from The Water's Edge

How Do We Pay to Repair America’s Decaying Infrastructure?

Passengers wait for a train at New York's Penn Station. (Shannon Stapleton/Courtesy Reuters)
Passengers wait for a train at New York's Penn Station. (Shannon Stapleton/Courtesy Reuters)

March 24, 2014

Passengers wait for a train at New York's Penn Station. (Shannon Stapleton/Courtesy Reuters)
Passengers wait for a train at New York's Penn Station. (Shannon Stapleton/Courtesy Reuters)
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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

America’s publicly owned infrastructure is falling apart. One in nine bridges in the United States is “structurally deficient.” There are 240,000 water main breaks each year. Thirty-two percent of America’s roads are in “poor or mediocre condition.” Amtrak’s Acela (which I am riding right now) is on time only 65.2 percent of the time, and runs at a top speed well below that achieved by fast trains overseas. Then there are the failings of airports like New York’s LaGuardia, which Vice President Joe Biden rightly likened last month to “some third-world country.” To add insult to injury, our long, harsh winter has only added to the long list of infrastructure repairs needed across the United States. So it’s not surprising that the American Society of Civil Engineers (ASCE) gave the United States a D+ on its latest report card for America’s infrastructure.

The consequence of a fraying infrastructure is a less productive economy, which means fewer jobs and less wealth, and the hassle of taking longer to do less. It also slowly erodes the wellsprings of U.S. influence abroad. National power isn’t independent of the domestic economy; it rests on a vibrant economy. And the weakness of America’s infrastructure opens up the possibility of events that could dramatically change life as we know it. By some accounts, the destruction of as few as nine power substations could cause the entire U.S. electric power grid to collapse—and to stay down for months.

Repairing America’s infrastructure will cost billions. And as anyone who owns a house knows, putting the fix off only means a steeper final bill. So are we doing the smart thing and spending more to repair our infrastructure? Hardly. The United States spent roughly $100 billion less (in real terms, that is, discounting for inflation) on infrastructure in 2012 than it did in 2002. States only spend 5 percent of their budgets on transportation. Spending on mass transit has gone up, but we are still spending about $25 billion less than we need to. The American Water Works Association estimates that about $1 trillion will be needed for urgent pipe repairs over the next twenty-five years. The Highway Trust Fund is on track to run up a $77 billion deficit by 2019. These are just a few examples of the many infrastructure programs that are woefully underfunded.

The spending gap is not likely to be reversed anytime soon. Austerity remains the watchword at the federal, state, and local levels. Voters, most of whom have not seen their real wages grow in decades, aren’t interested in paying higher taxes. Paul Krugman may be right that it is “crazy” to cut spending on infrastructure when interest rates are at historic lows. But so far lawmakers have shown few signs of buying that argument.

The lack of action by governments has spurred enthusiasm for public-private partnerships (PPPs) to facilitate infrastructure investments. In theory, you create a win-win situation. Private investors make a profit, states don’t have to raise taxes, and the public gets better infrastructure at a cost no higher, and perhaps lower, than if the government did the job itself. The benefits aren’t just theoretical. Numerous countries have had success with PPPs.

The downside to PPPs is that they are complex. State and local governments need to understand complicated issues such as risk management, financial structuring, and debt management. Mess up these calculations and what began as a good idea turns into a boondoggle. And most state and local governments don’t have the combination of experience and expertise that would give you confidence that they can maximize the benefits of PPPs.

My colleague, Heidi Crebo-Rediker, has a proposal for closing the experience and expertise gap: have the Treasury Department set up an office—Heidi would call it “Infrastructure USA”—that would collect and share best practices with state and local governments. It’s a good idea. The Treasury Department already advises foreign governments on how to invest in their own countries. And Canada has effectively used an analogous federal advisory agency to spur infrastructure development at the provincial and local level.

Will Heidi’s idea solve America’s infrastructure woes? Not by a long a shot. The decrepit state of publicly owned infrastructure is too big to be solved by any single proposal. Moreover, much of America’s infrastructure is privately owned, and it too needs repair. So if you have alternative or complementary ideas, please share them in the comment box below. But if the United States doesn’t make fixing its decaying infrastructure a priority, the U.S. economy—and American global influence—will eventually suffer. And you will lose more time sitting in traffic, caught in an air traffic delay, or wondering when the electricity will be restored.