Spending or Investing?

In the face of current budget constraints, Pennsylvania’s state government clearly needs to reduce spending. Whether it should stop making investments is another matter.

On ABC’s Sunday morning talk show “This Week” on February 21, Governor Rendell argued that governments can’t stop investing just because budgets are tight. Reacting to a congressman’s statement to the effect that there should be no more spending and no more borrowing, the governor exclaimed,

"How in God's name does he think we're going to repair this nation's infrastructure, stay competitive, give safety to our people, improve our quality of lives?
Every business that's successful in this country has, at some key moment, reinvested in itself, usually by borrowing or taking out capital reserves.
They reinvested. They created another product line, built a new factory. If you don't invest in your future, you will die. "

Rendell appeared alongside Governor Schwarzenegger of California, and together they made a bipartisan plea for renewed infrastructure investments by the federal government.

Pennsylvania will soon be confronting difficult questions about transportation infrastructure investment – especially if, as many expect, the long-awaited decision by the Federal Highway Administration on the proposal to toll Interstate 80 turns out to be negative. As most readers of this newsletter know, three years ago the General Assembly passed Act 44, a forward-thinking piece of legislation that balanced support for highways and transit. Instead of using tax hikes to fund the act, the legislature opted for a risky funding plan that involved converting I-80 into a toll road, raising tolls on the existing Turnpike, and issuing bonds on future toll revenues. The catch was that federal approval was required for tolling I-80, and two previous requests already have been rejected.

Rejection of Pennsylvania’s third tolling request will leave a gaping hole of $450 million per year, leading to deferral of essential highway, bridge and transit system maintenance and cutbacks in transit service. Plugging the gap will require tough decisions by legislators about alternative revenue sources, and their response to that challenge remains to be seen. Will they hold to the line that spending and borrowing must be avoided at all costs? Or will they recognize that Pennsylvania simply can’t afford not to make critical investments in its transportation infrastructure?

Infrastructure clearly counts as an investment, since it consists of tangible assets that yield benefits far into the future. But other government programs can also properly be viewed as investments if their payoffs outweigh their costs. Consider the Land Use Planning and Technical Assistance Program (LUPTAP), through which the state provides financial and technical assistance to county and local governments in land use and community planning. Funded at the modest rate of $3 to 4 million annually in recent years, LUPTAP was cut to a mere $375,000 in the FY 2009-2010 budget. LUPTAP helps communities develop and implement plans for community and economic development, transportation, conservation, and infrastructure. As research by 10,000 Friends has shown, incentives provided through the program have been very effective in encouraging municipalities to work together in multi-municipal comprehensive plans.

In the long run, LUPTAP likely saves taxpayers far more than it costs. Comprehensive planning and intergovernmental coordination help communities set the stage for economic development and avoid haphazard development that increases the costs of infrastructure. And it helps leverage money from federal agencies, which increasingly are relying on sound planning at the regional level to guide their funding decisions. As Grant Ervin’s article in last month’s E-Update argued, Pennsylvania missed out on federal high speed rail funds because the necessary plans were not in place. For the same reason, Pennsylvania fared poorly in competing with other states for the recently awarded TIGER (Transportation Investment Generating Economic Recovery) grants. Just at the time when the federal government is rewarding sound regional planning and coordination, is it wise for Pennsylvania to gut the one state program that supports such activity?

To be sure, the difference between spending and investing is not always obvious. One person’s investment can be another’s boondoggle. Every program that fell under last year’s budget axe has its advocates who can explain why their program is indispensible and deserving of generous support. It’s up to the legislators to weigh these arguments make the hard decisions about how to divide a shrinking pie.

In doing so, lawmakers owe it to their constituents to examine each program carefully and consider whether cutting it is truly the most prudent decision. In each case, they should be debating whether the program is truly an investment, and whether cutting it might cost us all more in the long run. The fact is that some budget cuts are penny wise and pound foolish. Ignoring that reality is fiscally irresponsible.