Wanted: A Reasoned Approach to Dealing with America's Infrastructure Needs

It seems like not a week goes by without fresh warnings about the nation’s”crumbling infrastructure" and renewed appeals to rebuild our aging highways and bridges.  President Obama reinvigorated the campaign with his State-of-the-Union proposal for a $50 billion program of infrastructure investments, $40 billion of which would be devoted to a "fix-it-first" program targeted at urgent improvements such as "structurally deficient" bridges. The following day, the House Committee on Transportation and Infrastructure held a hearing on "The Federal Role in America’s Infrastructure," focusing on the importance of infrastructure for the U.S. economy and the federal role in its preservation and expansion. The same day, the U.S. Chamber held a "Transportation Infrastructure Summit," a day-long gathering to explore "transportation infrastructure challenges and promising solutions" with prominent industry representatives. Yet another meeting, this one convened by Rep. Rosa DeLauro (D-NY), a longtime proponent of a National Infrastructure Bank, will explore innovative strategies for financing infrastructure in a March 18 forum on Capitol Hill.

Two recent reports have added to a sense of urgency about America’s deteriorating infrastructure. The Building America's Future coalition has published a report, Falling Apart and Falling Behind, urging development of a long-term national infrastructure strategy, establishing a National Infrastructure Bank and lifting restrictions on tolling. The American Society of Civil Engineers (ASCE) has released a report, Failure to Act: The Impact of Current Infrastructure Investment on America's Future, warning that if the investment gap is not addressed, the economy is likely to suffer $1 trillion in lost business and a loss of 3.5 million jobs.  ASCE's 2013 Report Card for America's Infrastructure, a detailed analysis of the performance and condition of America's infrastructure  to be  released on March 19, may be expected to reinforce this gloomy forecast (a previous  "report card," issued in 2009, gave the U.S. infrastructure an unflattering grade of D.)     

What kind of impact this flood of warnings and advocacy efforts will have on public opinion and on congressional attitudes and fiscal decisions remains to be seen. They come at a time of severe budget pressures and intense Republican efforts to curb excessive discretionary spending. To be successful, the pro-infrastructure campaign must persuade fiscally conservative lawmakers that there are urgent reasons for a boost in spending on public works that override the imperative to reduce the deficit and get the nation's fiscal house in order. 

Further, infrastructure advocates must convince the nation's  taxpayers--- who see no visible signs of  "crumbling infrastructure"--- that spending more  on transportation will not be wasted but will result in concrete benefits in the form of reduced congestion or shorter commutes. Infrastructure alarmists also must contend with a public that lately has grown skeptical about warnings of catastrophic consequences of minor cuts in spending.  

Lastly, the advocacy campaign must overcome a cynical perception that pressures to increase funding for transportation are nothing more than special interest pleadings of interest groups that stand to profit from higher levels of public spending.  As one transportation advocate at a recent conference observed, "there is an enormous disconnect between us and the American public" --- a disconnect that may not be easy to overcome.

Significantly, improving the nation's infrastructure was not a topic of discussion at the President's meeting with Senate Republicans, according to Sens. Roger Wicker (R-MS) and Orrin Hatch (R-UT), as reported in POLITICO.  The President must have come to a conclusion that his $50 billion infrastructure plan stands no chance of winning a favorable Senate vote ---not to mention being an anathema with the House Republicans.

A Reasoned Approach

No one disputes the infrastructure advocates’ claim that some of America’s transportation facilities are reaching the limit of their useful life and need replacing. Nor does anyone disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among these advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a $50 billion crash program as proposed by the President, or a two trillion dollar infrastructure investment program over fifteen years as recommended  by ASCE . 

The condition of infrastructure varies widely from state to state as studies by the transportation research group TRIP and by the Reason Foundation have shown. Most states maintain their transportation assets in a state of good repair and only a few need extensive modernization. "There are still plenty of problems to fix, but our roads and bridges aren't cumbling," said David Hartgen, lead author of the Reason study. "The overall condition of the public road system is getting better and you can actually make the case that it has never been in better shape." Hartgen's conclusion is backed by a detailed study of the condition of America's roads and bridges. The study is based on a variety of sources, primarily from the states themselves as reported to the federal government from 1989 through 2008. ( "Are Highways Crumbling? State and U.S. Highway Performance Trends, 1989-2008, Reason Policy Study 407, February 2013).

The generally acceptable condition of the nation's transportation infrastructure in most places, argues for a more selective approach. Rather than launching a new massive national public works program in the name of "fix-it-first," state-level efforts should be targeted specifically at aging facilities that are in a demonstrable need of replacement or modernization.  "The nation simply cannot afford blindly to throw money at the problem," in the words of one senior congressional Republican. "We have learned from the Administration's $8 billion high-speed rail fiasco that scattering resources in an unfocused manner in order to satisfy demands for geographic equity, leads to imprudent, irresponsible and often downright wasteful spending."     

To the extent that large-scale multi-year megaprojects demanding billions of dollars still figure on the drawing boards of state DOTs,  they can---indeed, they will ---be financed through public-private partnerships, tolling and credit instruments such as TIFIA and state infrastructure banks. They include the I-495 Beltway Hot lanes project in Virginia, New York's Tappan Zee Bridge replacement, the San Francisco Bay Bridge Eastern Span replacement, the I-5 Columbia River Crossing, the Highway 520 floating bridge in Seattle, the Miami Port Tunnel, the Midtown Tunnel linking Norfolk and Portsmouth VA, and two Ohio River bridges in Louisville, a joint undertaking of the Indiana and Kentucky DOTs. All of the above projects will be financed with long-term obligations rather than funded on a pay-as-you-go basis through annual congressional appropriations.

A transition from funding to financing of major transportation infrastructure projects was also the preferred approach of the financial practitioners and analysts assembled at the October 2012 conference on Public-Private Partnerships convened by the American Road and Transportation Builders Association (ARTBA). The most practical way to build future transportation megaprojects, these experts concluded, will be through project financing and public-private partnerships.

In sum, the Highway Trust Fund no longer can serve as a source of capital for new infrastructure, and funding large capital-intensive projects with current user fee revenues on a pay-as-you-go basis is no longer feasible. Instead, look for the states to assume responsibility for remedial "fix-it-first" activities, and for a shift from funding to financing for multi-year construction megaprojects. This may turn out to be the only practical long-term solution to our transportation funding dilemma.