5 Infrastructure Principles for a Fiscal Stimulus Response to Coronavirus
In late December 2019, Chinese health officials in Wuhan collected the first samples of what is now known as severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The viral pathogen produces a pneumonia-like respiratory condition—known as the coronavirus disease or COVID-19—that may require hospitalization. This column will use the coronavirus and COVID-19 interchangeably.
Unfortunately, COVID-19 has proven to have a relatively high rate of transmission. Early epidemiological work suggests the virus has an R-naught of between 1.3 and three, meaning that in the absence of quarantine or other public health intervention, each case of the coronavirus will result in 1.3 to three new infections. According to data collected by Johns Hopkins University, there are more than 97,000 confirmed cases of COVID-19 and more than 3,300 fatalities globally.
Public health officials have indicated that developing an effective vaccine will take anywhere from 18 months to 24 months. This means that COVID-19 will remain a global challenge for the foreseeable future. Beyond the human and societal toll, the coronavirus will have significant negative effects on the economy. For example, the coronavirus is already producing both supply and demand-side shocks. Quarantines and other public health measures have idled manufacturing and service businesses. At the same time, consumers and firms are reducing nonessential travel, canceling scheduled events, and putting a hold on certain activities and investments.
On Tuesday, the Federal Reserve cut short-term interest rates by 50 basis points, or one-half of 1 percent, in an attempt to reverse the slide in equity values and boost consumer and investor confidence. The efficacy of a monetary intervention is uncertain for two reasons. First, unlike during the Great Recession, the source of economic headwinds is not a liquidity crisis. This means that a monetary intervention is somewhat mismatched to the underlying cause of the slowdown. Second, with interest rates already at or near historic lows, the Fed has less room for monetary easing. This leaves fiscal stimulus as the other major economic policy tool.
Maximizing the value of infrastructure fiscal stimulus
Infrastructure investment is often cited as a necessary component of any fiscal stimulus plan. After all, spending money on infrastructure puts people to work and creates durable assets that can help boost long-term economic growth. Yet, it’s important to understand that infrastructure investments do not always produce positive results. Poor project selection decisions can lead to social, economic, and environmental harms that drag down the economy and require expensive postconstruction remediation. These harms include an excessive pollution burden, geographic isolation, and discrimination, to name only a few. Congress should learn from past mistakes and follow five principles.
1. Infrastructure should be defined in a comprehensive manner
This means spending on traditional sectors such as highways, public transportation, water, and affordable housing as well as community health facilities, rural broadband internet, K-12 schools, and child care centers, among others. Additionally, federal funds should prioritize repair projects, which can begin more quickly than new builds and are too often overlooked by elected officials.
2. Any stimulus package must be climate smart
This means making a sizable down payment on transitioning the U.S. economy away from fossil fuels and toward clean energy with the goal of all economic production achieving net-zero carbon emissions by 2050. Moving away from business-as-usual to sustainable infrastructure programs will take careful planning. State and local governments cannot do this alone. They need financial and technical assistance from Washington, which has historically wanted to fund bricks and mortar as opposed to plans. This overemphasis on assets is shortsighted, as quality planning results in better, more productive projects.
3. Federal investments should be equitable, transparent, and targeted to communities facing the greatest need
Infrastructure investments are inherently political because they deliver benefits to certain residents and business and burdens to others. The choices of what is built or repaired and what isn’t reflect social, economic, and political power in society. Any stimulus package should redress historical investment disparities and discrimination. Moreover, local communities should have a voice in project selection and design. This means protecting the environmental review process to ensure transparency as well as robust, informed public engagement in the planning process.
4. Infrastructure spending should raise wages and improve job quality
American workers have gone too long without a raise. The fiscal stimulus should boost workers’ wages and benefits, provide opportunities for advancement, and make it easier for workers to unionize.
5. Federal infrastructure spending must extend over a long period of time, preferably 10 years
Infrastructure projects don’t stop and start on a dime. Moreover, the heavy construction industry is less likely to pull workers off the sidelines in response to a short burst of federal money. State and local governments also need certainty as they plan and work through the politics of raising their own matching funds. In short, funding certainty is essential to maximizing the productive and employment stimulus from infrastructure spending.
Taken together, these five principles will ensure that federal expenditures have the maximal stimulative effect as well as build an economy that produces inclusive and sustainable prosperity for many years to come. This is fundamentally different from how to conceive of federal spending tied to the coronavirus as a public health matter.
In the coming days, Congress will need to provide supplemental appropriations for a host of public health measures, including possibly building and equipping temporary health facilities, reimbursing providers for pandemic care for the uninsured, and supporting vaccine development, among other actions. In fact, the U.S. House of Representatives has passed an $8.3 billion supplemental that the Senate is expected to pass soon. The severity of the coronavirus outbreak in the United States will determine the timing, scale, and scope of these expenditures.
By comparison, Congress should take a longer view of infrastructure investments. Once constructed, new facilities will shape communities, the environment, and the economy for decades. If done in a thoughtful manner, robust federal infrastructure spending can not only boost employment, wages, and overall economic production—but it can also lay a lasting foundation for inclusive prosperity.
Kevin DeGood is the director of Infrastructure Policy at the Center for American Progress.
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Director, Infrastructure Policy