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Infrastructure Problems In U.S. Go Far Beyond Dollars

Infrastructure Deficit

First Posted: 02/02/2012 5:52 pm Updated: 02/03/2012 8:08 am

NEW YORK -- When travelers from abroad come to this city, the financial and cultural capital of the world's richest nation, two dilapidated and depressing airports greet them. The clogged runways, the leaking roofs, the maddening taxi lines, the lost travelers bumping into each other -- all these depredations are just part of flying the friendly skies to JFK or LaGuardia.

Jetsetters' laments about subpar airports, now almost a cliche, may not have been foremost on President Obama's mind when he gave his State of the Union address on January 24. But they may actually be more representative of the country's nagging infrastructure problems than the images invoked by the "crumbling roads and bridges" he referenced in that speech.

The problems America faces with its infrastructure are often much less headline-grabbing than the 2007 collapse of the I-35 bridge in Minnesota, which focused national attention on the subject in a way that has set the tone of discussion ever since. They are more often on the order of lost productivity and lost opportunity. They include other problems Obama referenced in his speech, like "a power grid that wastes too much energy; an incomplete high-speed broadband network."

If the struggle to fix America's infrastructure problem were a movie, it would be less Michael Bay than Woody Allen: not a lot of action, but also not much in the way of mass fatalities. Since 2007, there haven't been any more terrifying bridge collapses. Instead, the United States has failed to innovate and failed to maintain some key pillars of its infrastructure that are often less visible. People aren't dying, but the country is slowly losing its edge.

Washington Gov. Chris Gregoire (D), who has visited Shanghai and other parts of China as part of her efforts to develop her state's economy, told HuffPost "we see our infrastructure deteriorating and becoming inadequate in comparison to those we're in competition with."

"That construction that we see going on in China?" she said. "That used to be us, that used to be us doing all that investment."

THE SPENDING GAP

China envy has its problems. The country's growth spurt is relatively new, so it's no surprise that its infrastructure is shinier. The innovative maglev train from the Shanghai airport to the center city isn't necessarily representative of facilities in the country's interior. The country's centralized, dictatorial leaders, meanwhile, often steamroll over environmental and safety concerns. But analysts from such disparate groups as the US Chamber of Commerce and major labor unions agree that our failure to invest is hurting the U.S. economy and U.S. businesses.

Indeed, that was the thrust of a September report from the American Society of Civil Engineers, which calculated that deficient and deteriorating roads will cost US companies $240 billion over the next ten years in lost growth potential. Between 1995 and 2009, according to the International Transport Forum, the United States spent less on inland transport infrastructure than Japan or Western Europe.

Chart from "Trends in Transport Infrastructure Investment 1995-2009," by the International Transport Forum

At the same time as these hurdles mount, 16.0 percent of construction workers are unemployed. So labor is cheap, as is the cost of construction materials, which are no longer in high demand in the housing market.

"We know out here on the ground that the price is, right now, unbelievably better than it's ever been right now," says Gregoire. "The bottom line is, now is the time, we desperately need jobs in that sector."

In Washington state, Gregoire is spending political capital on that vision in her last year in office. In her January State of the State address, she asked lawmakers to approve a ten-year, $3.6-billion plan to build and fix roads, bridges and ferries. She thinks it could create jobs for 5,500 people a year. To pay for it, she has proposed a tax on electric vehicles and a $1.50 per barrel fee on oil used for transportation.

Even that massive expenditure, however, will simply keep the state's roads maintained. The highest profile item on the state's wishlist, the Columbia River Crossing, would replace the Interstate Bridge, a nearly 100-year-old span originally designed to accommodate horses and buggies.

To build big ticket items like that, Gregoire and others would like to see the country take up President Obama's challenge to spend the $60 billion outlined in his proposed American Jobs Act for infrastructure spending.

Congress is divided, however, on how to fix America's roads, bridges, dams and waterways. After Obama's proposal was defeated last year, both the House and Senate pressed forward on writing their own long-term bills for surface transportation -- the most important component of federal infrastructure spending.

But surface transportation bills double down on the same errors that got the country into its hole in the first place, according to JayEtta Hacker, who was formerly the director of transportation issues at the General Accounting Office. All of these bills, she said, are tied to a woefully inadequate system for monitoring how effectively the federal, state and local governments spend tax dollars on infrastructure.

"There are no goals," she said. "There are no outcomes. And there's no data or information or evidence of what kind of returns we get from the federal investment dollar."

Instead, the federal government simply doles money out to states on a ratio that's based on how much their drivers spent on federal gas taxes. The states, in turn, spend the money they receive on items in their federally required state transportation plan, which, Hacker said, consists of "stapled pet projects and plans for different parts of the state."

This model, created during the vast expansion of the interstate highway system in the middle of the 20th century, is now running out of gas, quite literally: the 18.4 cents per gallon federal gas tax has not been changed since 1993. Newer fuel-efficient car models and inflation mean that the money raised off that tax, about $32 billion a year, is getting scarcer and scarcer. The federal highway system is supposed to pay for itself with the tax, but over the last three years $34.5 billion in transfers from general tax revenues have been needed to fill the widening gas tax gap.

The Congressional Budget Office just released a report showing that the Highway Trust Fund, the major source of money for surface transportation, will go bankrupt in 2014 because of declining gas tax revenues. Neither Democrats nor Republicans in Congress have a plan to fix that.

The fact that we haven't raised the gas tax in so long, said Hacker, is "unconscionable." But it's not surprising: some 77 percent of Americans, including majorities of both major parties, are against a hike.

Some experts would like to see a new tax instituted on the number of miles people actually drive. Fears of GPS tracking devices on every car, however, have made that a political non-starter for now. Instead, both Democrats and Republicans are taking a look at paying for roads and bridges with tolls, and with a financing device that often accompanies them: public-private partnerships, or "PPPs."

A MARRIAGE OF CONVENIENCE

In recent years PPPs, in which public funds are matched with funding raised by banks and on Wall Street, have become an increasingly popular way for states to get financial booster shots and to get around limits on bond obligations. Investment banks, ratings agencies and law firms all have an interest in PPPs, and they have also attracted bipartisan political support as a possible cure to what ails the country's infrastructure.

Sens. John Kerry (D-Mass.) and Kay Bailey Hutchison (R-Texas), for instance, have touted their plan for an infrastructure bank as a way for a $10 billion federal cash investment to "leverage up to $640 billion in new infrastructure investment over the next 10 years, from capital now sitting on the sidelines." In other words, the government forks over a chunk of change up front to capitalize the bank, and the private sector kicks in more than $600 billion as a partner as projects get up and running.

House Transportation Committee Chair John Mica (R-Fla.) released a transportation bill on Tuesday that proposes vastly expanding the reach of PPPs, although not under the guise of an infrastructure bank. (Mica said the president’s proposal would be “dead on arrival” in the House because it granted the executive branch too much control.)

But capital doesn't simply flow from a spigot, and some financiers in the sector scoff at the notion that PPPs are a panacea. Edward Fanter, director of infrastructure banking at BMO Capital Markets, told a crowd of industry players and state officials at the Bond Buyer's November public-private partnership conference that there "seems to be a misconception, that Wall Street's just going to raise cash and then, you know, take it to the next level." Despite such hopes, he warned, "you're not just creating cash flow out of nowhere."

Still, if PPPs can't replace the infrastructure funding apparatus wholesale, they still might be a valuable way of stemming the amount of public money that gets wasted on pork-barrel projects, which buttress a politician's local standing but don't generally qualify as authentically valuable infrastructure spending. If a senator's pet project doesn't make sense, the logic goes, then private funds won't rush to support it, offering a market signal against the viability of potential "bridges to nowhere."

Edward Glaeser, a Harvard economist who has expressed some skepticism about the extent of an infrastructure "crisis," given the relevant stakeholders’ natural tendency to play up their funding problems, told HuffPost in an email that those dismal New York airports should look close to home for help.

"Airport users should pay large enough fees to pay for the refurbishment of their airports," he said. "I can't imagine why tax dollars imposed on middle income Americans should pay for infrastructure that is widely used by the wealthy."

"When infrastructure has primarily a local constituency," he said, the country should be "paying for projects with local taxes and user fees help make sure that people really value what is being built."

User fees can't support all infrastructure endeavors, however. Mass transit, for instance, is almost never able to recover its operating expenses at the farebox, according to a report from the Washington State Department of Transportation.

The long-term question of how to pay for infrastructure projects, meanwhile, is an interesting but not pressing concern for some economists, given the country's 8.5 percent unemployment rate. Michael Mandel, the chief economic strategist at the Progressive Policy Institute, said the aftermath of the Great Recession offers an opportunity to invest cheaply and redirect the country's growth model away from projects that promote consumer spending, such as malls, and toward those that emphasize production.

Many eastern cities up and down the Atlantic seaboard, for instance, are in the midst of dredging their ports and improving harbor facilities, but Mandel said we should be looking elsewhere. “Right now,” he said, “if you spend a lot on ports, you'll wind up producing less because imports are cheaper.” Tunnels and bridges between places in the United States, by contrast, would allow goods produced here to get to market more easily.

Before the crash, he said, "we put an enormous amount into retailing space. It was not just mall expansions but it was improvements of existing malls, and the roads that went around them. That's infrastructure for consumption."

Meanwhile, government infrastructure continued to get older and older, as Mandel illustrated with this chart:


Using data from the Bureau of Economic Analysis, Mandel has calculated that American highways and streets are an average of 25 years old, up from 23.2 years in 2000. The economic stimulus, meanwhile, did little to slow down that aging process, "perhaps because the amounts involved were too small," he said.

TARGETED SPENDING

Despite the hundreds of billions of dollars in public stimulus that Obama pushed through in the Recovery Act of 2009, spending on public construction is still down by a considerable margin:

Chart via Slate

At the same time, some state transportation departments are still throwing huge sums of money at consumption-oriented, sprawl-inducing projects. The Texas Department of Transportation, for instance, would like to spend $5.2 billion on a massive 180-mile third beltway around Houston that critics say will make subdivisions and malls sprout on wetlands.

If the United States doesn't shift course soon, Mandel worries, the effects will be felt in both underemployment today and uncompetitiveness tomorrow.

"If it is important for us to manufacture here, then it's important to have the roads, bridges and tunnels to move stuff around," he said. "It matters whether or not your roads are good or not. It matters."

CORRECTION: This article previously stated that the I-35 bridge in Minnesota collapsed in 2005, when in fact it collapsed in 2007. The error has been corrected.

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