The Biden administration and Congress apparently agree on at least parts of a $1.2 trillion infrastructure bill. That is a lot of money. Unfortunately, media and politicians fail in putting that in context with other spending, including the $2.2 trillion COVID-relief bill passed at the end of March 2020, or the $2.3 trillion consolidated appropriations bill for Fiscal Year 2021, passed just before Christmas, all products of the Trump era.
Then we got a $1.9 trillion Biden COVID relief and economic stimulus bill. Citizens already are confused. When Washington reporters leave out a key factor, this confusion multiplies.
In a nutshell, the rub is that bills reacting to COVID are intended to be spent quickly. The first included well over a trillion in direct payments and forgivable loans The appropriations bill for FY 2021 is for maintenance spending on things like Social Security, defense, Medicare, farm subsidies and transferring federal highway and airport taxes to states and local government.
The difference for the infrastructure bill is that it is to be spent over eight years. That would average $150 billion a year for maintaining and building the usual roads, bridges, airports, passenger rail, rivers and harbors. It also includes money for extending highspeed broadband, fixing water and sewer systems, repairs and expansions to federal buildings and improving private housing and commercial buildings in blighted areas.
Note the absence of a term used repeatedly in 2009 when the incoming Obama administration sought infrastructure spending to immediately stimulate economic activity after the financial market meltdown. How many projects really were “shovel-ready?” If a project required years of planning, design and land acquisition before any real building, any effects on overall economic output would lag and would do little to alleviate the recession.
The same issue exists today. Instead of looking at the overall price tag, consider an eight-year infrastructure bill as an investment in the longer-term efficiency of the economy. Don’t expect immediate boosts to employment or output.
This would be clearer if more people, both in the media and general population, understood some basics of federal finance. Or if partisan politicians didn’t hype, or weaponize, the benefits or drawbacks of a spending bill for the media and the public to then parrot.
First, the U.S. Congress controls spending. Constitutionally, a president’s only power is to either sign or veto taxing and spending bills passed by Congress. Yes, the executive branch can propose budgets and request specific spending, as it regularly does. Nothing requires Congress to meet these requests.
Then understand that there always are three basic steps: First, spending must be authorized. Second, money must be appropriated. Third: Outlays of funds must be made.
Only appropriation is specified in the Constitution. Article 1, Section 9 is the key provision and one extensively debated in the document’s framing.
The separate “authorization” of a project prior to appropriating money stems largely from House and Senate rules. Until after the Civil War, appropriating money was only the tasks of the Ways and Means committees. But national spending grew so complex that the work had to be spread out. Since the 1789 start of the union, there had been specific committees for defense, foreign affairs, postal service and so forth. These committees debated and recommended actions to take. Ways and Means had to come up with necessary tax levels and decide on specific dollar spending.
This sector-by-sector oversight needed to be preserved. The new appropriations committees should not have power to spend money all by themselves. So ”authorization” bills from other committees approved by each house were a prerequisite for the new committee to appropriate any money.
Outlays, the actual Treasury payments to citizens or vendors, is an administrative function that flows from the other two steps. However, outlays often do not take place in either the calendar or fiscal year the necessary bills were passed.
Take the process of constructing an aircraft carrier. The armed services committees must recommend authorizing this. Then both houses must pass, and the president must sign the authorization bill. Then the appropriations committee specifies exact sums to be paid out to contractors. Usually such spending OKs are for a specific fiscal year, but multiyear appropriations can be made and circumstances may warrant speeding up or delaying actual payments. So a new Navy ship authorized in 2020 may have little money appropriated for earlier than FY 2021 and 2022. Large outlays may come four or five years later.
Authorization does not guarantee appropriation. That does not guarantee actual outlays. Missouri River mainstem dams in the Dakotas took up lots of good farmland, primarily to reduce flooding hundreds of miles south. The politics of passing the authorizations entailed compensating these states, although much land was essentially stolen from Native American tribes. North Dakota was promised a large irrigation project. So what became the Garrison Diversion Project was authorized but, while money went to town and rural water supplies, little ever was appropriated or laid out for irrigation despite decades of political conflict.
Authorization and appropriation also can be combined into one bill, usually for ongoing programs, especially ones with dedicated revenue sources. These include Social Security and Medicare funded by FICA taxes or the highway and airport taxes that are funneled back to states on a formulaic basis. For programs benefitting individuals, spending from ongoing automatic authorizations and appropriations built into initial legislation became known as “entitlements.” It was a technical term, but somehow this shortcut became interpreted as the opposite, a pejorative implication that implied a “welfare” payment. Much citizen rage ensued, fueled by politicians when it suited them.
The present infrastructure bill is mostly authorization. Specific amounts appropriated depend on future Congresses over the next eight years. And actual outlays hinge on circumstances. But history is such that once such spending is headed down the tracks, neither party wants to divert it into a siding.
Comparisons with past bills is instructive. The Bush 43 administration asked for and got some $60 billion a year for 2005 through 2009 for transportation only, not communications, water or sewers nor buildings. A 2012 bill had $112 billion for two years, little changed from before. The same applied to a five-year bill passed in 2015. All of these amounts included highway and airport spending set up for decades by formula, so there was little new.
So yes, the present bill does increase spending and does cover things like fixing outdated local water-sewer systems and extending broadband. But it is not nearly as large as many think.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
Real World Economics: Infrastructure bill poorly explained, poorly understood - TwinCities.com-Pioneer Press
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