A recent article on the forthcoming White House infrastructure plan quoted an Administration spokeswoman as saying it would address “rebuilding our nation’s crumbling infrastructure.” That frequent characterization is misleading, as pointed out in an excellent new report from the RAND Corporation, “Not Everything Is Broken: The Future of U.S. Transportation and Water Infrastructure Funding and Finance.” (https://www.rand.org/pubs/research_reports/RR1739.html)
To begin with, the report reminds us that the large majority of transportation and water infrastructure is owned and largely funded by state and local governments, not the feds. It also includes graphs showing that total infrastructure spending as a fraction of GDP since around 1980 has been largely flat. And it notes that “needs assessments”—such as those produced by the American Society of Civil Engineers—”offer an unreliable guide for policy and priority setting.” This is in part because some proposed infrastructure projects would cost far more than their benefits, which would make our economy poorer.
After setting the stage, the report goes on to offer guidelines for sound investment in transportation and water infrastructure. Since much of what is wrong with our infrastructure is the result of bad policy, rather than lack of money, “an across-the-board ramp-up of federal spending is unlikely to solve the infrastructure problems that need fixing.” In addition, focusing on “shovel-ready” projects is ill-advised; instead, Congress should focus on longer-term projects likely to produce significant national benefits. And where federal funding is involved, it should be made conditional on “regional sponsors securing matching funds from any combination of public and private sources, including user fees and [user] taxes when appropriate.” Congress should insist on life-cycle cost analysis, and require that state and local governments provide for ongoing operating and maintenance of the new or rebuilt infrastructure.
Hence, public-private partnerships (P3s) are seen as important, and the RAND report recommends that Congress provide assistance to state and local governments to develop common standards for structuring P3s, to make it easier for infrastructure investors. And while the report stresses the importance of retaining tax-exemption for traditional municipal bonds, it neglects to mention the need to expand current federal tax exemption for Private Activity Bonds (PABs), which have been critically important in financing P3 transportation projects. It mentions pension fund investments in infrastructure, but only taxable Build America Bonds in this connection. Missed entirely is the recent U.S. trend of pension funds investing equity in P3 infrastructure projects.
The report also stresses that the federal government needs to do a much better job of investing in infrastructure that it actually owns, such as large dams, inland waterways, and the air traffic control system. It proposes merging the Army Corps of Engineers (waterways) and the Bureau of Reclamation (dams) into a single federal water resources agency. But it is silent on recent efforts to convert the ATC system into a self-funded nonprofit corporation, like those that exist in 60-odd other countries.
Whatever the White House proposes will be modified by Congress. The RAND report offers important guidelines for that endeavor.
(This article first ran in the January 2018 issue of Surface Transportation Innovations.)
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