The case for funding infrastructure

U.S. bridges and roads

The United States economy — valued at upwards of $20 trillion per year  — is highly dependent on a vast network of bridges, roads and other transportation infrastructure. However, most of it was built decades ago and has been neglected.

This has a BIG impact on the U.S. economy. Economists report that transportation delays caused by the poor condition of bridges and roads — coupled with increasing maintenance costs — are limiting economic performance across the U.S.

Many economists believe that the large infrastructure investment in the U.S. during the twentieth century built a solid foundation that fueled economic growth after World War II. Today, experts say the opposite is true. Inadequately maintained bridges, roads and other transportation assets cost the country billions of dollars because they hold back economic productivity.

Did you know: Delays caused by traffic congestion cost the U.S. more than $100 billion per year?

Global infrastructure

Developed countries all over the globe invest in infrastructure at a rate, on average, nearly twice that of the U.S. The greater efficiency, reliability and safety of their transportation systems pays off in increased economic activity and competitiveness.

According to the World Economic Forum’s Global Competitiveness Report, the U.S. ranked number ten in the world in 2016 for the overall quality of its infrastructure. That’s down from fifth place in 2002. The U.S. rated below France, Germany, Japan, Spain and other competitors.

Did you know: European countries spend approximately five percent of GDP on infrastructure, while the U.S. only spends 2.4 percent? Other countries, such as Australia, Canada, France and the United Kingdom have national infrastructure systems that let central governments direct and prioritize projects. The decentralized system in the U.S. can’t do this.

Current state of U.S. infrastructure

Most of the nation’s transportation infrastructure was completed in the 1960s. Since then, the population of the U.S. has more than doubled. Many of its bridges and roads are reaching the end of their lifespans and capacity is over-extended.

The American Society of Civil Engineers (ASCE) compiles regular report cards on the state of U.S. infrastructure. The most recent one gave it a grade of D+. It found that conditions are below standard. There is evidence of significant deterioration and a strong risk of failure on a large part of the transportation network. ASCE estimates that it would take nearly $1.5 trillion to get all types of infrastructure back into safe and efficient working order.

The U.S. Department of Transportation (DOT), in a separate study, found that one out of four bridges is structurally deficient or not suited for the traffic it currently carries. The agency estimates it would take more than $800 billion to upgrade the nation’s roads and bridges. 

The economic case

Many analysts believe that investing in new bridges and roads and doing maintenance on existing ones will have a positive impact on the U.S. economy because it would:

• Boost competitiveness by increasing transportation efficiency and reliability and lowering the costs of moving goods and delivering services
• Insulate the economy from unexpected events such as bridge collapses and road closures
• Increase employment in the bridge and road construction sector
• Shift spending over time from more expensive bridge replacement to less costly maintenance. 

In addition, many economists say that spending on infrastructure has a significant multiplier effect on the economy. When people earn money working on bridge and road projects, they spend it purchasing products and services. Some studies show that an infusion of infrastructure cash can payoff at a rate of three dollars for every one invested.

Did you know: Average commuting time in the U.S. is 48 minutes per day? That’s significantly higher than that of its peers due to traffic congestion and limited public transit options. Average daily commuting time is 38 minutes in the United Kingdom and 31 minutes in Italy.

Infrastructure funding

As referenced earlier, funding for infrastructure in the U.S. is different from most other industrialized countries. It depends primarily on local and state governments to cover infrastructure needs. Most European countries fund most of their infrastructure at the national level. However only 25 percent of public projects in the U.S. are funded directly by the federal government. That’s much lower than 38 percent in 1977. It places a big burden on cash-strapped local governments.

Washington primarily funds transportation infrastructure through grants to states. These come from the Highway Trust Fund, which raises money from taxes on gas and other transportation-related purchases of items and services. Experts believe the organization will become insolvent in a few years unless there is a significant increase in gas and other taxes, which seems unlikely.

The federal government helps out with infrastructure financing in other ways. These include financing mechanisms and tax incentives, such as low-interest loans and other types of credit assistance that local governments can leverage. It also supports the municipal bond market, which local governments depend on to access money for bridge and road development and maintenance. 

Finally, some bridge and highway projects are financed by public-private partnerships. Private businesses receive concession from states to build infrastructure and are able to charge tolls in exchange for running and maintaining it. 

Unfortunately, recent changes to the U.S. tax code may have increased the cost of financing infrastructure because it made municipal bonds, a significant source of bridge and road financing, less attractive to investors. In addition, it has had an impact on state taxes that could affect bridge and road funding.

The future

During the 2016 presidential campaign, Donald Trump promised to focus on infrastructure. In the years since he’s been president, the debate about how to improve the nation’s infrastructure has continued, but little progress has been made.

Republicans, who are not fans of government spending, have focused on finding ways to increase investment by the private sector through tax incentives. Democrats feel that it’s necessary to increase federal government spending so the work gets done in a fair and equitable way.

Many economists believe the best way to come up with revenue is by increasing tolls. They think users should pick up more of the cost of the nation’s infrastructure because it ups revenue and encourages more efficient use of bridges and roads. A variation on this concept that’s used across the world is congestion pricing, which increases fees charged to use bridges and roads during busy periods. New York City and other municipalities across the U.S. are considering implementing this concept.

Even though bridges and roads are a major economic and safety issue in the U.S., it seems unlikely that it will be solved prior to the 2020 election. However, it will be a BIG topic for debate. Look out for updates as new ideas are discussed and proposals released.