With extensive economic pressure facing the U.S., progressive lawmakers in Washington believe they have found a new solution: taxing and spending. This failed fiscal framework has become an easy sell for each new progressive administration. But this time the Biden administration has placed America in a high-inflation recession, and looks to do more harm with the “Inflation Reduction Act.”
But there’s an overlooked concern of hundreds of billions of taxpayer funds redistributed by the federal government to state and local governments for supposedly COVID-relief efforts and even more in the recent “infrastructure” bill over the last two years.
These excessive federal funds should be used wisely in order to not hinder Texas’ economic prosperity. That could mean public-private partnerships, which increase transparency and efficiency.
Texas’ nonfarm employment has increased in 25 of the last 26 months, bringing record high employment in eight consecutive months. Compared with a year ago, total employment was up by 778,700 (+6.2%) in June with the private sector adding 761,800 jobs (+7.1%) and the government adding 16,900 jobs (+0.9%).
Texas also ranks fifth best in a Georgia Center for Opportunity study that compares the ratio of employment to an estimated pre-shutdown recession trend in each state. That’s a huge feat given how many jobs were lost during the costly shutdowns. And Texas is now headquarters for more than 10% of all Fortune 500 companies.
Texas has been allocated about $116 billion between COVID 19-related funds and the “Infrastructure Investment and Jobs Act” (IIJA) since March 2020.
This includes $79 billion from several bills from March 2020 to March 2021. A major chunk of that figure was $24.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 that was primarily for COVID 19-related provisions, including for health care, public education, childcare, and worker safety.
The other was $40.3 billion from the American Rescue Plan Act (ARPA) in March 2021 that was for specific projects like broadband, water, and infrastructure along with $15.8 billion of those funds available for various recovery purposes. Fortunately, the state separated the ARPA funds in Article XI of the budget so that there is less comingling of federal with state funds to avoid considering these as an ongoing funding source.
The rest was $36.3 billion from the IIJA to be used primarily for projects related to broadband, transportation, and water.
Ultimately, these funds must be spent responsibly—if at all—and only for one-time items to avoid a fiscal cliff when these funds go away. If not, there will be wasteful spending that will unnecessarily grow the state’s budget, leading to higher taxes and distortions throughout the economy and less prosperity.
Since the massive expansion of federal assistance to states began in the 1960s with President Johnson’s “Great Society,” the burden of federal funding in states has continued to grow. Texas usually has about one-third of its total budget funded by taxpayer dollars collected at the federal level.
We need a new approach. These one-time federal funds must be spent on on-time expenditures.
Next, public-private partnerships (P3) should be considered.
They’re contractual agreements between a government and private entities. The state provides funding with oversight of a new project while a private company does the work. They can transfer risk, bundle projects, and increase efficiency through a design-build approach.
Ultimately, most projects should be left to the private sector, where the best productive projects happen because of profit-loss decisions. But the opportunity to use P3s with these one-time federal funds should be carefully considered to reduce waste and inefficiency on projects.
While there are legitimate concerns about corporate welfare to private businesses through picking winners and losers, the use of these one-time federal funds allocated for projects makes sense—though careful consideration should be made now and later.
Given the poor track record of excessive federal funds and the success of P3s, Texas should look to set a precedent for fiscal responsibility and more market-oriented solutions by employing P3s with the federal funds recently received rather than resorting to the failures of too many government-run projects.