Naked Opinion

The Case for Infrastructure Investment – Now!

infrastructure

Recently, the American Society of Civil Engineers (ASCE) issued its quadrennial report card of the condition of the United States’ infrastructure.  The grade?  D+.  While this is better than 2009’s D grade, it is unchanged from 2013’s report. The report revealed sobering truths about our nation’s infrastructure we must address now.

What do we mean by ‘infrastructure?’

Constructed by combining the Latin prefix, -infra, or, ‘below’, and -structure, infrastructure originally referred to the material that lay below a railway line or road surface.  Since then, it has expanded to mean the principal structures, facilities, and systems, typically inter-connected physically (and, increasingly, through cyberspace), that are necessary for a society and its economy to function.

ASCE focuses on four key areas:  water and the environment (dams; drinking water; levees; hazardous, solid, and other wastes); transportation (aviation, bridges; inland waterways and ports; railroads; and other forms of transit); public facilities (such as parks and recreation facilities and schools); and energy (created from coal, gas, oil, solar, and wind, and nuclear facilities, which comprise our national utility grid).

Why does infrastructure matter?

Infrastructure is the foundation on which society rests and without which it cannot function.  First, and foremost, poor or insufficient infrastructure can be a safety issue.  For example, the collapse of the Interstate 35 West bridge over the Mississippi River in 2007 demonstrates the ongoing need to invest in infrastructure.

A second, serious consequence of our deteriorating infrastructure is economic.  As the ASCE wrote in a 2016 report, Failure to Act:  “Infrastructure is the backbone of the US economy and a necessary input to every economic output.  It is critical to every nation’s prosperity and the public’s health and welfare.”  Furthermore, “deteriorating infrastructure…has a cascading impact on our nation’s economy, impacting business productivity, gross domestic product (GDP), employment, personal income, and international competitiveness.”

What are the Economic Effects of Crumbling Infrastructure?

The average American may not be able to directly see or feel a weakening national infrastructure; however it adversely affects us collectively.  According to the ASCE report, our nation’s dams and levees both score a D.  Vital facets of our nation’s infrastructure, dams (of which the nation has 90,580) have an average age of 56 years; 17 percent of them are rated as being of “high damage potential” should the dam fail.  Likewise, the levees in this country protect an estimated $1.3 trillion of property from the ravages of flooding and tidal surges.   Bridges may be doing even worse. According to the Federal Highway Administration 68,842 bridges – more than 11 percent of the nation’s highway bridges – are classified as “structurally deficient” and according to the ASCE more than 180 million trips are taken across structurally deficient bridges every day. This is why we need to deal with this issue now, because of the economic and safety consequences could be staggering as we continue to postpone essential repairs.

Between 2016 and 2025, the aggregate effects (in constant 2015 dollars), in terms of decreased business sales is projected to be $7 trillion (or, $700 billion per year), leading to 2.54 million fewer jobs over this decade.  This will lead to an aggregate decrease in America’s overall GDP of nearly $4 trillion dollars (roughly $396 billion per year).  What does this mean to the average citizen?

Let us use some simple numbers to calculate the real economic effects of continued deferral of infrastructure repair.  The US Census Bureau projects the American population to be 310 million in 2025, with an increase to 335 million in 2025.  At the same time, the GDP in the United States in 2015 was $17.9 billion, with a real growth rate of 2.0%.  For a population of 310 million, this equates to $57,870 for every man, woman, and child in the United States.  

Assuming a similar growth rate (2%) over the next ten years – and no effect of infrastructure deterioration – the GDP would be roughly $22 trillion (in 2015 dollars), or $65,700 per capita income for each American.  However, if one subtracts the inhibitory effect of failure to invest in infrastructure, the US’s GDP will be closer to $18 trillion, or 53,730 per capita per individual in 2015 dollars.  In real, non-inflated terms, our society will move backwards economically by nearly $12,000 per individual over ten years; it will be substantially greater when one includes the effect of inflation.  Thus, macro-economic delay in infrastructure renewal and restoration has tangible, micro-economic consequences for individuals, families, businesses, and every community.

What should be done?

At present, the ASCE suggests that between 2016 and 2025, the money required to fix our current infrastructure needs is about $3.32 trillion, of which $1.88 trillion is funded; but another $1.44 is needed.  

There are several things that can be done, at the federal, state, local, levels, as well as in the private sector, both alone, and in combination. At the federal level, the motor fuel tax, which funds the Highway Trust Fund, has not increased since October 1, 1993,  should be raised above the current rates of 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel, to match the increases in passenger and especially commercial, long-haul truck and bus traffic, as well as inflation.  In 1993, highway miles travelled was about 2.2 trillion miles; in 2014, it reached nearly 3 trillion miles by more than 240 million cars and roughly 11 million trucks. As a second measure, the Highway Trust Fund – and other, similar, local and state trust funds – need to be made “whole” and kept “whole:  that is, not raided for other uses.  

Citizens, businesses, and consumers need to understand the importance of paying for the infrastructure they depend on, not just when new, but throughout the expected and useful lifespan, as well as, when necessary, for replacement structures.  Clear, concise, consistent, and long-term messages about the importance – and true, life-cycle cost – of infrastructure must be communicated to all stakeholders, especially to the taxpayers who support public works.  

Finally, private enterprise needs to be drawn into the discussions about infrastructure, both as a primary mover and as a secondary partner.  Public-private partnerships (PPPs) may permit municipal or state governments to secure up-front capital that reduce the burden on government to raise taxes or borrow.  Studies from the World Bank suggest that, in many instances, infrastructure created as part of a PPP is completed faster and on- or under budget more often than solely public projects. And, since the private company has a stake in the long-term success of the venture, to recoup its costs, the design, construction, and upkeep of these projects may be better.  However, clear demarcation of responsibility and authority between public and private concerns is crucial, as is an understanding that the cost of this capital – in terms of necessary return on investment for a private company of 10 to 20% – may be greater than for a publically-financed project, and this will have to be paid for in the form of tolls, taxes, or bonds.  Nevertheless, a variety of options are possible and must be explored quickly to improve America’s infrastructure and competitiveness.

Our governments and political leaders must lead the way to repair, restore, and renew our infrastructure.  This is an imperative, in the here and now, to make our businesses more competitive, our society functional, and keep our economy running smoothly.

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