A Capital Idea on Spending : Our State Needs a Plan for Investing in Infrastructure

Now that Bill Clinton’s been elected President, expect to hear a lot of talk about infrastructure in the coming year. It was a big part of his campaign message, and supporters of infrastructure spending claim that it produces large gains in private investment.

You should also hear a lot about the subject in California, where we’ve underinvested in bridges, schools, etc. for some time.

State capital spending in fiscal 1991 was $2 billion, or a mere $65 per person, and Carol Ross, research director of the business-oriented California Taxpayers Assn., rightly observes that it occurred without sufficient attention to priorities.

Which do we need more, a new off-ramp or a new school? Someone has to ask--and answer--that question. Unfortunately, investment planning in California is scant, and the state’s chronic operating deficits have hijacked the spotlight.

Long-term funding is tight as well. Even the state’s sketchy 1992 Capital Outlay and Infrastructure Report, which claims to look ahead 10 years, sees $91.8 billion in capital needs--but only $59.5 billion in available capital.

Consider education. California would have to build a new school every day, seven days a week, 365 days a year for a long time just to keep the current overcrowding from getting worse. But from 1981 to 1990, just 715 were built.

You get the idea. What’s needed is a comprehensive investment plan for California’s future. It should cover all kinds of public investment, including not just roads, schools and sewage systems, but training, communications and technology. It must set priorities. And of course, it has to find the money.

Such a plan is important to California’s economy because of the extraordinary changes the state is experiencing. The aerospace industry is shrinking, unskilled immigrants continue to pour in and the balance between wage-earners and benefit-consumers is moving in the wrong direction. California banks are burdened by bad real-estate loans, which means they’ll be cautious for a long time to come, and unemployment recently hit 9.8%--again.

A couple of caveats: First, the more extravagant claims made on behalf of infrastructure spending--for example, that it increases private investment by 25 cents on the dollar--are now largely considered by economists to be wrong, says Harvard University’s David Luberoff, who edits the Public’s Capital, a quarterly about infrastructure.

On the other hand, infrastructure spending probably does boost regional productivity, says economist Alicia H. Munnell, who has studied this at the Federal Reserve Bank of Boston.

Second, an investment plan for California won’t help overnight, but very little will.

The whole point here is to think long-term. Matsushita, after all, reportedly has a 250-year plan. We ought to be able to handle a couple of decades.

Developing a plan shouldn’t be too hard, but it will involve some tough decisions. The key is adopting sound first principles, which should cut down on waste and help persuade Californians to pay the bill. Here are some suggestions:

* Forget infrastructure. That is, forget it as the sole outlet for public investment. Instead weigh all possible investments against one another to arrive at the optimal mix. Options should include traditional choices such as highways and pipelines, but also prisons, vocational training, community health centers and open public spaces.

* Make sure it pays. Employ a rigorous cost-benefit analysis for each project, including the social costs and benefits. Assign some values for hard-to-price commodities such as clean air and quiet. Demand a reasonable pay-back period--say, 30 years.

* Invest only in the future. Giant water projects, for example, are old-fashioned solutions for yesterday’s problems. So are jail cells. Focus on communications, technology and human capital.

* Don’t confuse spending with getting. Will spending more on schooling buy more education? Will building more roads buy more transportation? Or is there a more cost-effective way? The idea is not to spend money. It’s to get results.

* For headaches, try aspirin first. Traffic, for instance, is a headache, so tax parking to encourage car-pooling. Experiment with all-day express buses and transfer stations. Think about spending billions on trains only if the easier stuff doesn’t work.

* Don’t pour good wine into rotten barrels. Before plunking down billions, make sure the right administrative structure is in place. Expose the enterprise to competition. Monopoly is the enemy of efficiency.

* Find the cheapest way. This sounds obvious, but it means public or private, as long as the result is optimal and there is no more cost-effective long-run alternative. And consider buying or leasing instead of building. Investing for the future would generate employment, but it’s not a jobs program.

* Remember, the market is a friend. So suspend the state prevailing-wage law. It requires more or less union wages on public construction projects, but results in fewer classrooms, roads and other public facilities than the marketplace could provide, penalizing California schoolchildren and lower-paid workers.

* Find the money. This won’t be as tough as it sounds if we follow the other principles. Optical-fiber wiring, for example, can carry torrents of data. New Jersey Bell is wiring New Jersey in return for greater flexibility in pricing. West Virginia has a similar deal.

* Make a list. Organize the projects in order of return on investment. Do those at the top first. (If this is so obvious, why is it so rarely done?)

* Name an investment czar. And learn from the example of Rebuild L.A., which has 80 people on its cumbersome board of directors.

A comprehensive investment plan would generate a lot of debate and, possibly, a terrifying tab. But it would also force California to figure out its priorities. Better yet, we could act on our future instead of letting it act on us.

What could be more businesslike than that?