Policymakers at all levels of government are debating a wide range of options for addressing the nation's faltering economic conditions. This report discusses policy issues associated with using infrastructure as a mechanism to benefit economic recovery. During the recent recession, policymakers took a number of monetary and fiscal policy actions to stimulate the economy. On the fiscal policy side, Congress enacted several measures in 2009 and 2010 that were intended to increase demand for goods and services through increases in federal spending and reduction in taxes. The largest of these was the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. Nevertheless, there is widespread desire to accelerate job creation and economic recovery, although consensus on how to do so is not apparent. Defining Infrastructure in Today's Context

Most people probably think about roads, airports, or water supply when they refer to infrastructure, having in mind the types of systems or facilities that are publicly provided and are important to the productive capacity of the nation's economy. Today, many policymakers and stakeholder groups define the term broadly to include facilities and categories that vary considerably in the degree of historic federal investment in building or rebuilding physical structures (e.g., highways compared with public schools) and systems that have a long history of combined public and private ownership (water resource projects as well as electric transmission systems, some of which are federally owned, for example). Infrastructure and the Economy

Academics, economists, and policymakers debate two key issues concerning the contribution of infrastructure investment to the economy. One is the issue of the effects of infrastructure spending and investment on productivity and growth. The second related issue is the role of infrastructure spending, including short-term job creation, as a countercyclical tool to support economic recovery. Infrastructure investment, they argued, can be an important source of stimulating labor demand when the labor market is underutilized, and enhancing U.S. productivity through long-neglected investments in roads, bridges, water systems, ports, etc. When Congress has considered raising spending on infrastructure or other federally funded activities to help stimulate a flagging economy, a commonly asked question is "how many jobs will be created?" Thus, the overriding question in debating infrastructure spending as part of a job creation package is, what will the increased spending buy? Two important considerations regarding any such proposal are, will the proposal produce short-term or long-term benefit, and will it produce a significant amount of incentive for the economy, relative to its budgetary cost. Some analysts are cautious about the effectiveness of infrastructure spending in this regard because of one key issue: timing. The timing of fiscal stimulus is critical. By definition, the goal of stimulus spending is to get money into the economy swiftly. But that objective conflicts with the reality of building infrastructure projects that typically are multiyear efforts with slow initial spendout. First, to the extent that recovery from a lengthy recession is slow—as it is now—projects with extended timeframes can still contribute to recovery. Setting Priorities and Determining Funding Needs

Traditionally, setting priorities for infrastructure spending is based on a combination of factors. However, assessing "need" is complicated by differences in purpose, criteria, and timing, among other issues. A further complication arises in the context of evaluating job creation plans—whether infrastructure funds are targeted to true need, and whether "need" is defined by engineering assessments and established distribution methods, or by economic measures such as unemployment or the effectiveness of programs to pull in or leverage private capital.
During the recent recession, policymakers took a number of monetary and fiscal policy actions to stimulate the economy. Notably, Congress enacted the American Recovery and Reinvestment Act (ARRA) that provided increases in federal spending and reduction in taxes in order to increase demand for goods and services. However, as the economy is only slowly emerging from the recession, interest in using federal government spending to boost U.S. economic recovery has again intensified. There is widespread desire to accelerate job creation and economic recovery, although consensus on how to do so is not apparent. Policymakers at all levels of government are debating a range of options to address these problems. This report is an overview of policy issues associated with one approach that also was included in ARRA: using accelerated investments in the nation's public infrastructure as a mechanism to benefit economic recovery.
When most people think about infrastructure, they probably have in mind systems that are publicly provided and are important to the productive capacity of the nation's economy. Today, policymakers define the term more broadly to include both publicly and privately owned systems and facilities and categories that vary considerably in the degree of historic federal investment in building or rebuilding physical structures.
Academics, economists, and policymakers debate two issues concerning the contribution of infrastructure investment to the economy. One issue is the effects of infrastructure investment on productivity and growth. The second related issue is the role of infrastructure spending, which is typically a long-term activity, as a short-term mechanism to invigorate a sluggish economy. Research conducted over time has resulted in a general consensus that there can be positive returns on productivity of investing in infrastructure. Many experts now argue that infrastructure spending could be an important source of stimulating labor demand and enhancing U.S. productivity through investments in roads, bridges, water systems, etc. Still, some analysts are cautious about the effectiveness of this type of fiscal stimulus because of one key issue: timing. By definition, the goal of stimulus spending is to get money into the economy swiftly, but infrastructure spending is different. The reality is that large infrastructure projects typically are multiyear efforts with slow initial spendout that continues over a period of time. Spending advocates contend that to the extent that recovery from a lengthy recession is slow—as it is now—projects with extended timeframes can still contribute to the economy's recovery.
A key question in debating infrastructure as part of job creation to aid economic recovery is, what will the increased spending buy? Two important considerations are, will it produce short-term or long-term benefit, and will it produce a significant economic boost, relative to its budgetary cost. A commonly asked question is, how many jobs will be created?
Setting priorities for infrastructure spending is based on a combination of factors, often including estimates of funding needs. Determining "need" is complicated by differences in purpose, criteria, and timing. In the context of evaluating job creation plans, a further complication is whether funds are targeted to true need, and whether "need" is defined by engineering assessments, by economic measures such as unemployment, or a program's effectiveness in leveraging private capital.