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This Congressional Budget Office (CBO) paper continues the detailed analysis of infrastructure outlays in CBO's August 1995 paper Public Infrastructure Spending and an Analysis of the President's Proposals for Infrastructure Spending from 1996 to 2000. In accordance with CBO's mandate to provide objective and impartial analysis, this paper contains no recommendations.

Carl Muehlmann, formerly of CBO, and Keith Mattrick of CBO's Natural Resources and Commerce Division wrote the paper. It was prepared under the supervision of Jan Paul Acton and Elliot Schwartz, formerly of CBO. The authors wish to thank many people, both inside and outside CBO, for their helpful contributions. Within CBO, David Sanders, Jeffrey Holland, Deborah Reis, and Robert Arnold were of great assistance in preparing data. Elizabeth Pinkston, Pete Fontaine, and Perry Beider offered many useful comments and suggestions. Outside CBO, Henry Wulf of the Bureau of the Census facilitated the compiling of state and local spending data.

Leah Mazade edited the manuscript, and Liz Williams proofread it. Rae Wiseman prepared the paper for publication, and Laurie Brown prepared the electronic versions for CBO's World Wide Web site.
 

Dan L. Crippen
Director
May 1999
 
 

SUMMARY AND INTRODUCTION

INFLATION-ADJUSTED TRENDS IN PUBLIC SPENDING AND PROPOSED FEDERAL SPENDING FOR INFRASTRUCTURE

• Federal Infrastructure Outlays
• State and Local Infrastructure Outlays

COMPARING INFRASTRUCTURE SPENDING WITH THE FEDERAL BUDGET AND THE ECONOMY

APPENDIX: SOURCES AND DEFINITIONS FOR INFRASTRUCTURE DATA

• Table A-1. Total Infrastructure Spending by Federal, State, and Local Governments, 1956-1994 (In millions of nominal dollars)
• Table A-2. Total Federal Spending for Infrastructure, 1956-1998 (In millions of nominal dollars)
• Table A-3. Direct Federal Spending for Infrastructure, 1956-1998 (In millions of nominal dollars)
• Table A-4. Indirect Federal Spending for Infrastructure, 1956-1998 (In millions of nominal dollars)
• Table A-5. State and Local Spending for Infrastructure, Net of Federal Grants and Loans, 1956-1994 (In millions of nominal dollars)
• Table A-6. Total State and Local Spending for Infrastructure, 1956-1994 (In millions of nominal dollars)
• Table A-7. Total Infrastructure Spending by Federal, State, and Local Governments, 1956-1994 (In millions of 1997 dollars)
• Table A-8. Total Federal Spending for Infrastructure, 1956-1998 (In millions of 1997 dollars)
• Table A-9. Direct Federal Spending for Infrastructure, 1956-1998 (In millions of 1997 dollars)
• Table A-10. Indirect Federal Spending for Infrastructure, 1956-1998 (In millions of 1997 dollars)
• Table A-11. State and Local Spending for Infrastructure, Net of Federal Grants and Loans, 1956-1994 (In millions of 1997 dollars)
• Table A-12. Total State and Local Spending for Infrastructure, 1956-1994 (In millions of 1997 dollars)

SUMMARY AND INTRODUCTION

The public facilities, resources, and services known as infrastructure are vital to the nation's production and distribution of private economic output as well as to its citizens' overall quality of life. Infrastructure includes, for example, highways, mass transit, water supply, and wastewater treatment facilities. The cost of constructing, maintaining, and operating such infrastructure is great: during the 1980s, approximately 2.6 percent of the nation's gross domestic product (GDP) was spent annually for those purposes. By 1994, total public spending for infrastructure was $171 billion.

This Congressional Budget Office (CBO) paper highlights trends in public spending for infrastructure over the past 42 years. The analysis of those trends is based on data supplied by the Office of Management and Budget, the Bureau of the Census, and CBO's Budget Analysis Division. The paper uses the same eight categories of infrastructure discussed in CBO's 1992, 1993, and 1995 papers on infrastructure spending: highways, mass transit, rail, aviation, water transportation, water resources, water supply, and wastewater treatment facilities.⁽¹⁾ Like those earlier papers, this analysis also divides spending into capital outlays (primarily the purchase, construction, or rehabilitation of physical assets) and noncapital outlays (primarily the operation and maintenance of physical assets).⁽²⁾

Through 1997, CBO has updated the historical analysis of federal spending for infrastructure (total, direct, and indirect) that was presented in its 1995 paper. (Indirect spending comprises grants-in-aid or loans to state and local governments. Direct spending is all other federal outlays for infrastructure.) The data on federal spending for infrastructure also incorporate budget estimates for 1998 through 2003.⁽³⁾ Through 1994, CBO has calculated state and local government spending (both total spending and total spending net of federal grants and loans) as well as total public spending (total federal spending plus state and local spending net of federal grants and loans). Thus, the set of data on which CBO's analysis is based covers 1956 through 1994 for total public spending (federal, state, and local) and 1956 through 1998 for federal spending. The appendix presents definitions, methods, and sources used to create the data set.

The data show that public infrastructure outlays have risen in real (inflation-adjusted) terms throughout most of the 1956-1994 period. The federal share of such spending rose dramatically during the first half of that period, expanding from 17 percent in 1956 to 40 percent in 1977. Since the end of the 1980s, however, state and local governments have contributed approximately 75 percent of public infrastructure outlays, and current patterns of spending maintain that trend.

In 1997, total federal spending for infrastructure was $48.8 billion in nominal terms (not adjusting for inflation). Capital investment continued to dominate federal infrastructure outlays--in 1997 the federal government's capital spending was nearly twice its noncapital expenditures. In 1998, nominal federal outlays are expected to rise to $50.3 billion. However, after adjusting for inflation, CBO's analysis shows projected spending decreasing by 0.3 percent from 1997 levels.

In contrast to federal spending for infrastructure, state and local spending net of federal grants and loans rose throughout the early 1990s in both nominal and inflation-adjusted terms. State and local expenditures on infrastructure in 1994 reached $128.4 billion in current dollars--a real increase of 2.9 percent over 1993 outlays. The distribution of that spending between capital and noncapital outlays remained about the same--approximately two-thirds noncapital spending and one-third capital investment.

The Transportation Equity Act for the 21st Century (TEA-21), which was signed into law in June 1998, entails increased federal spending for highways and mass transit from 1998 through 2003.⁽⁴⁾ Under the legislation, nominal spending for highways totals $157.9 billion, increasing in real terms at a projected average annual rate of 1.8 percent. Mass transit expenditures under TEA-21 will increase at an average annual rate of 5.6 percent in real terms, with nominal spending totaling $32.6 billion over the period. Under proposals in the President's 1999 budget, however, total federal expenditures for all other categories of infrastructure would decline at an average annual rate of 2.7 percent in real terms throughout the 1998-2003 period. Nonetheless, on the basis of both TEA-21 and the President's 1999 budget, total federal outlays for infrastructure would reach a nominal level of $57.2 billion in 2003, a real increase of 2.1 percent from 1997 levels.
 

INFLATION-ADJUSTED TRENDS IN PUBLIC SPENDING AND PROPOSED FEDERAL SPENDING FOR INFRASTRUCTURE

Over the 1956-1994 period, total public spending for infrastructure rose in real terms (see Table 1).⁽⁵⁾ However, data for state and local spending for water resources, net of federal grants and loans, were not available for 1991 through 1994.⁽⁶⁾ From 1984 through 1994, total public spending for infrastructure calculated without those expenditures increased in real terms at an average annual rate of 3.7 percent. Total outlays rose by over 3 percent between 1993 and 1994--from $185 billion to $191 billion.
 

Although total public spending for infrastructure has increased, many of the underlying components of that spending have fluctuated. CBO estimates that they will continue to do so in the future. Those components reveal several changes:

• The relative contributions of federal, state, and local governments have varied widely. Between 1956 and 1965, the federal share of total public spending for infrastructure rose from 17 percent to 33 percent. After that period, however, the federal share fluctuated greatly: it fell to 29 percent in 1970, then rose to its peak near 40 percent in 1977 before falling to 24 percent in 1990--its lowest point in three decades. The $2.0 billion increase in federal expenditures in 1994 also boosted the federal share of total public spending for infrastructure to 24.9 percent from 24.7 percent in 1993.
  
  
• Capital outlays have fluctuated more than noncapital outlays.⁽⁷⁾ Capital outlays rose and fell over the 1956-1994 period (see Table 2). In contrast, noncapital outlays increased steadily, declining only three times during the entire 38-year period. Nevertheless, since 1984, capital expenditures increased every year except 1993, with investment rising at an average annual rate of 3.5 percent during that time. Although the distinction between capital and noncapital expenditures is sometimes arbitrary, those long-term trends appear to be valid under reasonable definitions.
  
  
• Priorities for infrastructure programs have changed more at the federal level than at the state and local levels. Federal infrastructure spending has always been dominated by outlays for highways, which have ranged from 30 percent to 60 percent of federal infrastructure expenditures. During the 1970s, however, federal spending for infrastructure focused relatively more on wastewater treatment and mass transit. Beginning in the 1980s and continuing in the 1990s, the federal emphasis has shifted back to highways and aviation.⁽⁸⁾ Compared with federal spending, the priorities for state and local spending have changed little since the 1970s, with expenditures for highways maintaining their predominance. However, some increases have been seen in the categories of mass transit, aviation, and wastewater treatment at the state and local levels.
  
  
• The TEA-21 legislation will reverse the decline of the early 1990s in federal expenditures for mass transit and continue the growth in federal spending for highways. Federal spending for highways is estimated at $22 billion in 1998, an increase of about 2 percent over 1997 levels (see Figure 1). By 2001, annual highway outlays by the federal government are projected to reach $24 billion--their highest level ever. Although federal expenditures for mass transit are expected to fall in 1998, such spending over the 1998-2003 period is estimated to increase by 8 percent compared with total federal outlays for mass transit during the 1992-1997 period.

FIGURE 1. FEDERAL SPENDING FOR HIGHWAYS AND OTHER TYPES OF INFRASTRUCTURE, 1956-2003

SOURCE: Congressional Budget Office.

NOTE: Spending levels for 1956 through 1997 are actual expenditures. Estimated expenditures for highways and mass transit for 1998 through 2003 are based on the Transportation Equity Act for the 21st Century. Spending levels for all other categories during that period are based on the President's 1999 budget.

Federal Infrastructure Outlays

Total federal spending for infrastructure has varied in amount and distribution over the 1956-1997 period. Infrastructure outlays reached $11 billion in 1956; of those expenditures, roughly 41 percent went to highways, 10 percent to aviation, and 48 percent to water transportation and resources (see Table A-8 in the appendix). By 1976, total federal spending had risen to $44 billion, and its distribution had changed. Highways received 36 percent of the federal share; mass transit, 8 percent; rail, 8 percent; aviation, 14 percent; water transportation and resources, 17 percent; and water supply and wastewater treatment, 16 percent.

After 1980, when federal spending for infrastructure reached its peak of $53 billion, expenditures began to fall. By 1997, federal outlays stood at $46 billion, nearly $7 billion below the 1980 peak. Once again, the distribution of spending among categories of infrastructure had changed, with increased shares for highways, aviation, and mass transit.

In the 10-year period from 1987 through 1997, highway and aviation spending grew at average annual rates of 2.2 percent and 3.3 percent, respectively. Only the categories of water transportation, water resources, and wastewater treatment have declined in real terms since 1987.

Currently, most federal spending for infrastructure is directed toward highways--in 1997, spending for highways totaled $21 billion, or 46 percent of the federal share (see Figure 1). The categories with the next highest shares of federal expenditures in 1997 were aviation and water resources with 22 percent and 11 percent, respectively. For 1998, total federal spending for infrastructure is estimated at $45.7 billion in real terms, a slight increase over the 1997 level of $45.6 billion. The rise in federal outlays is largely the result of new spending commitments for highways and mass transit contained in TEA-21. Under the law, federal outlays for highways, which are projected to grow by 2 percent in 1998, will climb by 4 percent and 6 percent in 1999 and 2000, respectively. Combined federal spending for highways and mass transit will increase at an average annual rate of 2.5 percent during the 1998-2003 period.

Indirect Versus Direct Outlays. As noted earlier, federal outlays for infrastructure may be indirect, in the form of grants-in-aid or loans to state and local governments, or direct. For the categories of highways, mass transit (the capital portion), water supply, and wastewater treatment, more than 95 percent of total federal outlays are indirect (see Table A-10). Furthermore, subsidies for capital expenditures constitute the vast majority of such support, totaling more than 95 percent of federal grants and loans for highways, water supply, and wastewater treatment and more than 75 percent of federal grants and loans for transit.⁽⁹⁾ The remaining categories of infrastructure--mass transit (the noncapital portion), rail, aviation, and water transportation and resources--receive federal funds in the form of direct outlays (see Table A-9). Of those outlays, approximately 70 percent are noncapital expenditures.

Capital Outlays. Since the early 1960s, capital outlays have accounted for most of the variation in total federal infrastructure spending (in contrast to noncapital outlays, which have fluctuated little) and represent most of the spending itself. Indeed, between 66 percent and 83 percent of total federal infrastructure spending has gone toward capital expenditures (see Figure 2 and Tables 3 and A-8).
 

FIGURE 2. FEDERAL CAPITAL AND NONCAPITAL SPENDING FOR INFRASTRUCTURE, 1956-2003

SOURCE: Congressional Budget Office.

NOTE: Spending levels for 1956 through 1997 are actual expenditures. Estimated expenditures for highways and mass transit for 1998 through 2003 are based on the Transportation Equity Act for the 21st Century. Spending levels for all other categories during that period are based on the President's 1999 budget.

During the 1970s, capital spending rose in real terms for every category except highways. The capital budgets for mass transit and wastewater treatment attained the highest growth rates, as they received average annual increases in excess of 20 percent during the 1970-1979 period.

In the 1980s, many of the investment levels reached during the 1970s declined. Capital outlays fell significantly from 1980 through 1989 for rail, water transportation and resources, and water supply and wastewater treatment. For those categories of infrastructure, total capital outlays declined in real terms from $17 billion in 1980 to $7 billion in 1989.

In the late 1980s and early 1990s, capital investment in highways, rail, aviation, and water transportation began to increase. Between 1987 and 1997, federal capital outlays for highways grew from 55 percent to 63 percent of all capital infrastructure spending. Capital spending for highways increased slightly to $20.1 billion in 1997, a 0.4 percent increase from 1996 levels. Under TEA-21, however, federal capital spending for highways is estimated to rise by 2 percent in 1998 and by over 5 percent in 1999 and 2000. Trends in capital spending generally track highway investment because it represents such a large part of the total (see Figure 3).
 

FIGURE 3. FEDERAL CAPITAL SPENDING FOR SELECTED TYPES OF INFRASTRUCTURE, 1956-2003

SOURCE: Congressional Budget Office.

NOTE: Spending levels for 1956 through 1997 are actual expenditures. Estimated expenditures for highways and mass transit for 1998 through 2003 are based on the Transportation Equity Act for the 21st Century. Spending levels for all other categories during that period are based on the President's 1999 budget.

a. Includes capital outlays for all types of infrastructure.

Noncapital Outlays. Federal noncapital outlays from 1956 through 1997 have followed a simple pattern that can be separated into three distinct periods: 1956 to 1981, 1982 to 1987, and 1988 to 1997 (see Figure 4). Noncapital outlays rose from $3.1 billion in 1956 to $16.6 billion in 1981 and then declined through the early 1980s, falling to $10.3 billion by 1987. Federal noncapital expenditures rebounded in the 1990s, climbing to $13.7 billion in 1997 (see Table A-8). The large spike in noncapital spending in 1981 was the result of increased operating expenses for Amtrak.
 

FIGURE 4. FEDERAL NONCAPITAL SPENDING FOR SELECTED TYPES OF INFRASTRUCTURE, 1956-2003

SOURCE: Congressional Budget Office.

NOTE: Spending levels for 1956 through 1997 are actual expenditures. Estimated expenditures for highways and mass transit for 1998 through 2003 are based on the Transportation Equity Act for the 21st Century. Spending levels for all other categories during that period are based on the President's 1999 budget.

a. Includes noncapital outlays for all types of infrastructure.

From 1992 to 1997, noncapital federal spending rose in real terms at an annual rate of 1.7 percent. On the basis of TEA-21 and the President's 1999 budget proposals, however, noncapital outlays would decrease both in absolute terms and as a proportion of total federal spending from 1998 through 2003. Noncapital spending is estimated to fall by an average annual rate of 3.1 percent to $10.5 billion in 2003--its lowest level in real terms since 1988.

State and Local Infrastructure Outlays

State and local outlays for infrastructure, net of federal grants and loans, rose in real terms by 2.9 percent between 1993 and 1994, reaching $143 billion (see Table A-11).⁽¹⁰⁾ That spending represented 74 percent of all public expenditures for infrastructure. Between 1984 and 1994, state and local outlays increased for every category of infrastructure.

Spending priorities at the state and local levels often differ from those at the federal level. In 1994, highways led infrastructure spending at each level of government with 43 percent of state and local spending and 45 percent of federal outlays. However, after highway expenditures, similarities in spending priorities for infrastructure vanish. At the federal level, the next three largest categories of spending were aviation, water resources, and mass transit (predominately capital investment), whereas at the state and local levels, the next largest categories were water supply, mass transit (predominately noncapital expenditures), and wastewater treatment.

The mix of capital and noncapital spending for infrastructure at the state and local levels contrasts sharply with that at the federal level (see Table 4). In 1994, federal spending for infrastructure was divided into roughly 71 percent capital spending and 29 percent noncapital spending. The corresponding state and local shares were 34 percent and 66 percent. State and local net capital spending, however, still represented about 59 percent of all public (federal, state, and local) capital investment. By comparison, state and local noncapital spending accounted for about 87 percent of all public noncapital spending.
 

Capital Outlays. State and local capital spending varied widely over the 1956-1994 period (see Figure 5 and Tables A-7 and A-11). After rising from $26.3 billion in 1982 to $49.7 billion in 1992, total capital spending for all categories except water resources decreased to $48.7 billion in 1994. The greatest amount of capital investment went toward highways--more than $24 billion in 1994, or approximately half of all capital spending by state and local governments. State and local investment in mass transit rose from $3.0 billion in 1993 to $5.1 billion in 1994--an increase of nearly 69 percent--to represent more than 10 percent of total capital expenditures.
 

FIGURE 5. PUBLIC CAPITAL SPENDING FOR INFRASTRUCTURE, 1956-1994

SOURCE: Congressional Budget Office.

NOTE: Data on net state and local outlays for water resources were not available for 1991 through 1994.

a. The amounts for state and local spending are net of federal grants and loans.

The proportion of capital spending by state and local governments relative to capital spending by the federal government has also fluctuated over time. From 1956 to 1975 and from 1986 to 1994, state and local government contributions accounted for more than 50 percent of total public capital investment. By 1994, state and local government outlays made up 59 percent of such spending.

Noncapital Outlays. In contrast to capital outlays, noncapital spending for infrastructure by state and local governments has followed a stable upward path (see Figure 6 and Tables A-7, A-8, and A-11). In general, state and local noncapital spending has grown over the 1956-1994 period, whereas federal noncapital spending has remained fairly constant. In 1994, noncapital state and local outlays increased to $94.3 billion from $90.6 billion in 1993. Moreover, noncapital spending increased among all categories of infrastructure except water transportation. The greatest amount of noncapital spending at the state and local levels was for highways--$37 billion, or 39 percent of all state and local noncapital spending--followed by spending for mass transit and water supply, with about $18 billion for each of those categories. By 1994, noncapital outlays by state and local governments constituted 87 percent of total public noncapital infrastructure spending.
 

FIGURE 6. PUBLIC NONCAPITAL SPENDING FOR INFRASTRUCTURE, 1956-1994

SOURCE: Congressional Budget Office.

NOTE: Data on net state and local outlays for water resources were not available for 1991 through 1994.

a. The amounts for state and local spending are net of federal grants and loans.

COMPARING INFRASTRUCTURE SPENDING WITH THE FEDERAL BUDGET AND THE ECONOMY

Many analysts find it helpful to look at federal outlays for infrastructure relative to overall spending. Although that information provides a general yardstick for measuring the resources allocated to infrastructure, it by no means indicates what the appropriate level of spending should be.

In general, federal spending for infrastructure as a percentage of total federal spending has declined since the late 1970s (see Table 5). That percentage was largest in 1965 (5.8 percent), when capital investment was more than four times the level of noncapital investment. By 1997, federal infrastructure spending was 2.8 percent of the total budget, with capital expenditures that were more than twice as great as noncapital expenditures.
 

Analysts also find it useful to compare infrastructure spending and gross domestic product (see Figure 7).⁽¹¹⁾ Throughout the 1960s and 1970s, federal spending for infrastructure averaged slightly more than 0.9 percent of GDP (see Table 6). In 1980, total federal spending for infrastructure was 1.1 percent of GDP, the highest it has ever been. A steep drop in infrastructure spending in the 1980s decreased the ratio to 0.6 percent by 1990. The ratio has leveled off since then, with federal spending still representing approximately 0.6 percent of GDP in 1997. In 1998, that ratio is projected to remain unchanged from its lowest level (0.57 percent) since 1957. The ratio for state and local expenditures has also shown little change, remaining near 1.9 percent of GDP throughout the late 1980s and early 1990s. (Because of the lack of data noted earlier, that calculation does not take into account outlays for water resources.) In 1990, the last year for which data were available for all categories, net state and local infrastructure expenditures reached 1.95 percent of GDP.
 

FIGURE 7. PUBLIC SPENDING FOR INFRASTRUCTURE AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT, 1956-1994

SOURCE: Congressional Budget Office.

NOTE: Data on net state and local outlays for water resources were not available for 1991 through 1994.

a. The amounts for state and local spending are net of federal grants and loans.

1. See Congressional Budget Office, Trends in Public Infrastructure Outlays and the President's Proposals for Infrastructure Spending, CBO Paper (May 1992); Updating Trends in Public Infrastructure Spending and Analyzing the President's Proposals for Infrastructure Spending from 1994 to 1998, CBO Paper (August 1993); and Public Infrastructure Spending and an Analysis of the President's Proposals for Infrastructure Spending from 1996 to 2000, CBO Paper (June 1995). CBO has revised the definition of federal outlays for water transportation used in the previous papers (see "Types of Infrastructure" in the appendix). As a result, the historical data presented in the tables have also changed.

2. The definitions of capital and noncapital outlays and of direct and indirect spending follow the guidelines set forth in Office of Management and Budget, Preparation and Submission of Budget Estimates, Circular A-11 (July 1994), pp. 71-74.

3. Estimates of federal outlays for highways and mass transit for 1998 through 2003 are based on the commitments contained in the Transportation Equity Act for the 21st Century. Estimates of federal spending for all other categories for those years are available in the Budget of the United States Government, Fiscal Year 1999. Data on total state and local government spending, including federal grants and loans, are from the Bureau of the Census's Government Finances series and are available only through 1994. Thus, total public spending by federal, state, and local governments cannot be calculated for 1995 through 2003.

4. Those figures do not incorporate, however, the emergency supplemental spending for infrastructure included in the Omnibus Consolidated and Emergency Supplemental Appropriations Act for 1999.

5. All spending referred to in the text, tables, and figures of this section is in 1997 dollars.

6. In 1990, those outlays represented 3.9 percent of total public spending for infrastructure.

7. For a complete discussion, see Congressional Budget Office, Trends in Public Infrastructure Outlays.

8. Ibid.

9. CBO calculates the split between capital and noncapital federal spending according to budget classification (see "Types of Spending" in the appendix).

10. As noted earlier, data for state and local net expenditures for water resources were not available for 1991 through 1994. In 1990, however, that category accounted for 5.1 percent of all net spending for infrastructure by state and local governments.

11. For a more detailed discussion of the relative significance of infrastructure investment and GDP, in addition to historical data on the ratio of total public spending to GDP, see Congressional Budget Office, Trends in Public Infrastructure Outlays.

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