Illinois’ 18th Congressional district, a wide swath of 20 counties cobbled together in the centre of the Midwest US state, is no stranger to unlikely political stars. After all, it was here that Abraham Lincoln, the US’ famous 16th president, launched his political career and it was here that now-President Obama declared his candidacy for the highest office in the land.
As it turned out, he didn’t get to enjoy any retirement at all. Before he could even finish his term, President Obama tapped the former high social studies school teacher from Peoria, Illinois to become the US’ 16th Secretary of Transportation – and the first in the department’s history to be given unprecedented spending authority almost as soon as he got into office.
Faced with the deepest recession since the 1930s, Congress gave LaHood $48.1 billion, or about 6 percent of its $787 billion stimulus package, to modernise the country’s infrastructure – and to create ‘jobs, jobs, jobs’ in the process.
And so on 17 February 2009, with the stroke of a presidential pen, the former school teacher became one of the most financially powerful men in Washington DC – as measured by his department’s announced spending power on Recovery.gov, the government’s stimulus reporting website. Only the Department of Education, at $89.6 billion, and the Department of Health and Human Services, at $56.4 billion, were given greater spending power, according to the website.
Measured another way, though, he’s also one of the least financially powerful. By the American Society of Civil Engineers’ latest estimate, the US faces an unfathomable $2.2 trillion deficit in its infrastructure spending over the next five years, or 15 percent of the US’ GDP. And that doesn’t even take into account the required new infrastructure that has yet to be built.
“Our general philosophy here is there is not enough money in Washington to do all the things we want to do,” he acknowledges on a sunny Tuesday morning in January, almost year to-the-day after his boss was sworn in as the 44th President of the United States. But, as a mini-bust of “Honest Abe” Lincoln stares out at him from his desk on the top floor of the Department of Transportation headquarters, LaHood doesn’t budge an inch: he wants to get it all done nonetheless, and he’s hoping that a mix of stimulus, private sector dollars and a robust Federal transportation spending budget will help him deliver a state-of-the-art transportation system to the American people.
“What I say all the time [is], ‘if you build it, they will come’. It’s true of anything, whether it’s transit, light rail, walking paths, biking paths, passenger rail. If you build it, they will come,” he insists.
On the prowl
The natural starting point for LaHood’s ambitions, given the US’ 10 percent unemployment rate, was to get stimulus money out the door as fast as possible. As the department’s political appointees were still going through confirmation hearings on Capitol Hill, a group of more than 50 people called the TIGER team- short for Transportation Investment Generating Economic Recovery – was created to allocate the department’s $48.1 billion nationwide.
“That was done by the career people at DOT [Department of Transportation],” he says. “When we came into this job, there were very few political people. The career people really pulled together and we put together the TIGER team.” At this point, he picks up a toy tiger off his desk labeled “TIGER” – a permanent reminder of the team in cuddly form.
It’s not by accident that he mentions the so-called ‘career people’s’ involvement in TIGER (which also includes political appointees). For a public wary of bridges to nowhere being built with infrastructure spending in the past, trusting career politicians with billions in infrastructure stimulus cash would not have been a terribly enticing prospect. “We did it the way Congress asked us to do it,” says LaHood. “By the book, no earmarks, no boondoggles, no sweetheart deals.”
The result, he says, can be felt all over the US. “I have traveled I think now to 33 states and over 70 cities in the last year. Everywhere that I’ve gone, I have met construction workers that a year ago were on unemployment or welfare and are now working, building infrastructure in America.”
The actual infrastructure being built varies greatly from city to city and from state to state. There are small ‘bread-and-butter’ public works projects unlikely to interest private investors, such as pavement rehabilitation on New Hampshire’s Route 101 between the cities of Epping and Exeter. But there are also big-ticket items, like the $492 million Oakland Airport Connector, an airport rail link near San Francisco that got a $70 million grant from the department’s $8.4 billion in stimulus funding for mass transit.
“It not only completed the puzzle but it saved the project and moved it forward,” says Molly McArthur, project spokesperson for the Oakland Airport Connector. She estimates that the project will create about 2,500 jobs over the life of its construction.
Total-up 691 of these transit grants and add them together with all the other stimulus spending programmes the department is managing and soon it becomes clear why LaHood is so proud of his department’s “ability to spend an enormous amount of money and put Americans to work”: 12,100 projects nationwide have been approved so far with a contract value of $33.5 billion, according to a departmental stimulus spending memo dated 20 January. The department estimates that at least 45,000 direct jobs have been created so far, and the department expects hundreds of thousands more by the time the stimulus spending runs its course.
On the defensive
But, given that the transportation construction sector in only a small slice of the overall economy, not everyone is convinced that infrastructure spending is making much of an impact. In January, the Associated Press published an analysis of the department’s stimulus spending which concluded that the $21 billion they had spent on roads and bridges “has had no effect on local unemployment rates”. That’s because, no matter the amount of money that was spent in any given place, there was no statistically significant budge in the local unemployment rate, according to their report.
“I characterise their story as a bunch of baloney,” says LaHood. “All you have to do is look at this piece of paper [he points to an earlier version of the aforementioned memo] and study it long enough to know that we spent the money, the money is in the states, a lot of it’s been spent, people have worked all year long in construction jobs.”
Jack Stokes, a spokesperson for Associated Press, wrote in an email that “the Associated Press stands by the facts of our analysis, which we reviewed prior to publication with independent economists at five universities, and which we discussed in detail with the White House prior to publication.”
Daniel Seiver, one of the independent economists referred to, takes a slightly more moderate view on the stimulus’ effect. “I think it does have an impact. It’s just hard to measure in the short run,” says the San Diego State University economist. “I see it not as baloney but as a concern,” he added, pointing out that more time and data could yield different results.
The debate will go on, but on this point, at least, LaHood might well agree.
“My sense is that this programme was an 18-month programme. It wasn’t one construction season. We know that some of these people are still working on projects today . . . and we know that many of these projects will continue in 2010,” he says.
Important as it is, though, job creation isn’t the only mission driving LaHood. Himself a grandfather to nine children, he’s aware of the need to not only put the current generation in work but also to leave lasting, tangible infrastructure for future generations. Asked to name an example, he says without hesitation: “High-speed rail”.
“It’s not dissimilar to when President Eisenhower signed the interstate bill developing the Interstate [Highway] System,” he says. “It will be a whole new form of transportation that people haven’t seen in America. And it will be around forever.”
Congress handed LaHood $8 billion of stimulus money to make it happen. “Is it enough to do all the things we want to do?” he asks. “No. But it really jump-starts our opportunities.”
Should public spending be the trigger of high-speed rail, however, LaHood hopes that private capital will help him finish the job. “We don’t expect the taxpayers to pay for all of this,” he says. “It’s a combination of public and private expertise from other parts of the world coming to America.”
Adopting his familiar staccato conversational rhythm (during his 14 years in the House he established a reputation as a solid public speaker), he says: “We have companies from Europe, from Spain, from Asia, in America right now, willing to invest some private dollars to get into the passenger rail business, to bring their expertise, to bring their knowledge, to bring their ability to help us get in the passenger [high-speed rail business].”
There will be room for private investment in high-speed rail for sure, asserts LaHood, and he wants to do as much as he can to facilitate it.
But while high-speed rail represents a sweet-spot of opportunity for private investors, LaHood doesn’t view private investment as being confined to it. That’s because the US’ list of infrastructure needs – from repairing and upgrading locks and levees to expanding and rebuilding highways, ports and airports – is far larger than the Federal government’s coffers.
“We have to have the private sector involved if we really are going to be able to do all these things we want to do. There’s just not enough money here in Washington to do that and we’re going to encourage [private investment] any way that we possibly can,” says LaHood.
He has a very clear vision for how DOT can do its part: “I think what we want to do is create all kinds of opportunities and options and let the private investor decide what’s best.”
It’s a remarkably laissez faire proposition. All through 2009, at investor conference after investor conference, one could hear a steady refrain of speakers pointing to infrastructure deals like the 99-year lease of the Chicago Skyway for $1.8 billion as being a broken model for private investment in public infrastructure. On the other hand, deals like the Port of Miami Tunnel project, where the private sector agreed to build a new $900 million tunnel for the public sector, were lauded as a new model for private investors. So which of these would you prefer to see more of, Mr. Secretary?
“Look,” he says, “private investors are smart people, they’re good business people. They’ll decide what the best investments are and I think what we want to do here is provide the initiative for lots of different opportunities and options for people.”
Asked a similar question, Democratic Representative Peter DeFazio, one of the leaders of the House Transportation and Infrastructure Committee, had a starkly different answer: “We look dimly on capitalising or selling existing assets. We think the most promise with private investment comes with greenfields, or new initiatives,” he says.
This is not to say that LaHood is pro-private investment to the point of opposing all restrictions on its use. For example, DeFazio and committee chairman Oberstar have also proposed an Office of Public Benefit to oversee deal-making with respect to the nation’s Federal Highway System. The industry has maligned the proposal as a harmful step that could chilling effect on private investment in infrastructure. LaHood begs to differ.
“No, probably not. It would probably enhance it. I think the goal of that would be to enhance it, but I can’t see where it would inhibit it,” he says.
Here, again, he differs from DeFazio: “If they [private investors] are hoping to get a 25 percent rate of return and screw the public, it should have a chilling effect,” he says.
The $500 billion question
The Office of Public Benefit, though, is just one part of a larger legislative measure that is due to come before Congress again this year: the reauthorisation of the US’ long-term transportation spending budget. Alongside the stimulus and private investment, it’s the last big tool in his toolbox for chipping away at the US’ infrastructure spending deficit. It’s also the trickiest.
The current budget, a 2005 law that authorized $244.1 billion in spending for the US’ surface transportation, expired last year and has yet to be replaced by a new version. DeFazio and Oberstar, have been busy working on an ambitious reauthorisation bill that would more than double that amount to $500 billion over six years.
But last year, just as Oberstar and DeFazio unveiled their grand vision, LaHood went to Capitol Hill to urge a shorter, 18-month reauthorisation. He did so, he says, to give Congress and the administration time to “find the resources” to pay for it.
DeFazio was less-than-thrilled. “I’m pleased to finally hear a defined reason for the delay – that’s news for me,” he says, adding that he thinks infrastructure has been “a talking point, not a priority thus far” for the Obama administration.
LaHood says that it is a priority and the President does want a “robust” transportation spending bill in 2010. The big problem is that the Highway Trust Fund, a pool of money backed by gasoline taxes that’s been used to pay for the nation’s 46,876-mile interstate highway system, is running on empty. “People are driving less and people are driving more efficient cars,” he says. That could be made up for by simply raising the gas tax, but, because of the severe recession, President Obama has opposed any increase in the gas tax.
“We know that a four- or five-hundred billion dollar bill over five years is not going to be paid for strictly by the Highway Trust Fund. And so it’s not that the President doesn’t want a good, strong programme – he does,” says LaHood, referring to the bill backed by Oberstar and DeFazio. “We’ll need to find a way to pay for it.”
That, of course, is the $500 billion question. LaHood doesn’t have a $500 billion answer, but he’s got some suggestions he’s willing to take to Capitol Hill.
“Some of it can be done with an infrastructure bank, some of it can be done with tolling, some of it can be done using Highway Trust Funds and we just we need to work our way through these,” he says.
The infrastructure bank in particular is one priority he’d like to see included in a reauthorisation bill (as DeFazio and Oberstar have). Various proposals for this kind of Federal infrastructure financing entity have been floated over the years and none have yet been successful. But advocates aren’t giving up: less than 24 hours after our interview, Edward Rendell, Governor of Pennsylvania and a staunch advocate for an infrastructure bank, was back on Capitol Hill urging its creation.
“The public understands that we want a new vehicle that will make decisions on infrastructure spending that aren’t political, that don’t depend on who’s the most powerful Congressman or who’s not,” says Rendell.
LaHood believes any infrastructure bank would have to be “substantial” enough in size to deliver “big projects that cost a lot of money where we just don’t have the revenue to do it”, though he declines to elaborate how many billions of dollars constitute a substantial amount.
Rendell gives an idea: “I would like to see a multi-year commitment of at least $10 billion dollars a year for five years, $50 billion dollars, I would say, at least,” he says.
The question of size is more difficult than it sounds. Last year, President Obama proposed an infrastructure bank only $5 billion in size for the next five years, starting in 2010. Compared with the minimum of $50 billion Rendell is asking for, that might seem insignificant. Yet Congress shot down the idea nonetheless, citing the “complexity of this proposal”.
Yet another reminder, perhaps, that there just isn’t the money available to do all the things LaHood wants to do. But the end goal remains the same: “A very strong transportation programme for America”. And LaHood remains as confident as ever that, if he builds it, people will use it. He’ll just need a lot more help building it than any Secretary of Transportation ever before.