Crowd Control: The Need for a Spectrum Management Mitigation Fund

Whether it’s 4G cell phones, light-as-a-feather laptops or the latest tablet, Americans are enjoying a wireless revolution. In 2010, Americans typed, tapped, texted, and called on an estimated 300 million mobile devices.

But all this increased connectivity is taking a toll on the nation’s increasingly crowded airwaves. The Federal Communications Commission (FCC) warns of a “spectrum crunch” that could hit as early as 2013, given how quickly wireless traffic is growing.

Innovative companies are devising new ways to maximize spectrum efficiency so more users can take up less space. But while these advances deserve strong support, they’re also not cost-free. In some cases, existing “legacy” users must retrofit older and less efficient technologies to adjust to these new uses.

This brief proposes a “spectrum management mitigation fund” to help legacy users defray the inadvertent costs of adapting to innovations in the marketplace. This fund would involve no new federal money and instead would be financed from a portion of revenues from “voluntary incentive auctions”—a mechanism endorsed by the FCC to encourage more efficient spectrum allocation between current and prospective licensees.

Creating the fund would reconcile two goals: it would both encourage much-needed innovation while also acknowledging the legitimate concerns of users with older technologies. Moreover, it would obviate the politicization of spectrum management issues currently occurring in part due to the absence of a mitigation mechanism. For example, this fund could help re-solve the current controversy between the legacy GPS community and the wireless broadband start-up LightSquared—it could partially compensate legacy GPS users for the cost of retrofitting existing devices, thereby clearing the path for LightSquared to deploy its network.

With the benefits of spectrum innovation too great pass up, this fund could be an important next step to ensure Americans enjoy the next generation and beyond of new wireless technologies.

Read the entire report.

Sperling on Deferred Maintenance

Gene SperlingPresident Obama’s $447 billion jobs plan includes some constructive – literally – provisions for upgrading America’s economic infrastructure. These shouldn’t be controversial: Who could be against putting people to work rebuilding the rickety foundations of U.S. productivity and competitiveness?

Well, Republicans, that’s who. They have dismissed the president’s call for $50 billion in new infrastructure spending as nothing more than another jolt of fiscal “stimulus” masquerading as investment.

It’s hard to imagine a more myopic example of the right’s determination to impose premature austerity on our frail economy. From Lincoln to Teddy Roosevelt to Eisenhower, the Republicans were once a party dedicated to internal nation building. Today’s GOP is gripped by a raging anti-government fever which fails to draw elementary distinctions between consumption and investment, viewing all public spending as equally wasteful.

But as the White House’s Gene Sperling said yesterday, Republicans can’t claim credit for fiscal discipline by blocking long overdue repairs of in the nation’s transport, energy and water systems. There’s nothing fiscally responsible about “deferring maintenance” on the U.S. economy.

Sperling, chairman of the president’s National Economic Council, spoke at a PPI forum on Capitol Hill on “Infrastructure and Jobs: A Productive Foundation for Economic Growth.” Other featured speakers included Sen. Mark Warner, Rep. Rosa DeLauro, Dan DiMicco, CEO of Nucor Corporation, Daryl Dulaney, CEO of Siemens Industry and Ed Smith, CEO of Ullico Inc., a consortium of union pension funds.

Fiscal prudence means foregoing consumption of things you’d like but could do without if you can’t afford them – a cable TV package, in Sperling’s example. But if a water pipe breaks in your home, deferring maintenance can only lead to greater damage and higher repair costs down the road.

As speaker after speaker emphasized during yesterday’s forum, that’s precisely what’s happening to the U.S. economy. Thanks to a generation of underinvestment in roads, bridges, waterways, power grids, ports and railways, the United States faces a $2 trillion repair bill. Our inadequate, worn-out infrastructure costs us time and money, lowering the productivity of workers and firms, and discouraging capital investment in the U.S. economy.

Deficient infrastructure, Dulaney noted, has forced Siemens to build its own rail spurs to get goods to market. That’s something smaller companies can’t afford to do. They will go to countries – like China, India and Brazil – that are investing heavily in building world-class infrastructure.

As Nucor’s DiMicco noted, a large-scale U.S. infrastructure initiative would create lots of jobs while also abetting the revival of manufacturing in America. He urged the Obama administration to think bigger, noting that a $500 billion annual investment in infrastructure (much of the new money would come from private sources rather than government) could generate 15 million jobs.

The enormous opportunities to deploy more private capital were echoed from financial leaders in New York, including Jane Garvey, the North American chairman of Meridiam Infrastructure, a private equity fund specializing in infrastructure investment. Garvey warned that what investors need from government programs is more transparent and consistent decision making, based on clear, merit-based criteria, and noted that an independent national infrastructure bank would be the best way to achieve this. Bryan Grote, former head of the Department of Transportation’s TIFIA financing program, which many describe as a forerunner of the bank approach, added that having a dedicated staff of experts in an independent bank is the key to achieving the more rational, predictable project selection that investors need to see to view any government program as a credible partner.

Tom Osborne, the head of Americas Infrastructure at UBS Investment Bank, agreed that an independent infrastructure bank like the version proposed by Senators Kerry, Hutchison and Warner, would empower private investors to fund more projects. And contrary to arguments that a national bank would centralize more funding decisions in Washington, Osborne explained that states and local governments would also be more empowered by the bank to pursue new projects with flexible financing options, knowing that the bank will evaluate projects based on its economics, not on the politics of the next election cycle.

Adding urgency to the infrastructure push was Fed Chairman Ben Bernanke’s warning this week that the recovery is “close to faltering.” Unlike short-term stimulus spending, money invested in modernizing infrastructure would create lasting jobs by expanding our economy’s productive base.

Warning that America stands on the precipice of a “double dip” recession, Sperling said it would be “inexcusable” for Congress to fail to act on the president’s job plan. He cited estimates by independent economic experts that the plan would boost GDP growth in 2012 from 2.4 to 4.2 percent, and generate over three million more jobs.

The political battle over Obama’s jobs plan centers on how it’s paid for. Senate Democrats have proposed a surtax on millionaires. Unlike tax hikes in general, this idea is popular, and Democrats clearly hope to use it to crack the GOP’s monolithic opposition to raising taxes.

However that battle ends, Congress must salvage the plan’s infrastructure provisions, including its call for an independent infrastructure bank.

EVENT: Infrastructure and Jobs: A Productive Foundation For Economic Growth

Progressive Policy Institute

Date
October 6, 2011
10 a.m. – 1 p.m.

Location
902 Hart Senate Office Building
U.S. Capitol Complex
Washington, DC 20501

Join PPI and top leaders from the White House, Congress, private industry, labor, and the financial sector to discuss current issues in U.S. infrastructure policy. White House economist Gene Sperling will explain the administration’s proposals for new infrastructure investment and their potential impact on the economy. Senator John Kerry and Congresswoman Rosa DeLauro will describe their proposals to create a national infrastructure bank to improve infrastructure spending decisions and maintain U.S. competitiveness in the global economy, and private-sector leaders will explain how infrastructure projects will create jobs and mobilize private capital to boost economic growth and investment.

 

Register for the event.

Managing Austerity’s Axe

In the wake of Hurricane Irene, there has been consternation over whether the GOP proposed cuts to the United States Geological Survey signifies that they were actively endangering the public. Political scoreboard aside, while it is true that America as a nation could survive without quality weather surveillance, not needing a program does not automatically justify severe budget cuts.

Imagine America as a frigate. Our ship might be weighed down by our blossoming debt, but that does not mean we should be indiscriminately throwing our guns overboard in an attempt to lighten our load. Furthermore our focus on the crisis of the moment is also distracting us from one of the lessons of Hurricane Irene: the need to defend valuable government programs that cannot defend themselves. The national discussion needs to be reoriented from its current state to one about reducing the deficit in a way that does not prioritize politically expedient cuts over the budgets of beneficial government programs lacking political clout.

The smallest instance of this concept is a recent Washington Post cause célèbre – defending the Statistical Abstract of the United States. Called “America’s databook” by Post Columnist Robert Samuleson and defended by other Post Columnists E.J Dionne and Ezra Klein, the abstract provides a single destination for various sorts of facts that one normally would have to spend hours trolling through government databases to discover. While not essential to existence of the United States, the abstract provides useful information and would be in a sense akin to losing data from the Bureau of Labor Statistics, making our country worse off by making us less knowledgeable. For $2.9 million – pocket change to the federal government, the abstract is an unnecessary sacrifice in a blanket effort to reduce the budget.

To think about it another way, in pure job creation terms, government spending on the abstract creates 24 jobs at $120,000 per job – less than the $200,000 per job cost Felix Salmon finds for infrastructure spending.

Another more tangible example of this debate is a $784 million cut to Federal Emergency Management Agency (FEMA) emergency response grants. These grants fund first responders, paying for the training of local and state emergency personnel. The training prepares them to manage current crises like Vermont floods. Before immediately writing FEMA off as wasteful spending, it’s important to note the steps FEMA has taken to redeem its sullied reputation. FEMA received positive reviews from both sides of the aisle in its response to Hurricane Irene.

Yet due to a slimmed budget, FEMA disaster relief money is running out, pitting two disasters against each other for catastrophe aid. With funding not yet appropriated to help the Joplin, Missouri recovery efforts, Missouri Senators are already warning about diverting funding from rebuilding Joplin to recovering from Irene.

“Recovery from hurricane damage on the East Coast must not come at the expense of Missouri’s rebuilding efforts,” Senator Roy Blunt (R-Mo.) said Monday in a statement.

Competition should not exist between states for disaster relief. Not only is it immoral to declare one disaster more worthy of funding than another, but it also represents a basic betrayal of citizens who depend on the government for at least their very security.

Conservative economist, Doug Holtz-Eakin has a two-part test for creating government programs, “Does the economy fail to deliver something? And second, could the government do it better?” As Samuelson notes, there is no private market equivalent of the Statistical Abstract and I seriously doubt that a private corperation could provide disaster relief better than FEMA can. There is no denying that deficit reduction needs to occur, but legislators should think twice about government’s basic responsibilities before subjecting agencies without political clout to austerity’s axe.

Photo Credit: U.S Coast Guard

Should America Pork Out?

On his show last week, Chris Matthews of MSNBC’s Hardball recommended that the president “pork out.” Remember those pet infrastructure projects Republicans sacrificed at the altar of declared fiscal discipline? Matthews wants the president to serve up a feast of pork as a temporary jobs plan.

The basic premise of the Matthews’ plan is that the president packages–in one bill–all of the pet projects that were requested over the past two years by Congress but failed to become law. Discarding the projects that are wasteful or don’t create jobs, the president sends the bill to Congress testing where the GOP’s allegiance lies: with the nation’s 25 million unemployed or the political gain of depressing the economy.

Can a serving of pork really pass Congress and create jobs?

Possibly. Much of the pork spending is basically targeted infrastructure spending. Bipartisan support for earmarks has been historically pervasive, and remains widespread today despite a House enforced moratorium. Senator Lindsay Graham (R-Tenn.) threatened to shutdown the Senate over $50,000 toward deepening the Charleston harbor, and presidential candidate Michele Bachmann (R-Minn.) sneaked a $700 million bridge overhaul past the earmark ban by not listing the actual cost of the bridge in the bill.

Quick calculations state that if every $1 billion of federal spending spent creates 11,000 job-years and the jobs are temporary, one year long, then allocating $10 billion would create roughly 110,000 gross jobs. Funds could be weighted to ensure the states with the highest unemployment rates receive the most money.

Furthermore the current state of the economy is a rare moment of slack in the inherent tension that exists between federal spending and private investment. Worries that earmark spending muscles out the private businesses are exemplified in a Harvard study that found earmarking by certain Congressman can lead to a 15 percent decrease in that districts’ private sector spending — a worrisome proposition. Except, right now corporations are not spending and instead are sitting on $2 trillion in cash. Federal spending repercussions are lessened because there is little private spending to crowd out.

To preempt deficit hawks, the plan should be part of a long-term deficit reduction package or paired with back-loaded spending cuts to be revenue neutral. An ideal deficit reduction plan would include a much-needed boost to the job market through targeted short-term infrastructure spending supported by former IMF chief economist Ken Rogoff while reducing the deficit over the long term. While a national infrastructure bank would be idyllic, political realities make pork a workable substitute for targeted infrastructure spending.

A good bully pulpit speech could help extinguish any other political opposition. The specificity and detailed local impact of the pork makes the plan a powerful political cudgel.

Envision the president trotting out to the Rose Garden bill in hand, declaring, “The economy is hurting, but I have a jobs plan right here that’ll create over 100,000 jobs right now at a time when 9.1 percent of Americans are out of work. It won’t add one dime to the deficit but it will pay for a wastewater treatment plant in Nevada where the state unemployment rate is 12.9 percent. Yet your representative, Dean Heller, won’t support it. It won’t add one dime to the deficit, but it will pay for a college in Florida where the state unemployment rate is 10. 7 percent. Yet your representative, John Mica, won’t support it.”

Rinse and repeat that speech for three days, and it’s hard not to expect a few Republican defections. Standing tall for spending cuts is fun and games until your district gets hurt. Even if for some reason the plan doesn’t pass, the tenor of Washington will finally be attuned to what the people want and need – jobs.

Photo Credit: Kejonbro

 

 

America’s Coming Infrastructure Crash

When President Obama took office in January 2009, he promised that ” to lay a new foundation for growth….we will build the roads and bridges.” And in his 2011 State of the Union address, he promised to “put more Americans to work repairing crumbling roads and bridges.”

But as all attention is focused on the debt ceiling battle, here’s what’s happening on the infrastructure front. Highway, street, and bridge construction jobs through the first five months of 2011 are running 18% below 2007 levels, and the stimulus money is fading. House Republicans are proposing to cut future federal infrastructure funding by roughly one-third. And any defaults among state and local governments would raise borrowing costs for infrastructure bonds across the country and in some cases make the bonds unsellable.

In short, a difficult infrastructure situation is about to turn worse. The U.S. seems likely heading for an infrastructure crash that will terribly damage both our prospects and those of our children.

But in the spirit of making lemonade from lemons, budget austerity may offer an opportunity to rethink our priorities and consider our vision for the future of infrastructure. The big question is: Do we want to build roads, bridges, harbors and airports to support the current consumption- and import-oriented economy? Or should we focus infrastructure spending to encourage the shift to a more sustainable production- and export- oriented economy?

The shift from a consumption economy to a production economy is probably the most important–and most difficult–task that the U.S. faces. The clearest sign of the problem is the apparently intractable trade deficit. Over the past ten years, the country has run up a cumulative deficit of $5.7 trillion with the rest of the world, and there’s no sign of that reversing any time soon. To put it a slightly different way, the U.S. imports almost as much goods ($1.9 trillion in 2010) as the country produces (value-added of $2.2 trillion in manufacturing, mining, and agriculture).

Both Democrats and Republicans agree that one way out of this dilemma is to increase exports. But with resources scarce, that means tough choices for infrastructure spending. For example, consider our spending on ports. The Port of New Orleans is a major shipping point for our agriculture exports. Meanwhile the Ports of Los Angeles and Long Beach, with many more loaded inbound containers (imports) than outbound containers (exports), are running a significant trade deficit. Should we devote more resources to beefing up the Port of New Orleans, or to improving the Ports of Los Angeles and Long Beach?

Or think about road and bridge construction. Should we spend scarce resources on improving road links to a regional shopping mall? Or should we place top priority on infrastructure improvements that might entice foreign firms to locate manufacturing facilities in the U.S.? These are tough questions to answer. I know which way I lean–towards production rather than consumption–but there are good arguments on both sides. What’s more, there are a couple of other big wild cards. For example, the retirement of the baby boomers will change infrastructure needs, as more and more people will want to be located in inexpensive areas near hospitals.

The other big concern is defense surge capacity. If the U.S. were engaged in a major global war, heaven forbid, the country would need an efficient transportation system (there’s a reason why the construction of interstate highway system was originally justified on defense grounds). A major war would require that the U.S. beef up its manufacturing very quickly, and we wouldn’t want to have to divert manpower to rebuild our transportation infrastructure at the same time. A good infrastructure base is an insurance policy against future events.

What Washington needs is a coherent strategy for infrastructure that goes beyond “shovel-ready.” We need to shift project selection and investment decisions away from a politically-driven process to one that fits our overall economic aims as a country.

Treating infrastructure spending as an essential part of a shift towards a production-oriented economy may provide the right framework for good decisions that can get support from both Democrats and Republicans.

The piece was originally written for the Atlantic and can be found here.

Mandel will be a regular contributor to the Atlantic in the future, stay tuned for his most recent posts.

Photo Credit: Salim Virji

Gas vs. Gasoline

America has a serious oil deficit. We consume almost three times as much oil as we produce. As a result, we send more than $250 billion a year offshore (mostly to our enemies and other bad guys) to import oil so we can keep our trains, planes, and automobiles running.

On the other hand, America now has a huge surplus of natural gas, enough to last us for 100 years or more. If we replaced the oil we import with domestic gas, we could end our energy dependence and stop enriching U.S. adversaries. But rather than convert from oil to gas, plans are afoot to export the gas!

The economics of importing oil and exporting gas make no sense. We currently pay about $100 to import a barrel of oil. We are exporting natural gas at a price that has the energy equivalence of about $25 a barrel. That’s right, we are buying energy as oil for $100, selling the same amount of energy as gas for $25.

Buying high and selling low – this is what passes for national energy policy today. Our leaders should be embarrassed.

In addition to the economics, the strategic implications of converting from oil to gas are huge.

About two-thirds of the oil we use is for transportation. Converting our transportation fleet to natural gas would almost eliminate the need to import oil. Our trade deficit would be cut in half, petro-despots would be deprived of their largest revenue source, and our economy would get a $250 billion shot in the arm – every year.

So why aren’t we doing it? Converting gasoline and diesel engines to gas is relatively easy and very safe. The challenge is the infrastructure – a national network of filling stations that need to be in place before people will convert their cars and trucks to gas. Building that infrastructure requires such a huge effort and coordination among so many actors that it is unlikely that the private sector can or will make the switch by itself. Among other things, investors will worry that OPEC will defensively collapse the price of oil as they did in the ’70s. Given these market realities, the only way this switch can possibly happen will be if the government steps up to catalyze and help underwrite the effort. 150 years ago the government made a similar commitment to enable the trans-continental railroad – which ushered in America’s great industrial expansion. Converting to natural gas could bring about a similar economic boom.

Installing the required new fueling infrastructure for gas-propelled vehicles would be a tremendous generator of new jobs. There are few other investments the nation could make with as large a payoff across so many areas of national concern.

For those interested in the math:

One barrel of oil = about 5.6 million BTU. One Mcf of natural gas = about 1.02 million BTU. (The actual energy content varies slightly depending on the grade of the oil or gas. These are industry averages.)

Energy equivalence: The BTUs in 1 bbl. oil = The BTUs in 5.6 Mcf natural gas.

1 bbl oil costs $96.75 and the same amount of energy in gas costs $25.59 (5.6Mcf x $4.57),

The energy cost ratio between oil and gas is roughly 4 ($100/$25).

That means we’re paying 4 times as much for an oil BTU as we get when we sell a gas BTU.

It also means that once we have completed the conversion, operating on gas instead of gasoline will reduce our transportation energy costs by almost 75 percent.

Photo Credit: Arimoore

The Wrong Tools for the Job

Whatever you read today, you’ll find writers marking Earth Day by taking stock of environmental progress. Some will celebrate how far we have come in the last 41 years: no burning rivers, bald eagles are back, etc. Others will stress how far we have to go, citing biodiversity loss, water crises, and above all climate change. (And if your reading habits are sufficiently diverse, others will argue we’ve gone too far, and that environmental rules are hurting our economy). All of these (yes, even sometimes the third) are partly right, but arguing over which frame is “right,” if any can be, is not that illuminating.

A better way to take stock of environmental progress is to look at the tools we are using. And unfortunately doing that leaves me profoundly depressed. For almost every environmental problem, the best, most cost-effective solutions are rejected in favor of second-bests, hopeful handouts, or inaction. To give just a few examples:

Transportation: With vehicle emissions dirtying city air and contributing to climate change, inadequate investment in road infrastructure, and a strategically costly dependence on foreign oil, the US could increase gas taxes, which are lower than those in almost every other developed economy. Instead, we use some policies that give no incentive to reduce driving while at the same time restricting consumers’ choice of cars (CAFE standards) and others that cost billions while driving up global food prices (ethanol subsidies).

Smog and Acid Rain: For a beautiful moment, from 1990 through 2010, we did it right: we had a nationwide cap-and-trade program for sulfur dioxide emissions that caused smog and acid rain. The program resulted in huge health benefits at far less cost than even EPA estimated. But that program is or will soon be dead. New EPA rules are set to end interstate trading for most of the country and will impose other restrictions that mean allowances now have almost no value. EPA doesn’t deserve all the blame—courts rejection of flexible tools and Congress’ failure to act are the true sources of this problem. But it’s just crazy to kill the best environmental program this country has ever had.

Climate: Despite the Senate’s failure to even consider a single climate bill last year, we do (to the surprise of some) have an American climate policy. States and EPA are leading the way, but even if they are both bold and smart, the patchwork of carbon markets, emissions standards, and energy subsidies that emerges will surely be less efficient overall. Emissions reductions will be less, and those we do get will cost more. How is that a good deal?

I could go on. Everywhere you look, even when we deal with environmental problems, we consistently choose ways to deal with them that are costly, ineffective, or even counterproductive. It would be one thing if the best ways to solve these problems—cap-and-trade, taxing externalities—were untested ideas. But of course they are not. They are well understood, and as close to dogma as is possible among economists. Most damning of all, we used to understand this, across the political spectrum. As the sulfur dioxide story illustrates, even if we are making some environmental progress we are getting worse as a country at dealing with these issues effectively.

There is a political story here, of course. There was a time when many on the left rejected efficiency as a goal of environmental policy. The right pushed for a role for markets, and eventually a grand compromise emerged in the 1990s. Efficiency was understood to be a universally valuable goal: more effective policies meant lower costs or more environmental benefits at the same cost. Politics was about making this tradeoff, as it should be.

But somehow cap-and-trade became cap-and-tax, and a large section of the right seems opposed to any environmental policy, whether efficient or not. They’ve moved the goalposts. This about-face is particularly ironic since it leaves government handouts like nuclear subsidies and inflexible restrictions like renewable portfolio standards as the only politically plausible energy policies. How is that pro-market or anti-big government? (The left is not without some blame too: to see that, just look at how fringe groups have recently derailed California’s cap-and-trade program).

But there’s more to this story than just party politics. Efficient environmental policy simply has not caught on with the American public. Sticker shock (like gas taxes) trumps long-term efficiency every time. Hiding costs through subsidies (like ethanol or nuclear) is always more popular than showing them up front by pricing externalities. Defending or securing benefits to the few is always easier than minimizing costs to the many. With environmental problems, costs are often distant in time or diffuse, or benefits are small but widespread. This exacerbates all these problems—that’s what makes them hard.

To some extent our failure to make good policy is a failure of leadership: hiding costs is classic politics, and tearing down those who ask us to make hard choices is easy. We see this in almost all issues, not just environmental policy. But leaders can’t carry all the blame, not least because we choose them.

So is there anything to be hopeful about on Earth Day? If so, it’s hard to find. The trend is in the wrong direction—it is as if we are forgetting everything we’ve learned about dealing with environmental problems. But eventually the biggest such problems—among them water, energy, and climate—will become too large to ignore (arguably, they are already there). When they do, efficient policies for dealing with them will be available. When we are ready, we can do this.

 

The Case For The Kerry-Hutchison Infrastructure Bank

You could almost see the eyes rolling last week as Senators John Kerry and Kay Bailey Hutchison introduced the latest version of a bill to create a National Infrastructure Bank. After all, President Barack Obama calls for an infrastructure bank in every budget, and bills have been in play every session since 2007.

Today we live in an age of austerity. How does yet another government institution fit into this picture?

As a small business owner who helps people think through infrastructure issues, I’m struck by the extraordinary opportunity here. We’re all aware of the need: A national infrastructure bank that uses federal borrowing authority to leverage private investment for roads, bridges, water systems and power grids is the only way for the U.S. to increase infrastructure investments in tight fiscal times.

And the technical opportunity is irrefutable. Why not raise money for infrastructure at a time of historically low borrowing costs? What’s more, every major economy in the world has an infrastructure bank, so we should have one, too. Need is not the issue.

Opportunity is. We need a model for smart government. Forget the weirdly inefficient, old-style European model.

Re-engineering an old public sector is nearly impossible, and no one has the patience for it anyway. Think about a national infrastructure bank as an exercise in creating smart government, in an area that is strategically important for the future of our country.

Doubling Annual Investment

A high-functioning infrastructure bank would have three characteristics, shaping its overall role of doubling our annual investment in infrastructure, from $150 billion a year to $300 billion.

First, the role of the infrastructure bank is catalytic rather than managerial. Rather than creating a large bureaucracy, the bank would assemble a corps of focused professionals: engineers, financiers, economists and what I term strategic leaders — people who get things done, driven by a vision to make this country more competitive.

Their job will be to set projects in motion, then to make sure that those projects meet or exceed guidelines. Monitor, not manage; act strategically, not operationally. Move fast, don’t get bogged down, get the job done.

The result will be an elite, rapid, infinitely smaller and infinitely more qualified leadership team than what we have today, an instructive model for other infrastructure related agencies at every level of government.

Energize Private Sector

Second, the function of the infrastructure bank is to guide and energize the private sector. An infrastructure bank goes into the guts of the process — project selection — and gets at the frightening issue of cost. Our costs are often twice that of our European brothers for urban mass transit projects, 10 times those of China.

The bank’s day-to-day business will be to invest in ventures and networks of ventures that serve for 20, 30, 40 even 50 years, providing a competitive return throughout that period. In this sense the bank will be a welcome, violent change agent, smashing open three areas in the infrastructure project-creation process that are costing this country a fortune:

— It takes more than 10 years on average for a project to move through the approval process, a period that would need to be reduced to three years for projects to be bankable.

— At least 50 percent of large U.S. projects suffer cost overruns in the 30 percent-or-greater range. This would be eliminated through bank leadership.

— The selection of projects tends to be willy-nilly, based on political interests. A bank ideally would be a model of focus, restricting its attention to projects that generate competitiveness.

Results Oriented

Lastly, the infrastructure bank will be results oriented and transparent: your bank, investing in your public assets. The bank will be a great experiment in the Facebook Age, bringing in funds from all over the world to build our strategic infrastructure.

The very nature of the smart-government model is to set goals and report performance. This new institution will go beyond that, creating knowledge, developing metrics and pioneering ways of communicating: from project approvals, to performance reporting to championing new technology.

Maybe the Kerry/Hutchison proposal is the opening salvo in a bipartisan effort to build smart government. Thinking about an American infrastructure bank in this way makes an attractive experiment that we have to explore. Creating a model in an area critical to our economic future is a strategic option we can’t ignore.

Recognizing that the bank would double our infrastructure investment and increase the efficiency of each dollar spent is a good deal for every citizen.

This piece is cross-posted at Bloomberg Government

 

Why High-Speed Rail Could Still Get Built in Florida

Contrary to reports in the New York Times and elsewhere, high-speed rail in Florida is not yet dead. There’s a grassroots effort by municipal governments to revive the high-speed line between Tampa and Orlando that Gov. Rick Scott has so zealously tried to kill.

The cities of Tampa, Lakeland, Orlando, and Miami want to create an “inter-local” agency that would receive federal grant money and assume the responsibilities vacated by the state last month when Scott shut down Florida Rail Enterprise and dismissed its staff.

The cities have until the first week of April to create the new entity and bid for the $2.4 billion in federal money that Scott rejected. A major sticking point, once again, is the rookie Republican governor, who is threatening to forbid the Florida Department of Transportation from permitting rail construction along I-4 owned by the state.

The same kind of high-handed arrogance got Scott fired as CEO of Columbia/HCA in 1997 after the health-care giant was slammed with a criminal investigation of its billing practices. Scott insisted that nothing was wrong until several board members found out that the company was in deep legal trouble. Scott escaped the consequences of his actions, but HCA wasn’t so lucky. It paid over $2.6 billion to settle civil suits and federal fines.

So far, Scott has managed to roll over timid state lawmakers and beat back a lawsuit charging that he overreached his authority by rejecting rail funds approved by former Gov. Charlie Crist. A quirk in Florida’s government, however, may allow the rail program to go forward if other officeholders take a principled stand.

Florida is the only state to have three elected executives who serve collectively with the governor on the Florida Cabinet, the decision-making body for the state. This means that the Cabinet, not solely the governor, controls the right-of-way needed for the rail project. So a yes vote by Attorney General Pam Bondi of Tampa, Commissioner of Agriculture Adam Putnam of Lakeland and Chief Financial Officer Jeff Atwater of Palm Beach could re-start the project over the governor’s protestations.

New developments are undermining Scott’s case. The governor said that he rejected the rail project because he believed it would not attract enough ridership and that state taxpayers could be “on the hook” for operating losses. But a study released last week by Florida DOT estimated that ridership would actually be one-third higher than an earlier estimate and that the line would be profitable, earning $10.2 million in its first year of operation.

Scott also expressed concern that construction cost overruns could add as much as $3 billion to the project, which he said he could not let taxpayers absorb during the current fiscal crisis. But in his self-righteous claims of prudence he forgot to mention that private enterprise – not government – was stepping in to build the railway.

Eight international firms had expressed interest in bidding on the project. Several were expected to cover all potential construction overruns. But before they had a chance to bid on the project, Scott pulled the plug and rejected the federal funds. That’s when the municipalities decided to take ownership of the project.

U.S. Transportation Secretary Ray LaHood has done Florida a favor by asking for bids next month on the federal funds rejected by Scott rather than handing the money over to California, New York and other states. This gives Florida another chance.

Make no mistake, Scott’s opposition to fast trains is ideological, not fiscal. If he were on a crusade to rein in all transportation spending in tough economic times, that would be one thing. But Scott is proposing to spend billions of dollars to expand highways (including I-4) and dredge the Port of Miami for supercargo ships that are likely never to dock there, while denouncing “Obama rail” as imprudent.

His maneuvering is as transparent as Gov. Scott Walker’s bid to undercut unions and generally turn back the clock in Wisconsin. It should be recalled that Walker rejected federal rail funds last fall. Now Rick Scott wants to make a bigger splash by denying Obama credit for creating thousands of construction jobs in a swing state in time for the 2012 election.

In a recent letter the four mayors (two Republicans and two Democrats) outlined the economic benefits of fast rail linking world-class tourist attractions, top medical and educational centers and other institutions in central Florida. The Tampa-Orlando line would be a starting point for a comprehensive train system, with 170-mph-plus trains eventually linking Orlando with Miami and Jacksonville.

And what would happen if the project does not go forward? “The decision will not contribute one bit to reducing the federal deficit or lowering the federal taxes Floridians pay,” the mayors noted. What it would demonstrate is how devilishly difficult it’s become to build innovative public works in an era of sound-bite politics.

Gov. Scott Stages a Trainwreck in Florida

Why is Florida’s rookie Republican Gov. Rick Scott hell-bent on rejecting $2.4 billion in federal funds for a Tampa-Orlando high-speed railway? Is it because his argument that Florida taxpayers would be “on the hook” for cost overruns was about to be exposed as a bunch of hooey?

Until Scott announced he would veto the rail program on Feb. 16, the new 84-mile rail line was going to be put out to private bid. It was an open secret in business circles that expected bidders, including Japan’s JR Central (builder of the high-speed Shinkansen) and South Korea’s Hyundai Rotem (builder of Korea’s bullet trains), would be willing to pay for Florida’s $280 million share of the project, plus any construction cost overruns and operating losses, in return for a 30-year lease on the Tampa-Orlando railway.

In other words, the private sector, not the Florida taxpayer, would cover any non-federal costs for the project. Since such a revelation would throw a monkey wrench into Scott’s ideological stance that “Obama rail” is “a federal boondoggle,” he tried to veto the program before it got to the bidding stage.

But Scott may have overstepped his state constitutional authority. Two state senators, Republican Thad Altman and Democrat Arthenia Joyner, filed a lawsuit Tuesday before the Florida Supreme Court arguing that Scott exceeded his powers by “retroactively vetoing” the project after the legislature voted to move ahead with the project and prior governor, Charlie Crist, agreed to accept the federal rail funds.

According to the suit, “The legislation implementing high-speed rail and the appropriation of the state and federal monies were fully accomplished prior to the election or inauguration of the Respondent, [but] once elected, Gov. Scott has refused to permit the Grant Amendment to be executed by the Florida Rail Enterprise,” thus halting the process of issuing a so-called “design-build-operate-maintain-and-finance” contract with a private bidder.

Predictably, Scott roared back yesterday by saying the two legislators overstepped their bounds by criticizing him. “Fortunately for the taxpayers of Florida, nothing in Florida law compels the Governor … to pour millions of dollars into a black hole during the historic fiscal crisis with which the state is presently grappling,” wrote Scott’s general counsel.

Scott vowed to veto any future appropriation for high-speed rail by the Florida legislature and added imperiously that he would reserve the right to declare the federal government’s stimulus package, from which the high-speed rail funds were derived, “an unconstitutional infringement on his rights as governor.”

The governor’s intransigence has set off a scramble by federal, state, and local officials to circumvent his office and save the long-planned project. Local governments, including Orlando, Tampa, and Miami, have formed a coalition they said could assume responsibility for putting the project out to bid and ensure that a private company would cover any construction cost overruns. A group of mayors presented the plan to Scott earlier this week, but he did not budge from his anti-train stance.

There is no dispute that the project would create about 30,000 construction jobs in the economically depressed central part of Florida and aid tourism by providing a fast ride from Orlando International Airport to Disney World.

Scott campaigned for office promising to create thousands of new jobs for Florida. But those jobs are to be created “his way” by building new roads, expanding local ports and cutting taxes, not by accepting a program whose job creation might rub off favorably on Barack Obama during the 2012 presidential election.

Scott may be speeding toward his own political fall – his poll numbers are slipping – but at the moment he seems to have the momentum to bring down the Obama administration’s most “do-able” passenger rail project. So far, it’s unclear whether the White House wants to stand up and fight Scott or redirect the federal funds to places like California and New York where the governors are openly campaigning for the money.

U.S. Transportation Secretary Ray LaHood has given Scott until the end of Friday to accept or reject the federal rail funds. Doubtless we know what Scott will do. The Florida story, however, won’t be over until the local entities give up on their plan to take over the project and the state Supreme Court weighs in on the constitutional issues raised by the Altman-Joyner suit.

Getting Real About Energy: A Balanced Portfolio for America’s Future

The failure by Congress to pass energy and climate legislation has left U.S. energy policy adrift, with no clear direction or guiding concept of how we are going to address the long-term questions about the energy resources we elect to use and their impact on the environment. Rather than pursuing new approaches and policy proposals in the wake of the political defeat of cap-and-trade legislation, energy and environmental advocates have largely splintered into chaotic scrambles for subsidies or resigned their strategies to calling for increased research and development spending for energy, perhaps hoping technology can succeed in finding solutions where politics failed. Meanwhile, foreign nations continue to announce bold plans that set clear strategies for managing their future energy resources, leaving the U.S. farther behind every day in planning for leadership of tomorrow’s economy.

This paper aims to reorganize our discussions about energy and the environment around a very basic idea: the U.S. needs a new framework for identifying the goals of our energy policies and for laying out a vision of what our energy future should look like. Our current debates are too narrowly focused on incentives or regulation of specific fuels, pollutants, and technologies. We are losing sight of the forest in our fights over so many trees, and we need to take a step back and first address the broader question of where we ultimately want to be decades from now as a country and as an energy leader in the global economy. When we have an idea of the where we want to be decades from now, we can have a much more strategic and deliberate process for making policy decisions.

So what should this framework look like? By rejecting both the climate denialism and obstruction of the right and the wishful thinking and anti-nuclear biases of the far left, we outline a realistic plan to finally get the U.S. on track to a new, green economy and lead the world to a cleaner energy future. As an immediate and bold step toward setting real goals for clean and balanced growth, we propose a balanced energy portfolio that moves us toward a 30-year target energy mix for electricity generation of one-third fossil fuels, one-third renewable sources (wind, solar, biomass, hydro), and one-third nuclear generation. Such a target is an ambitious departure from our current mix of 69 percent fossil fuels, 11 percent renewable energy, and 20 percent nuclear energy. But it is doable – and setting the target is essential to serve as the polestar for all energy policy discussions.

Our balanced energy portfolio proposal is not meant to be exhaustive in its specific policy prescriptions. We offer this proposed portfolio as a framework for assessing what our needs are and for setting parameters and mileposts for policy proposals that are responsive to those needs. Such a framework is a starting point, and it will be up to policy makers to take the critical next steps by enacting meaningful policy changes that will get us there.

Read the memo

Gov. Scott’s Plan for Florida: Let Them Eat Highways

In rejecting $2.4 billion in federal funds for high-speed rail in Florida yesterday, Gov. Rick Scott came up with a great idea to solve the state’s burgeoning traffic problems – more highways!

At the same time he was denouncing fast trains as wasteful government spending at a hastily arranged press conference, he was imploring U.S. Transportation Secretary Ray LaHood to funnel billions of federal dollars into new road projects.

The peculiar letter Scott sent to LaHood yesterday proposed a laundry list of major highway undertakings. Among them, expanding I-395 in Miami-Dade County, widening I-95 down the state’s southern spine, building a new bridge over Choctawhatchee Bay, and adding lanes to I-4 where the high-speed line was supposed to be built between Tampa and Orlando.

The fact that all these projects would cost considerably more than the rail line somehow escaped the governor’s request that he and LaHood “work together” to meet “the broad array of transportation needs in our state.”

There are many reasons why turning aside the chance to become the first state to realize high-speed rail’s promise is foolhardy (such as giving up thousands of construction jobs and boosting Florida’s tourism economy). But the bottom line is that Scott, who won election last November with Tea Party support, feels threatened by projects outside the box of the old car culture.

This same reflexive fear – mixed with bitter hatred of President Obama’s “stimulus spending,” especially if it might economically stimulate – has been consuming many rookie House Republicans, who are seeking to cancel all federal spending for high-speed rail in the 2011 budget.

In other words, high-speed rail has become the latest stage for the battle between progressives seeking to advance America’s competitiveness with strategic public investment and conservatives inveighing against non-defense government spending as “waste.”

Not all Republicans have swallowed the Kool Aid – Florida’s prior governor, Charlie Crist, was a firm backer of the Tampa-Orlando project, and John Mica (R-Fla), chairman of the powerful House Transportation Committee, yesterday denounced Scott’s decision as “a huge setback for the state of Florida.”

What Scott decries others enthusiastically endorse. The governors of California, New York, and Illinois greeted Scott’s announcement with delight, saying they’d gladly accept the money rejected by Florida to build 21st-century rail transportation in their state.

Budgeting for a Fast Train Future

President Obama’s proposal to fund high-speed rail in the next surface transportation bill does more than boost the prospects that fast trains could be running in places like Florida and California by 2018. He calls on Congress to end its haphazard pork-barrel approach to building infrastructure.

In today’s 2012 budget plan, the president outlines a new template for federal transportation spending. He calls for strategic infrastructure spending that ends congressional earmarks that have resulted in the squandering of taxpayer money, and for consolidating many of the current funding streams for surface transportation into a unified “Transportation Trust Fund,” a proposal that echoes the recommendations of a recent PPI policy memo.

He challenges Congress to move “toward a cost-benefit analysis of large transportation projects” and to an “integrated national strategy” that harkens back to the original purpose of federal transportation spending – to defend America at the height of 1950s Cold War by building interstate highways.

Obama smartly frames today’s overarching issue not as a matter of simple budget cutting, but of helping business and labor compete in a global marketplace by modernizing infrastructure “in desperate need of repairs and upgrades.” The 2012 budget calls for $556 billion in transportation spending for the next six years, with about 10 percent going to high-speed rail and Amtrak’s existing train service, about 8 percent to mass transit and the remaining 82 percent for highway infrastructure improvement.

Now begins the raucous debate.

For one, Obama’s proposal will need to withstand the political strain of special interests vested in the “old ways” of funding highways from preset state formulas and congressional earmarks.

For another, House Transportation Committee Chairman John Mica (R-Fla.) has his own ideas: a six-year bill of only $250 billion (less than half of what Obama wants). A quarter of a trillion equals the amount of tax revenues expected from federal gas taxes.

The good news is that Mica understands that America needs better surface transportation, including selective high-speed rail. His solution is leveraging private capital with federal funds.

Getting high-speed rail into the dedicated funding scheme of the transportation bill is the essential first step to attract private capital. Mica knows this and will need to educate his colleagues to this basic fact of economic life.

Raising the 18.4 cents-per-gallon federal gas tax, which has remained unchanged since 1993, could help fund the $556 billion Obama proposes. This approach has been endorsed by the U.S. Chamber of Commerce, but faces congressional opposition because of the potential public blowback of higher taxes at the pump.

In short, winning approval for better transportation in the tricky crosswinds of a divided Congress and tax-phobic public is going to require the White House to stay laser-focused on the right track.

Obama’s Minimalist Budget

President Obama’s new budget is a highly tactical exercise in fiscal minimalism. It proposes just enough spending cuts to be plausible, while putting off the critical work of tax and entitlement reform. Its unspoken premise seems to be: Given the ax-wielding frenzy that grips House Republicans, the best the White House can do now is to frame the fiscal debate on terms favorable to progressives.

The President’s $3.7 trillion budget would trim federal deficits by just over $1 trillion over the next decade. To the chagrin of liberals, the budget proposes to reach this total through a formula of two-thirds spending cuts, one-third tax cuts, rather than a 50-50 split. Also, it limits military spending growth without cutting specific programs. Meanwhile, the blueprint freezes discretionary spending for five years, and cuts over 150 programs, for $25 billion in budget savings next year. In short, the toughest discipline falls on domestic spending, so expect howls of betrayal from the left.

For all that, however, the Obama proposal would still leave us with deficits over 3 percent of GDP in 2020, while doing nothing to brake the runaway growth of costs for Medicare, Medicaid or Social Security, which account for 40 percent of the budget. These costs, propelled by soaring health care prices and demographics, and growing automatically each year, are what drive our nation’s long-term debt crisis.

The new budget does stabilize the national debt, but at a level – 77 percent of GDP – that most economists believe is well above what’s good for our fiscal health. It’s getting panned by deficit hawks. “This budget fails to meet the Administration’s own fiscal target, it fails to tackle the largest problem areas of the budget, and it fails to bring the debt down to an acceptable level,” said Maya MacGuineas of the Committee for a Responsible Federal Budget.

Over the weekend, GOP leaders lambasted Obama for not embracing the much more robust and comprehensive recommendations of his own Fiscal Commission. Its plan would cut deficits by $4 trillion by 2020, make big reductions in tax expenditures, and trim future Social Security and Medicare benefits for the well-off. Bear in mind that, even as they criticize the President’s fiscal pusillanimity, House Republicans have rejected the Fiscal Commission blueprint, oppose tax increases of any kind, and are engaged in an Alphonse-and-Gaston routine with the White House over who should go first on entitlement reform.

Nonetheless, the Commission’s Democratic co-chairman, Erskine Bowles, also expressed disappointment that the President hasn’t used its work as the point of departure for a serious push to restore fiscal stability in Washington. He accurately called the President’s proposal “nowhere near where they will have to go to resolve our fiscal nightmare.”

The administration apparently is calculating that its modest deficit-reduction proposal has several tactical advantages. First, it may better reflect the public’s actual appetite for fiscal restraint. The same polls that show strong public support for reining in public deficits also find majorities opposed to major program cuts. Second, and relatedly, the White House wants to contrast its moderate approach to GOP austerity zealots, who have launched a single-minded jihad against government spending. Once the public tumbles to the implications of the GOP’s demands for $100 billion in domestic program cuts now, Democrats reason, they will recoil and demand a more balanced approach that includes defense cuts and tax hikes.

That seems likely. Republicans have convinced themselves that most Americans share their goal of shrinking government by cutting off its credit card. “The country’s biggest challenge, domestically speaking, no doubt about it, is a debt crisis,” House Budget Committee Chair Paul Ryan said this weekend.

But progressives believe that Americans – especially the independents and moderates who abandoned Democrats in the midterm election – are even more concerned about the scarcity of good jobs and America’s eroding competitiveness. More than fiscal stringency, they are looking to their leaders for a hopeful plan to jumpstart the stalled U.S. job machine.

The President’s budget accordingly makes room for significant new public investments, especially in infrastructure, innovation, and education. He wants to spend $53 billion over the next six years on high speed rail, and invest $50 billion in capitalizing a National Infrastructure Bank. The GOP’s knee-jerk dismissal of such strategic investments as just more government waste is wrong as a matter of economics, and it leaves conservatives without a credible theory for how they would rekindle economic growth.

So maybe Obama is right to stand back and give Republicans all the fiscal rope they need to hang themselves from the tree of uncompromising budget austerity. But his Fiscal Commission, which labored diligently and successfully to find some fiscal common ground between the parties, especially on scaling back tax expenditures, deserves better from him. And sooner rather than later, the President will have to step up and lead on entitlement reform, a national imperative that can no longer be safely deferred.