTO) estimated we need $140 billion in bridge repairs in 2008.[4]  Similarly, the $20.5 billion dedicated to road repair is quite small compared to the $523.5 billion infrastructure deficit in the nation’s roads and highways.[5]

Because of limited funding, the quality of roads is not expected to improve significantly.  Prior to the Recovery Act, the Department of Transportation expected the percent of vehicle miles traveled on good roads to increase from 57% to 60% from 2009 to 2012.  With the passage of the Recovery Act, the target for improved road conditions did not increase.[7]

Recovery Act Infrastructure Funding Used to Fill State Budget Shortfalls: A Look at Highway Spending

A significant amount of the federal infrastructure spending in the Recovery Act went to meeting unfunded or underfunded infrastructure projects at the state and local level. 

Some Recovery Act funds were subject to provisions that required that states maintain funding upon receipt of federal funds.  The U.S. Department of Transportation, one of the agencies subject to the Maintenance of Effort (MOE) provision in the Recovery Act, intended that funding “supplement, not supplant, state transportation spending.”  To obtain Recovery Act funds, state governors had to certify to the U.S. Secretary of Transportation that they would make an effort not to decrease state transportation spending from February 17, 2009 to September 30, 2010.[8]  But, many states found it difficult to maintain spending levels due to falling revenue.  Despite efforts to the contrary, the Recovery Act often provided a buffer to the loss of revenue at the state level, rather than increasing overall infrastructure spending.

Highway funding in the Recovery Act was not sufficient to plug the holes in some state budgets.  For example, the decline in highway spending by the California Department of Transportation (Caltrans) in 2008-2009 was far more than the Recovery Act funds appropriated to Caltrans during the same year.  Caltrans had to make significant cutbacks in the budget from fiscal year 2005-2006 to fiscal year 2008-2009 primarily due to a loss of revenue.  The state budget was also reduced because of a fall in reimbursements from local government transportation projects that Caltrans performed.  Local governments too, suffered from a loss of revenue.  Relative to the decline in spending at the state level, the Recovery Act made up for only a small amount (see chart below).  Furthermore, this decline in funding does not compensate for the decline in local government infrastructure spending.  In sum, the Recovery Act probably did not improve the state of California’s infrastructure, but at best helped only to mitigate its decline.

California’s transportation infrastructure remains underfunded.  In the most recent needs assessment for state highways, the state found that about 24% of the needs for California’s state highways are projected to be funded.[9]  Some of the largest unmet needs are in roadway, bridge, and roadside preservation (see chart).

Other states, which did not experience as dramatic a fall in spending during the Great Recession, forecast more difficult years ahead.  Texas, for example, saw a more moderate decline in transportation spending during the Great Recession and increased infrastructure spending in 2010 and 2011, but expects declining funding from 2011-2015 and with it, declining infrastructure quality.

The decline in funding of more than 30% projected to take place from FY2011 to FY2015 will take a toll on Texas’s infrastructure.  According to the Texas Department of Transportation, the percentage of roads with good quality is expected to decline from about 85% in 2010 to 35% in 2020 (see chart).[10]

Some states have insulated transportation spending somewhat by funding projects with gasoline taxes and transportation fees as opposed to funding infrastructure from shrinking general revenues.  Despite these alternate funding mechanisms, many states have either had to cut spending on infrastructure, spend down state controlled highway trust funds, or both.

Conclusion

Infrastructure spending in the Recovery Act consisted of only about $92 billion, or 12% of total Recovery Act funding.  This relatively minor down payment of America’s infrastructure deficit was also used to fill holes in infrastructure spending at the state and local level, left behind by the Great Recession.  As the remaining Recovery Act funds are spent and states' budgets remain tight, it is likely that the quality of U.S. infrastructure will decline in the years ahead.

Notes: