Trump Can Thank Mayors, Governors for Providing Jolt to Economy

(Bloomberg) -- President Donald Trump has U.S. mayors and governors to thank in part for the swift growth of the economy during the first three months of 2019, when states and cities increased the pace of their spending by the most in three years.

The Commerce Department on Friday said state and local government spending increased at an annual rate of 3.9 percent in the first quarter, the most since the start of 2016, because of a “turnaround in investment, most notably in construction of highways and streets.” That contributed to a better-than-expected jump in the nation’s gross domestic product that Trump was quick to trumpet.

Trump Can Thank Mayors, Governors for Providing Jolt to Economy

The increase reflects the broad financial improvement for states and cities as the decade-long economic expansion boosts tax collections, eliminating the big budget deficits that dogged them in the years after the recession.

It may also reflect Trump’s failure to boost federal spending on infrastructure, as he promised during the 2016 presidential campaign. Dan White, director of government consulting and fiscal policy research at Moody’s Analytics, said local officials delayed some public works projects after Trump’s election to see what sort of federal help would come. But with little expectation that a major plan will be enacted by the politically divided Congress, White said states and cities are using some of their own extra revenue instead.

"They expected this large infrastructure package to work its way through Congress," he said. "As it’s become more clear that’s not going to happen, states have put more of that one-time money to work for themselves."

The amount of bond sales for new projects -- rather than refinancing debt -- jumped to about $199 billion in 2018, the most since the end of the federally subsidized Build America Bonds program in 2010, according to data compiled by Bloomberg. That likely provided some of the funds that were spent at the beginning of the year.

Trump Can Thank Mayors, Governors for Providing Jolt to Economy

Several governors have pushed plans this year to increase spending on roads, bridges and other public works by raising gas taxes or borrowing. Earlier this month, Ohio Governor Mike DeWine, a Republican, signed off on a plan that his office says will generate over $800 million per year for transportation projects.

Kenneth Woods, chief executive officer of investment firm Asset Preservation Advisors, said the GDP figures show the economic benefits of investing in infrastructure. Still, he doesn’t think a federal infrastructure plan is likely until after the 2020 election.

"It’s one of those things where a federal program could really move the needle," he said.

©2019 Bloomberg L.P.

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