Op-Ed: If Infrastructure Is the Problem (and It Is), What’s the Solution?
New Jersey’s infrastructure — and the nation’s — are in need of a massive infusion of capital
The status of the nation’s infrastructure may be characterized as anywhere from discouraging to alarming. Every four years the American Society of Civil Engineers (ASCE) issues a report on the status of infrastructure for the nation and for each state. Their latest report was for 2017.
The Society grades 16 categories, including dams, solid waste, drinking water, and transportation.
It is not a pleasant read; in fact, it is pretty depressing. You’d think we are living in a third-world country. The society minces no words and gives an overall grade of D+. New Jersey also received a D+.
New Jersey’s grades range from a high of B- for solid waste to D- for transit. National grades followed the New Jersey pattern — so, we are all pretty bad.
Understanding the severity of the problem
My students would be depressed with such grades. But my guess is that most Americans do not understand the severity of the infrastructure problem, and apparently most legislators, who should know — do not care that much.
For the most part, the problem is hidden. Most of us do not notice infrastructure until it stops working — when a bridge is closed and we are late for work or when drinking water is discontinued because of bacteria.
But a failing infrastructure is not just an inconvenience; it financially impacts our families and our country — since infrastructure is the foundation of our economy and quality of life.
Every community, every family, and every business needs infrastructure to thrive. Infrastructure encompasses drinking water and parks; the power lines connected to our house or business; and local roads to our house and the interstate highway system that takes us from Maine to Florida. But the nation as a whole is in danger of forfeiting those expected benefits.
The ASCE estimates an investment of $4.6 trillion is needed by 2025. Failing to close this infrastructure gap will bring serious economic consequences by 2025:
$3.9 trillion in losses to the GDP
$7.0 trillion in losses to business
2.5 million lost American jobs
Three years ago I was part of the State Budget Crisis Task Force — a national commission co-chaired by Paul Volcker. We examined the budget situation in selected states to understand the extent of the problem. The area common to every state was the mounting level of infrastructure needs and the lack of funding.
The New Jersey shortfall was in excess of $140 billion, principally for transportation and wastewater and drinking water, but not counting the need for modernization of electrical grids and the critical need for the Gateway tunnel project. Just think, for example, what the impact to the region and the country would be if the rail tunnels collapsed. Impossible? I don’t think so.
Investments of the past
All states are living on the investments of the past and have failed to maintain them and build out the systems of the future.
A few comments on transportation, as I think many people connect the word “infrastructure” — at least initially — with roads, bridges, and transit. Transportation serves as a critical link moving people and goods throughout the country and within a state. According to the Society of Civil Engineers 35 percent of our major roads are in poor or mediocre condition costing $67 billion a year in additional repairs. Furthermore, the society suggests that 45 percent of the roads are congested, wasting time and gasoline and impacting the environment.
How do we pay for all this stuff? Most infrastructure financing is done at the state and local level of government — via bond financing, user charges and fees (particularly for water and sewer), and tolls on roads and so forth. Enter President Donald Trump. The president wants to invest $1 trillion to fix the infrastructure, but, remember the gap according to the ASCE is $4.6 trillion. A good start but as yet no plan submitted to Congress or vetted in the public arena — and certainly not enough money.
And many congressional leaders are already balking at the $1 trillion price tag, and others suggest doing it by simply “granting” $167 billion in tax credits to the private sector. This would leverage funds to invest in transportation–type projects, and in many cases they could end up owning or receiving significant cash flow. Not a good model — certainly not sufficient money, not well targeted, and with limited application as maintenance and the improvement projects for most of our existing facilities cannot be monetized.
Biting the bullet
The only logical solution — bite the bullet and begin a 10-year plan of borrowing by issuing bonds. That is how most public-sector projects have traditionally been built. The states obtain the funds up front to complete the projects and spread the costs over a period of 20 to 30 years. This is important, as future beneficiaries need also to pay for this very large investment.
However, and just as important, the federal government must provide funds to the states to support this financing as states simply do not have the financial resources. This would not be a new role for the federal government since it already provides grants for funding transportation, water, and sewer projects — but funding needs to be substantially increased and consistent.
Critics will argue general taxes will increase or the federal gas tax will increase (It should; it has not been increased since 1973.) or the debt of the federal government and states will increase. Yes, that is true. How else do you get almost $5 trillion? But as noted by the ASCE, the alternatives are more costly.
I have two other suggestions to ensure that this very large infusion of funds is used appropriately:
Utilize more metrics and perform careful cost-benefit analysis to determine the best use of the funds. For example, we should improve busy airports rather than all airports.
Stop worrying about where the investment will create the most jobs — and where politics will determine the location of projects. Instead, invest the money where it is really needed for critical improvements and for long-term economic benefit. Simply using jobs as the single criterion is, in my judgment, a mistake.
Those two points are critical. If we are investing $5 trillion we need to do it very intelligently — not in a pork-barrel manner.