United States

Infrastructure spending would boost Boston's real economy

INSIGHT ARTICLE  | 

The U.S. transportation and communications infrastructure is in very poor condition. American roads, bridges, waterways, ports, public transit and broadband access pale in comparison to our international peer competitors and trade partners. This is not just a national or regional concern, but also a pressing local one. The state of Massachusetts will need an additional $15 billion to $19 billion to maintain its transportation system over the next 20 years, which does not include any expansion or enhancement to the current system, according to the state transportation and financial commission.

According to the Society of American Military Engineers there is an $846 billion gap in unfunded surface transportation needs that require near-term action. Meanwhile, the American Society of Civil Engineers® estimates that travel on bad roads in Boston cost local drivers as much as $2.3 billion in 2013.

In addition, the cost of transportation bottlenecks alone to the economy is staggering. According to the U.S. Department of Transportation, the net result of these bottlenecks is about 243 million hours of delays per year at a cost of approximately $7.8 billion annually.

Middle Market Insight: Transportation bottlenecks increase business operations costs through higher labor expenditures, longer inventory hold times to compensate for shipping delays, and reduced capital for investment. Middle market firms typically feel these effects more than large businesses.

This is a particular concern for middle-market firms. Transportation bottlenecks increase business operations costs through higher labor expenditures, longer inventory hold times to compensate for shipping delays, and reduced capital for investment. The longer policymakers wait to upgrade infrastructure, the more expensive the repairs will be and the greater the overall drag on economic growth.

The good news is that the multiplier effects of outlays on transportation are typically higher than other forms of fiscal spending. In our estimation, for every dollar spent on rebuilding the domestic infrastructure, one should expect 1.3 dollars in return, with potentially a higher return due to spillover effects in other economic sectors. The Congressional Budget Office estimates that the multiplier may even be closer to 1.6 dollars for every dollar spent.

More importantly, for every $1 billion in infrastructure spending, there should be about 21,000 jobs created. Thus, within the framework of a hypothetical five-year $1 trillion rebuilding project, there would be about 4.2 million jobs per year created. Given that there are more than 30 million men between the ages of 20 and 50 that are not meaningfully participating in the labor market, a project that creates high-paying jobs would reduce that number.

For further insights, check out RSM’s The Real Economy.

 

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