The term infrastructure means different things to different people, but for the purposes of this article I will use the simple definition cited in the Oxford English Dictionary: “The basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise.”
Do note that this definition precludes such forward-focused, high-tech projects such as energy-generating highways; the Hyperloop; smart, sensor-enabled bridges; or bullet trains. We’re talking just the basics: asphalt, concrete, steel, and iron.
The most recent American Society of Civil Engineers’ (ASCE) 2017 Infrastructure Report Card found that the overall national grade for infrastructure remains at a dismal D+—the same rating the United States received in 2013—suggesting only incremental progress has been made over the last four years toward restoring the country’s infrastructure. ASCE evaluated 16 categories of infrastructure in the report, with grades ranging from a B for Rail to a D- for Transit.
Why do these poor ratings persist in the most advanced economy in the world? According to the ASCE, it is simply a failure to invest.
The United States Chamber of Commerce observes:
Most Americans agree that our roads, bridges, mass transit systems, air and seaports, and water infrastructure are critical national assets that drive growth, jobs, safety, and global competitiveness.
What we can’t seem to agree on is how to pay for badly needed maintenance and repairs. It’s time to stop thinking about infrastructure as a problem, but as an opportunity for bipartisan agreement to invest wisely and carefully in our most critical needs, while eliminating wasteful spending.
(Of course, we are paying for it—but in the negative, colloquial sense of the word. ASCE points out that in 2014, Americans spent 6.9 billion hours delayed in traffic, and families lose $3,400 annually in disposable income because of infrastructure deficiencies.)
So, if the public and politicians are agreed that action is necessary, what is keeping us from seriously addressing the problem? From my perspective, the reason is three-fold.
First, the large tax cuts introduced by the federal government have further increased the projected national deficit. In a note to clients written on February 18, Goldman Sachs warned that federal deficit spending was “entering uncharted territory,” thanks to a combination of spending increases on programs such as Social Security and Medicare, and tax cuts. What does this mean for infrastructure? There is no money—or at least not enough money—that government wishes to allocate to infrastructure.
Second, the much-hyped solution to harness private funds for infrastructure programs using Public Private Partnerships is somewhat hollow. The private sector will not invest in anything without the prospect of a financial return, so any project that uses private funds must develop a profitable income stream; think toll roads, water and waste-water fees, lease-back of buildings, etc. So, while new freeways provide expedited travel time and potential revenue, and some water treatment and some waste water facilities can be monetized, the repair of existing roads, bridges, and dams typically cannot be monetized because citizens expect their current taxes will cover the cost of basic repairs and maintenance; furthermore, they believe they pay enough in tolls and taxes already. And, since government has to be a partner in any P3 endeavor, what, beyond a crumbling road or bridge, does it bring to the table for repair projects?
The recently released White House plan calls for $1.5 trillion for repairing and upgrading America’s infrastructure. However, only $200 billion will come from direct federal spending, with the balance expected to come from the equally cash-strapped state and local governments (which are somehow expected to match any federal allocation by at least a four-to-one ratio). It is true that a few projects, mostly transit, will be able to move forward once the federal cash becomes available because they are already largely funded and will simply need a top-up.
Third—and to my mind, the real nut of the problem—is that, fearing an electoral backlash, politicians don’t have the will to raise taxes to pay for infrastructure. Of the courses they could take, few have a viable chance of success. Possible plans include:
- Increase the gas tax, which is problematic for low-income earners but might be overcome by either an increase in the minimum wage combined with a further increase in the tax-free threshold
- Impose a federal tax on vehicle mileage, which has long been rejected as too much of a “big brother” action
- Use the taxes expected to come from the repatriation of overseas profits—but these have already been 100% allocated toward paying for the recent tax cuts
- Increase income tax across the board
- Introduce a surcharge on top income earners; a move that clearly will not happen after the recent tax cuts; or
- An idea suggested by the American Institute of Architects Arizona chapter: use the $25 billion requested by the president for building a new border wall to repair existing infrastructure
Of course, there is the option of public debt-financing for infrastructure work, and the Economic Policy Institute makes a case that this could pay for itself fairly quickly through the creation of new jobs, but the question remains whether Congress has already increased the deficit too much to make further deficit financing politically viable.
When it comes to infrastructure, government representatives are singing a slightly paraphrased song by Meat Loaf (my lyrics):
I want you, I need you
But there ain’t no way I’m ever gonna pay for you.
Now don’t be sad
‘Cause two out of three ain’t bad.
It is my opinion that the situation is bad. The failure to invest now in infrastructure is not only a tax in financial terms, but it’s a broader burden, more cultural in nature—it is a tax on the future of the United States and its citizens.
Julian Anderson is global board chairman at Rider Levett Bucknall.
Photos: Luca Onniboni, Deva Darshan and John Gibbons on Unsplash