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Want to Help West Virginia’s Economy? Invest in Infrastructure

I’ve talked before about how tax incentives aren’t particularly effective in transforming the state’s economy. They might create a modest number of jobs in the short run, but tax incentives deplete resources available for public investments that can improve a region’s infrastructure and increase the skills of it workforce. Basic public investments can better improve a region’s economy because they can simultaneously have an impact on firms’ cost of doing business and the productive capacity of a region’s infrastructure. 

One of the arguments for supporting infrastructure projects is their short-term impact on jobs. Depending on the scale of the project, hundreds or even thousands of highly paid workers are needed to build and maintain the project. Some argue that despite the jobs created by a project, paying for it (taxes) can depress economic activity, and there will be no net gain in employment. However, state and local infrastructure projects typically leverage additional resources from the federal government and the private sector, which dampens the effect of their costs. The projects also employ local workers and use local equipment and materials to a greater degree than the economic activity that declines as a result of the taxes used to finance the projects.

A study by the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst found that infrastructure investments made by the federal government produce between 14.5 and 23.7 jobs per million dollars invested, depending on the type of project. Another study by PERI looked at the increases employment with state and local investments. They found that investments by state governments in New England will produce 13 jobs per million dollars invested. When investments made by New England states were matched with federal funds, like the “TIGER” (Transportation Investment Generating Economic Recovery) program, the impact jumps to 52 jobs per million dollars invested.

The jobs created by the construction of a project are not the only benefit to investing in infrastructure. There are also many long-term benefits. Infrastructure investments increase the income and competitiveness of regions by lowering the costs of doing business and creating new opportunities for investment and growth. Costs are reduced when people and goods are transported more quickly and efficiently and opportunities are created when investments create access to or revitalize regions. Numerous studies in economics have documented the tendency for public investments in infrastructure to increase productivity in the private sector.

Despite the importance of infrastructure investments to the economy, West Virginia has allowed its infrastructure to deteriorate. For decades, West Virginia’s rate of investment has been declining. Between 1966 and 1975, West Virginia’s annual growth in per-capita public capital stock was 7.3 percent. That number had fallen to 1.3 percent for the years 1996 to 2006. As infrastructure investments declined, the list of critical infrastructure in need of replacement and repair has grown. 
 
According to the American Society of Civil Engineers, 39 percent of West Virginia’s bridges are structurally deficient or functionally obsolete, 37 percent of West Virginia’s major roads are in poor or mediocre condition, and 30 of West Virginia’s 360 dams are in need of rehabilitation to meet applicable state dam safety standards.The updating and repair of West Virginia’s infrastructure represents an important economic development opportunity. Not only is the investment needed for safety reasons, but it is also an opportunity to create jobs and more the state more competitive.

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