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Infrastructure Bank: Losing Favor with the White House?

Eighteen months ago, on January 20, 2010, a group of influential politicians, accompanied by a large coterie of representatives of the Washington transportation community, gathered at the Capitol to urge Congress and the Obama Administration to create a "National Infrastructure Bank" to help finance infrastructure investments. The speakers included all the well-known advocates of the Bank: Pennsylvania’s Governor Ed Rendell, Senator Chris Dodd (D-CT), Rep. Rosa DeLauro (D-CT), author of an Infrastructure Bank bill (H.R. 2521), former House Majority Leader Dick Gephardt (D-MO) and Felix Rohatyn, the spiritual godfather of the movement. Standing beside them, in a gesture of support and solidarity, was a large group of executives representing the transportation industry, labor unions and advocacy groups.

For a while, it seemed like their plea would be answered. A proposal for a $30 billion infrastructure bank focused on transportation-related investments was included in the President’s FY 2011 budget proposal unveiled last September. As recently as last month, Mr. Obama was mentioning the Infrastructure Bank as part of his job stimulus plan to be unveiled after Labor Day.

But today, the idea is on life support. Neither the Senate nor the House have seen fit to include the Bank in their proposed transportation bills. Congressional Democrats and Republicans alike are in agreement that decisionmaking control over major federal investments should not be ceded to a group of "unelected bureaucrats." Rather than creating a new federal bureaucracy, they think the focus should be placed on expanding federal credit assistance tools already in place, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation & Improvement Financing Program (RRIF).

There are other reasons for congressional skepticism. House Republicans are suspicious that the Obama-proposed Bank is nothing more than a vehicle for more stimulus spending, disguised as "capital investment." They want the Administration to be more specific about its proposal: how the Bank would be funded, what kind of investments it would fund and how the $30 billion capital would be repaid. "If this is more of the same stimulus spending, we won’t support it," Kevin Smith, spokesman for House Speaker John Boehner (R-OH) has been quoted as saying.

House Transportation and Infrastructure Committee chairman John Mica (R-FL) thinks state-level infrastructure banks would be a more appropriate means of financing major transportation projects at the state and local level. Decentralized infrastructure financing would "keep the federal financing bureaucracy at a minimum and maximize states’ financial capabilities," according to the House transportation reauthorization proposal.

Senate Democrats, while not necessarily opposed to another fiscal stimulus, want quick results. They fear that a centralized Infrastructure Bank, with its complex governance structure and layers of bureaucratic conditions, requirements and approvals would be far too slow and cumbersome to be an effective job generator. One or two years could pass before large-scale projects appropriate for Bank financing would get evaluated, selected, approved and under construction, one Senate aide told us.

What is more, there is a lack of agreement on how the proposed Infrastructure Bank should function. The Administration wants a mechanism that would serve several different purposes. In the words of Undersecretary for Transportation Policy Roy Kienitz who testified at a September 21, 2010 hearing of the Senate Banking Committee, "We need a financing institution that can provide a range of financing options— grants for projects that by their nature cannot generate revenue, and loans and loan guarantees for projects that can pay for their construction costs out of a revenue stream. In short, we need the Infrastructure Bank that the President has proposed."

But, "banks don’t give out grants, they give out loans. There is already a mechanism for giving out federal transportation grants — it’s called the highway bill," countered Sen. James Inhofe (R-OK), ranking member of the Senate Environment and Public Works (EPW) Committee.

If the proposed entity is to be a true bank – as proposed in a recent bill sponsored by Senators John Kerry (D-MA) and Kay Bailey Hutchison (R-TX) and endorsed by the AFL-CIO and the U.S. Chamber of Commerce– its scope would be confined to projects that can repay interest and principal on their loans with a dedicated stream of revenue — in other words, the Bank could finance only income-generating facilities such as toll roads and bridges. By all estimates, such projects will constitute only a small fraction of the overall inventory of transportation improvements needed to be financed in the years ahead, the bulk of which will be reconstruction of existing toll-free Interstate highways. Hence, a true Infrastructure Bank would be of limited help in creating jobs and reviving the economy, critics argue.

"A national infrastructure bank must garner broad bipartisan support to move forward," says Michael Likosky, Director of NYU's Center on Law & Public Finance and author of a recent book, Obama's Bank:Financing a Durable New Deal. "This means no grants, a multi-sector reach and a realistic idea of what projects will benefit straight away."

President Obama was expected to include the infrastructure bank among his recommended stimulus measures when he lays out his new job-creation plan before the congressional deficit reduction committee in early September. But lately, he seems to have put the idea on the back burner and turned his attention to more traditional "shovel-ready" highway investments using existing financing programs. His advisers may have concluded that the Bank will do little to stimulate immediate job creation--- and that the proposal will find little support among congressional Democrats and Republicans alike. If so, check off the Infrastructure Bank as an idea whose time had come and gone.

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Note: the NewsBriefs can also be accessed at www.infrastructureUSA.org

A listing of all recent NewsBriefs can be found at www.innobriefs.com

Australia Central Banker: Higher House Prices a "Social Problem"

Glenn Stevens, the Governor of the Reserve Bank of Australia expressed concern about the growing gap in housing affordability in the nation to a parliamentary committee on Friday. Stevens raised questions about the cost and supply of housing, asking:

"How is it that we can't add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do," he asked.

According to an article in the Perth Western Australian ("High price of homes 'stealing future'") Stevens went on to say that key State and local government issues around supply, zoning, transportation and infrastructure seemed to be making a simple block of land more expensive than was necessary.

Virtually all of Australia large urban areas have implemented urban containment policies (called "urban consolidation" in Australia and "smart growth" in the United States). The result has been to increase house prices from 2 to 3 times the historic norm relative to incomes. These price increases are consistent with the overwhelming economic evidence of a strong association between urban containment policies, especially those that ration land for development through devices such as urban growth boundaries.

The Chairman of the Reserve Bank of New Zealand has identified a 10-times "across the urban growth boundary value" difference per acre in Auckland, which is similar to findings in Portland, Oregon.

Stevens concluded his housing comments noting that: "There's a very big inequality between generations building up and I think that's a social problem as much as any economic point."

New Zealand Leader Focuses on Association between High House Prices and Growth Management

ACT Party leader Donald Brash, who served from 1988 to 2002 as the Governor of the Reserve Bank of New Zealand (similar in function to the Federal Reserve Board) has noted the poor housing affordability in New Zealand and its connection to growth management policies (called by various names, such as "smart growth," "growth management," "compact cities," "densification" "prescriptive land use regulation" and "urban consolidation").

In an August 25 speech Brash said:

"It is impossible to avoid the conclusion that the interaction of the RMA, the Local Government Act and local government staff all over the country has produced a major obstacle to improved living standards.

One of the ways this has happened is through the way in which this interaction has pushed the price of housing well beyond the reach of far too many New Zealanders – or more accurately, has pushed the price of residential land well beyond the reach of far too many New Zealanders.

We know, from the annual surveys undertaken by the Demographia organisation, that housing in our major cities is now among the most expensive in the world, relative to household incomes. And why? In large part because too many local governments have quite deliberately limited the supply of residential land.

Arthur Grimes, now chairman of the Reserve Bank, found that the effect of the Metropolitan Urban Limit imposed by the Auckland Regional Council had increased the price of land just inside that Limit by some 10 times compared with the price of land just outside the Limit.

This is absolutely nuts, in a situation where New Zealand is one of the most under-populated countries in the world, and where Auckland is one of the most densely populated cities in the world – in terms of people per square kilometre, Auckland is more densely populated than Vancouver, Melbourne, Portland, Adelaide, Perth or Brisbane.

I’m delighted that one of the first projects of the newly-established Productivity Commission is to look into the affordability of housing."

The finding of a 10-times "across the urban growth boundary value" difference per acre in Auckland, is similar to findings in Portland, Oregon.

Dr. Brash had previously written (the "Median Multiple is a measure of housing affordability, with higher number indicating less affordable housing. It is the median house price divided by the median household income):

"... the one factor which clearly separates all of the urban areas with high Median Multiples from all those with low Median Multiples is the severity of the artificial restraints on the availability of land for residential building"

Why the Green Jobs Movement Failed

"Federal and state efforts to stimulate creation of green jobs have largely failed," the New York Times reported last week, drawing similar conclusions to the ones we drew in our essay for The New Republic last October. Silicon Valley, home to the green jobs movement, actually saw the number of green jobs decline from 2003 - 2010.

The signature green jobs program was retrofitting homes and buildings to become more energy efficient, which boosters thought would create "millions" of jobs in the inner-city. In 2009 the Center for American Progress claimed that $5 billion in stimulus funding for weatherization and a price on carbon would lead to the retrofitting of every building in America in ten years, generating 900,000 jobs. In reality, we noted in TNR, the weatherization program had created just 13,000 jobs. "Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes," the Times reported, "California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter... the program never really caught on as homeowners balked at the upfront costs."

Most of the approximately $70 billion in green stimulus money went to retrofitting or stimulating the old economy and just one-third went to building a new one. Notably, even those modest investments in manufacturing and technology had a salutary effect, saving the American renewables industry, which was in free fall after the 2008 financial crisis, and giving a boost to U.S. manufacturers of electric car batteries. 

Obama could have focused on winning a long-term commitment to public investment in green innovation and manufacturing. Instead, he threw his political capital behind cap-and-trade, a pollution control program that was never imagined by the economists who invented it to be a means for creating vibrant new industries.

Iowa Getting Off Bus Speed Rail?

Iowa Governor Terry Branstad has refused to pay $15,000 in annual dues to the Midwest High-Speed Rail Association. This comes after the state legislature declined to fund intercity rail programs in the 2012 budget. Various public agencies had offered to pay the $15,000 on behalf of the state, however Branstad declined the money, with a spokesperson saying that the Legislature had "made their will crystal-clear" about funding membership in the organization.

The Midwest High-Speed Rail Association has been promoting an intercity rail system that would serve Chicago from other major metropolitan areas, operating at substantially below international high-speed rail standards. In the case of the Iowa route, travel to Chicago would be slower than the present bus service, which does not require public subsidy and which provides free high-speed Internet. This issue is described in greater detail in an earlier article.

The proposed national high-speed rail system has run into considerable difficulty at the state level. In addition to the reluctance of Iowa to participate, the states of Florida, Wisconsin and Ohio have refused federal funding. In the case of Florida, the genuine high-speed rail system was canceled by Governor Scott out of fear that the cost overruns, which have occurred in 90 percent of cases, would be the responsibility of state taxpayers. The California system could be nearly $60 billion short of its funding requirements for the first phase and is running into serious difficulties from citizens along the route. The Missouri legislature declined to include funding for part of the Midwest system earlier this year. Finally, the North Carolina legislature has placed requirements for its own review of any future federal grants for high-speed rail.

Despite Exhortations, San Antonio Suburbanizes

"Despite years of effort by city leaders to revitalize San Antonio’s downtown neighborhoods, thousands of residents flocked to sprawling subdivisions on the far North and West sides in the past decade, while the inner city lost residents."

That is how John Tedesco, Elaine Ayala and Brian Chasnoff of the San Antonio Express-News described the continuing dispersion of the San Antonio metropolitan area's core Bexar County in an analysis of census tract population trends between 2000 and 2010 (we had reported more generally on the continuing dispersion of San Antonio a few months ago).

Referring to the "siren song of the outlying suburbs," the authors note that the strongest growth in Bexar County occurred in suburban areas outside the outer beltway (the "Anderson Loop" or state route 1604). The growth, largely on the north and west sides of the county was nearly one-half of total county growth. At the same time, the inner city lost population.

The Express-News analysis indicates that the population increased 233 percent in the northern and western areas outside the Anderson Loop. Inside the inner loop (Interstate 410), the population increased 7 percent. This includes the inner city area, where the population declined three percent. In the rest of the county (between the inner and outer loops and the outer suburbs of the east and south), the population increase was 24 percent.

Outside core Bexar County, the metropolitan area added 34 percent to its population, more than any of the three major sectors of Bexar County.

The reporters noted that "Every San Antonio mayor who served in the past decade preached the virtues of life in the inner city. For many people, it’s an appealing message — in theory. “Most people agree,” former Mayor Phil Hardberger said. “And then they drive out beyond 1604 to their houses.”

Norman Dugas, a residential subdivision developer and past president of the Real Estate Council of San Antonio told the Express-News “The reality is, market forces are much more important than any planning emphasis or desire to shape development.” Put another way, "preaching" is not enough. People will likely follow their preferences unless forbidden to do so, which is regrettably a policy direction in some places.
Subsidies to the core areas (often plentiful) and exhortations by public officials (few, if any of whom have themselves moved permanently to the inner city from the suburbs) are unlikely to change how people prefer to live.

Sizing Up Texas’ Job Growth Under Rick Perry

Now that Texas Gov. Rick Perry is officially in the running for the Republican presidential nomination, journalists and econ bloggers from almost every national news outlet have examined the Texas’ economy in excruciating detail. The fact that Texas has produced nearly 40% of all new jobs in the US since 2009 has been regurgitated over and over again, and the state’s remarkable population spike has repeatedly been cited as a reason for the big employment growth.

But more than those shared story lines, writers have offered another strikingly similar theme in their Texas critiques: many have pointed to the wave of oil and gas jobs as the key driver of the state’s economic boom.

To be sure, energy employment is part of Texas’ growth, as EMSI highlighted in June. But it’s far from the biggest part. CNNMoney did a nice job laying out the super-sectors that have done well in the Lone Star State, and we’re going to drill down even further using EMSI’s detailed data to see which specific industries are fueling the state’s growth.

How Texas Stacks Up

It’s true that Texas has accounted for a large share of new jobs in the US, and that’s not just the case since 2009. Going back to 2001, Texas has added more than 2.1 million jobs, according to EMSI’s latest complete dataset, while the rest of the nation has combined for 6.2 million new jobs.

But Texas is a massive state, of course, with a population of more than 24 million. So to even the playing field, let’s look at percentage job growth.

As it turns out, there are only four states that have grown from 2001 to 2011 and from 2009 to 2011.

Like Texas, Wyoming and Utah have also had 18% growth since 2001, but no state has performed better since 2009 than North Dakota. Its employment base has grown 5% in the last two years, compared to 2% for Texas. But because North Dakota has a much smaller population — and workforce — than Texas, its growth typically doesn’t get mentioned in discussions like these.

Energy is a Big Player — But Not the Biggest One

Oil and gas extraction employment in Texas has more than doubled in the last 10 years, and support industries for drilling have also boomed. Altogether, the mining, quarrying, and oil and gas extraction sector has jumped from over 230,000 jobs in 2001 to just under 490,000 in 2011.

But that’s only a fraction of the 14.2 million jobs in the state, and the oil and gas growth accounts for slightly more than 10% of all new jobs in the state since 2001.

What have been the biggest job gainers? Health care and social assistance (421,000-plus) and government (nearly 282,000) have made the largest additions to their payrolls in the last decade. It should be noted, however, that government jobs have declined in the last year — and were growing stagnant before then.

Yet once you extract federal government jobs, it’s clear that state and local government employment is doing considerably better in Texas than other states. Texas is one of 10 states that have seen increases in state and local government jobs since 2009, and its growth (29,287) is nearly nine times that of the state with the second-most growth, Kentucky (3,327).

These numbers don’t exactly bolster Perry’s small-government agenda claims.

State and Local Government Job Change (2009-11)

In terms of detailed sub-sectors, temporary health services, crude petroleum/natural gas extraction, and home health services have been the strongest performers in Texas since 2009. Overall, 19 industries have added at least 5,000 jobs since ’09, of which electric power distribution has had by far the largest percent growth (111%).

NAICS Code Description 2009 Jobs 2011 Jobs Change % Change
561320 Temporary Help Services 171,096 204,456 33,360 19%
211111 Crude Petroleum and Natural Gas Extraction 290,638 317,388 26,750 9%
621610 Home Health Care Services 240,018 263,099 23,081 10%
930000 Local government 1,240,713 1,261,970 21,257 2%
213112 Support Activities for Oil and Gas Operations 89,179 108,765 19,586 22%
221122 Electric Power Distribution 11,840 25,038 13,198 111%
722110 Full-Service Restaurants 371,893 385,081 13,188 4%
814110 Private Households 113,106 125,148 12,042 11%
621111 Offices of Physicians (except Mental Health Specialists) 198,795 210,077 11,282 6%
622110 General Medical and Surgical Hospitals 265,013 274,810 9,797 4%
920000 State government 354,190 362,219 8,029 2%
551114 Corporate, Subsidiary, and Regional Managing Offices 90,157 98,159 8,002 9%
213111 Drilling Oil and Gas Wells 34,826 42,562 7,736 22%
425120 Wholesale Trade Agents and Brokers 58,575 64,461 5,886 10%
452112 Discount Department Stores 63,272 69,137 5,865 9%
561720 Janitorial Services 152,316 157,919 5,603 4%
623110 Nursing Care Facilities 99,246 104,651 5,405 5%
561110 Office Administrative Services 88,376 93,599 5,223 6%
522110 Commercial Banking 112,482 117,698 5,216 5%




Key Regional Industries

We also looked at the most concentrated industries in Texas, as compared to national employment concentration, to see which industries are unique to the state and tend to be export-oriented. Oil and gas extraction — and the production of equipment for extraction — figure prominently among this group of industries.

Crude petroleum/natural gas extraction is more than 4.5 times more concentrated in Texas than the nation, and it accounts for more than 300,000 jobs. Other industries with high LQs and large employment bases: support activities for oil and gas operations; engineering services; and office administrative services.


For more on Texas’ economy, be sure to read Tyler Cowen’s post at Marginal Revolution. And for more on Texas’ growth, check out this piece on the top cities in the US.

Illustration by Mark Beauchamp

The Spread of Proprietors/Independent Contractors In the US

A few weeks ago EMSI looked at the states with the largest share of 1099 workers — that is, proprietors/independent contractors, farm workers, and others not covered by unemployment insurance. We found that since 2006 every state (as well as D.C.) has seen growth in noncovered workers.

Simply put, the number of workers outside traditional employment rolls is on the rise.

We have since mapped out job growth among 1099 workers in every U.S. county from 2006-2011 to see where this increase in nontraditional employment is most evident. And the data makes the trend even clearer: The majority of counties across the nation have seen at least a small increase in noncovered workers, and some have seen huge increases. This is especially the case in the western and southwestern portions of the U.S.

It should be emphasized that not all 1099 workers captured in the EMSI Complete dataset are proprietors/independent contractors. However, if we use growth in the 1099 economy as a loose proxy for entrepreneurial behavior (i.e., a backbone for economic growth and business development), it’s very apparent which areas are progressing in that arena and which areas are falling behind.

The counties with the most 1099 job growth are mostly in fairly isolated areas:

1, Loving County, Texas, 114% (the least populous county in the US)
2, Todd County, South Dakota, 81%
3, Calhoun County, West Virginia, 63%
4 (tie), Roane County, West Virginia, 57%
4 (tie), Reagan County, Texas, 57%
4 (tie), Union County, Florida, 57%
7 (tie), Wayne County, Utah, 54%
7 (tie), Shackleford County, Texas, 54%
9, Ochiltree County, Texas, 53%
10, Kenedy County, Texas, 52%

Seven of the top 12 counties, in fact, are in Texas, including Midland County. Oil and gas extraction, the fastest-rising sector for 1099 workers in the US, is driving most of this growth in workers outside the unemployment insurance (UI) system.

In contrast, the counties showing the biggest job loss in 1099 employment have a more diverse population base:

1, Ziebach County, South Dakota, -23%
2 (tie), St. Louis City, Missouri, -15%
2 (tie), Roanoke County, Virginia, -15%
4, Ohio County, West Virginia, -14%
5, Sully County, West Virginia, -13%
6, Oliver County, North Dakota, -12%
7 (tie), Marshall County, South Dakota, -11%
7 (tie), Forsyth County, Georgia, -11%
9, Pennington County, South Dakota, -10%
10, Decatur County, Iowa, -9%

Report: China to Suspend High Speed Rail Development

Railway Age reports that Premier Wen of China "has told the state media that the government will suspend approvals of new rail while it conducts safety checks to address concerns rising from the high speed train collision last month that killed 40 people."

The Premier also indicated that high speed rail trains should operate at slower speeds "at their earlier stage of operation." Earlier this year, the Ministry of Railways slowed all trains to a maximum speed of 300 kilometers per hour (186 miles per hour) and many trains that were to operate at that speed were slowed to 250 kilometers per hour (155 miles per hour). At the time, reports indicated that the slower speeds were to lower operating costs so that fares could be reduced. Concerns had been raised about the much higher fares on the new trains and the cancellation of many conventional trains, which had much lower fares. Railway Minister In addition, Sheng Guangzu told the press that the slower operating speeds would "offer more safety."

Photo: Suzhou to Nanjing at 300 kph (by author)

Houston's Not Resilient? Really?

Alert reader Jessie sent me this article about Houston ranking "very low" on a "resilience capacity index".  For real.  I was dumbfounded too. And now I'm going to post out-of-character and get a little snippy...

Let's skip right past the parade of articles and data showing Houston and Texas weathering the great recession better than just about everywhere else in the country.  It's so strong Rick Perry might win the Republican presidential nomination based on it.  That alone should make them question their entire methodology.  Go back to the dot-com and Enron crashes, and you'll find the same minimal impact.  Sounds like we're pretty resilient to me.

Then there's their explicit declaration that it represents the ability of a city to weather the shock of a major storm or flood.  I'll point to both Tropical Storm Allison and Hurricane Ike.  Both were devastating - yet we bounced back relatively quickly from each one.  You might note on their map that New Orleans ranks higher than Houston, yet Hurricane Katrina knocked New Orleans on its back for years.  Maybe they need to add a "levees upkeep" variable to the index?

Let's look at some of the problematic variables that make up the index:

  • Economic diversification: I'll admit there's some value here, but it's also worth noting that some of the wealthiest and most successful cities in the country built that success around one strong, dominant industry: NYC and finance, DC and govt, SF/SV and tech, Houston and energy, etc.
  • Income equality: also a proxy for "we don't have any high-paying industries" - nor the corresponding tax base.  How is this helpful for resilience? (more on the value of income disparity here)
  • Educational attainment, being out of poverty, and home ownership: a proxy for using tight zoning and land-use regulation to keep out apartments, new and affordable housing, and immigrants.
  • Metropolitan Stability: aka "stagnation".  Cities that aren't growing have amazingly stable populations because nobody wants to move there and none of the residents can sell their houses.

My cynical side thinks that, since the University of Buffalo put this out, they intentionally chose variables that made Buffalo look good, even though it's one of the most stagnant metro economies in the country.

All in all one of the worst designed indexes I've ever seen - and there are some doozies out there.

OK, I feel better.  End venting (and snippyness).

Read more from Tory at HoustonStrategies.com.