In his State of the Union address on February 12, President Obama singled out rebuilding America’s infrastructure as a policy priority. Citing the deteriorating quality of the country’s transportation and energy networks, he proposed a “Fix-It-First” program to fund the most urgent infrastructure upgrades and repairs, as well as a federal initiative to co-source funds from the private sector for future upgrades. Obama framed these measures as an urgent task, noting the potential of these improvements and repairs to attract investment and jobs to the United States while boosting America’s global economic competitiveness.
Indeed, infrastructure investment should be a pressing issue for U.S. policymakers, as transportation and energy networks planned and built decades ago strain to meet the needs of the 21st-century American economy. Deferred maintenance on existing infrastructure and a reluctance to embark on large-scale projects have cost Americans hundreds of billions of dollars in lost economic productivity, while budget constraints and the current polarization of government spending threaten to continue this worrisome trend. In this first post of a two-part discussion, I outline the problems facing U.S. infrastructure and examine how a more strategic approach to spending can help address them.
The costs of neglect
A number of recent reports paint a stark picture of America’s transportation and energy systems. In the World Economic Forum’s annual Global Competitiveness Report, the United States has slipped from first place in quality of overall infrastructure in 2005 to twenty-fifth place in 2013. The 2012-2013 edition ranks the U.S. 20th in roads, 19th in ports, 30th in airports, and 33rd in the quality of electricity supply. The most recent Report Card for America’s Infrastructure from the American Society of Civil Engineers (ASCE) assigned a D- grade for American roads, a C for bridges, a D for transit systems, and a D+ for the energy grid. A 2012 report from the bipartisan Building America’s Future Educational Fund details the impact of deteriorating transportation systems on the economy with some sobering figures; for example, freight congestion at ports and in rail and road corridors imposes costs of $200 billion a year, while the costs of Americans stuck in traffic totaled $101 billion and 1.9 billion gallons of lost fuel during 2010 alone.
Inaction on infrastructure investment will multiply these economic costs to truly staggering levels. The Building America’s Future report projects that 94% of American economic growth will take place in metropolitan areas, where many existing highways, airports, and transit systems are already overburdened from use. And a new study from the ASCE warns that, if current infrastructure investment trends continue, system deficiencies will cost U.S. households $611 billion and businesses $1.2 trillion by 2020. Nor does it help, as the Building America’s Future report points out, that America’s economic competitors – from Canada and the European Union to emerging economies such as China and Brazil – are currently investing heavily in infrastructure upgrades and maintenance.
But the fear of potential economic losses from both waste at home and competition abroad may not be enough to galvanize federal and state governments into action. Concerns over the soaring federal deficit, combined with the persistent budget battles in Washington, have rendered any significant expansion in infrastructure spending a remote possibility under the current Congress. The latest standoff has led to an automatic series of budget reductions known as the “sequester,” which took effect on March 1. Sequestration is slated to cut $28.7 billion to nondefense discretionary spending, which includes federal funding for infrastructure, in 2013 alone. Meanwhile, state and local governments, many of which operate under balanced-budget requirements, have also adopted fiscal tightening measures in response to looming debts.
In an era of escalating budget deficits and widespread fiscal austerity, how can America prevent the loss of economic productivity posed by aging, overused, and underfunded infrastructure? The answers lie with overhauling infrastructure policy strategy and identifying new sources of funding.
American transportation policy planning is a convoluted process divided between the federal government, the states, and municipalities. According to the Congressional Budget Office, some 75 percent of public spending on transportation and water infrastructure comes from state and local governments, with Washington accounting for the remainder. Yet transportation funding is typically passed on a piecemeal, as-needed basis, with cities and states generally relying on bonds and the federal government on grants. The “long-term” transportation bill passed by Congress last year typified this approach; it was the first such bill passed since 2005, covered only two years of funding, and was negotiated on the eve of a transportation funding crisis. As Bill Galston and Korin Davis of the Brookings Institution point out in a recent paper, the U.S. has no “long-term plan, strategic set of priorities, or dedicated funding stream” to coordinate planning and spending at these various levels of government.
America could take a simple step toward establishing a more coherent infrastructure strategy by re-prioritizing the infrastructure spending that federal, state, and local governments have already approved. One approach would be to focus on maintaining and improving existing highways, bridges, railways, and ports instead of constructing new ones, which would do much to optimize the current transportation system and reduce the costs of congestion in the short term.
Economists Matthew Kahn of UCLA and David Levinson of the University of Minnesota advocate such a “Fix-It-First, Expand-It-Second” strategy in a 2011 paper for the Hamilton Project at Brookings. They note that the current system of government grants and political earmarking creates a bias toward funding new construction rather than upgrading existing infrastructure, since the latter is less visible to constituents and thus less likely to generate support for the politicians controlling the purse strings. Mandating that existing funding mechanisms such as the Highway Trust Fund channel their grants to improving existing infrastructure would reduce the cost of future maintenance and the probability of systemic breakdowns such as bridge collapses.
In addition to maintaining existing resources, cash-strapped states and municipalities could prioritize investment in projects most likely to boost long-term productivity and economic growth. As outlined by economists Adam Looney of Brookings and Michael Greenstone of MIT in another Hamilton Project paper, such “investment in the future” would involve conducting rigorous cost-benefit analyses when allocating funds and improving transparency by publicly disclosing these allocations. The latter could also help prevent public funds from going toward “bridge to nowhere” boondoggles while improving public confidence in infrastructure spending.
While adopting these spending strategies will help, addressing America’s infrastructure needs will ultimately require sizeable increases in funding. The current political climate of budget austerity poses a significant obstacle to increased government spending, but other pathways exist to raise the needed dollars for transportation and energy systems. In a second post, I will examine these other funding sources and how they can be incorporated into a long-term infrastructure policy strategy.