Desperate times call for innovation: Governments are searching for short- and long-term solutions that may make significant changes to the funding landscape to support public infrastructure development.

• Author: McDonald, Dustin
• Position: Federal Focus

Post-recession, state and local governments have had to make difficult decisions about how to fund traditional services while addressing population growth and new demands. Though state and regional economies have mostly stabilized from the worst of the Great Recession, expenditure demand is still rising much faster than revenues. For all levels of government, the ongoing challenge of slow economic growth, political polarization, tight budget constraints, debt limits, and austerity policies have meant delays in delivery of much-needed public infrastructure projects--despite the large voter appetite for improvements to roads, bridges, public transportation, and water and power delivery systems. In the face of these challenges, governments are searching for short- and long-term solutions that may make significant changes to the funding landscape to support public infrastructure development.

PARTISAN GRIDLOCK IS THE MOTHER OF ALL INVENTION

Emerging at a time of particularly strained partisan relationships in Washington, D.C., the 2011 decision to ban congressionally directed spending, or "earmarks," removed the chief bargaining tool used by members of Congress to broker deals for more than 200 years. Though a deep ideological divide on many critical issues remains the most prominent culprit for Washington's decreased productivity in recent years, the ban marked an end to millions of dollars in annual federal funding for many state and local infrastructure projects, and the beginning of a new era of fiscal focus in the nation's capital. The ban was followed later that year by the Budget Control Act, legislation that began imposing across-the-board spending cuts on federal domestic and defense discretionary funds. The sequestration, which began in 2013, is projected to reduce federal spending by $1.2 trillion by cutting $109 billion per year, divided mostly between defense and non-defense discretionary expenditures.

The 2011 deficit reduction exercise could not have come at a worse time for state and local governments, which were still working feverishly to revive their economies after the Great Recession. According to the Economic Policy Institute, roughly 18 percent of federal aid to states is subject to sequestration, which translates into 5 percent of total revenues. For local governments, sequestration is materializing into reduced state aid, which represents almost 30 percent of local budgets. The first year of sequestration cuts trimmed roughly 5 percent from total federal outlays to states, with corresponding cuts scheduled annually through 2023. Victims include State and Local Law Enforcement Assistance, Workforce Training, and Elementary and Secondary Education programs, and the federal subsidy for the Build America Bonds program, which has seen reductions ranging from 8.7 percent to 7.3 percent since 2013.

Sequestration has had rolling impacts...