Budget conditions for America’s cities continue to be bleak, as reported in a new survey from the National League of Cities. Sales tax revenues remain well below the pre-recession trend, financial assistance from state governments has been slashed, and property tax revenues that normally exhibit little sensitivity to the business cycle have been hammered by the current housing-driven downturn. Mayors hoping for the federal government to step into the breach can find a lot to like in President Obama’s proposed American Jobs Act, which would offer billions to help sustain public sector employment and activity. But the plan contains one unfortunate oversight—ongoing transportation costs where the labor market impact of cutbacks could be particularly severe.
It’s no surprise that mass transit agencies are cutting back service and raising fares. The same thing is happening to public services across the board. But the impact of cuts in this area on the employment situation can be quite dire. A recent University of Milwaukee analysis, for example, found that proposed cuts will cause loss of bus service to 997 employers in the Milwaukee area. A decent chunk of the approximately 8 percent of Milwaukee area workers who rely on mass transit for their commute may be literally unable to get to work. Many more will experience increased costs and inconvenience—longer waits, higher fares—and the same story is playing out across the country.
This a particularly bad time because economic growth in China, India, and elsewhere has left global oil producers out of excess capacity. Under the circumstances, any substantial reduction in American unemployment is overwhelmingly likely to lead to gas price increases, making it highly desirable to give people more options rather than fewer about how to get to work.
And yet while President Obama is proposing both $35 billion in aid to state and local government and $50 billion in transportation infrastructure, the plan neglects to support operation of the mass transit infrastructure the country already has. Consequently, were the program to pass, a transit agency could find itself in the perverse situation of laying off bus drivers today even as it hires construction workers to build a train for tomorrow. Yet not only are cutbacks a double-whammy to the labor market, layoff-prevention is considerably more “shovel ready” than even the most shovel ready new construction. Fare hikes, too, tend to take money out of the pockets of the most economically vulnerable citizens, forcing reduced spending on other goods and services. Avoiding either would be highly desirable during a prolonged economic slump, and with real interest rates extraordinarily low it would be cheap and easy for the federal government to help.