The Road To Nowhere: Looking For A Solution To America's Infrastructure Crisis
With tax reform giving President Donald Trump his first legislative victory, the White House is looking to notch another win by securing funding to update the country’s crumbling infrastructure.
Trump's $1 trillion infrastructure-spending agenda sat on the back burner much of last year as the new administration prioritized immigration, healthcare reform and tax overhaul. The proposal, which White House officials confirmed in December would be released this month, calls for an estimated $200B to be spent in federal funds over a 10-year period in order to incentivize another $800B in state, local and private sector spending.
Tackling the deteriorating roads and railways of the U.S. will not be easy. Public-private partnerships are expected to be instrumental in seeing Trump's plan through to fruition, and the partnerships are often fraught with risks and challenges.
“Given how much underinvestment we’ve had, you wonder if this will be more smoke and mirrors,” UMass Donahue Institute Senior Research Manager Branner Stewart said. “If it’s the [public-private partnership] example, I don’t think that’s going to be able to come close to addressing our national and surface transportation issues.”
More than $4.6 trillion is needed to repair America's aging infrastructure, according to the American Society of Civil Engineers. Necessary upgrades include 4 million miles of decaying road, 600,000 bridges longer than 20 feet in need of repair and an estimated 73,000 bridges in the U.S. that are categorized as structurally deficient. The U.S. received a D+ in 2017 on the ASCE's report card for the state of its aging infrastructure.
“We’ve calculated there is going to be [a] $2 trillion gap in what is needed and what we think is going to be committed,” American Society of Civil Engineers Government Relations and Infrastructure Initiatives Managing Director Brian Pallasch said. “The question that we get is if you have 16 categories, which do you fix first? My answer is all of them.”
Differing Risk In 3Ps
Public-private partnerships, also known as 3Ps or P3s, will be key in Trump's $1 trillion infrastructure bill. Chief Economic Adviser Gary Cohn outlined a public-private model earlier this month that would use $200B of federal spending as a catalyst to unlock $1 trillion in private spending, as well as local and state dollars.
“There are two kinds of public-private partnerships,” Cato Institute Senior Fellow Randal O’Toole said. “If he’s wary of them, it’s because of one, not the other.”
O’Toole said some public-private partnerships are more risk prone for private entities than others. Such is the case for demand-risk 3Ps, which occur when a public entity tells a private partner to build something like a road or bridge.
The private partner can toll the highway to help pay it off, but if the developer does not make enough on the tolls, it must pay for the remainder of the project and take on the risks. Ideally, the project would be paid for out of user fees after paying the upfront developer costs.
The availability-payment model is not as risky for private partners. Using this model, private entities can borrow money for a project, and the public entity agrees to pay the partner back, O'Toole said.
Though the model is popular in Europe and was also used to fund Denver’s growing light rail system, O’Toole said he is not a fan of the availability-payment model, as it places all the risk on the public.
“I would like to think if Donald Trump expressed reservations, I would hope it’s reservations for that kind and not demand-risk,” O’Toole said.
Priorities And Funding Remain Unclear
Per the American Society of Civil Engineers’ U.S. infrastructure report card, transit — the lowest-scoring sector with a D-minus — is particularly problematic, as it faces a $90B rehabilitation backlog despite increasing demand. Americans took 10.4 billion trips via public transportation in 2016, a 33% increase in rides from 20 years ago. While there is an estimated $941B in funding for surface transportation like light rail, the ASCE estimates the figure should really be $2.042 trillion to address all needs.
Not everyone is convinced more money should go to railway projects.
“The only thing light rail does that buses can’t do is spend a lot of money, so I think light rail is always and everywhere a dumb idea,” O’Toole said. “My simple answer is infrastructure that can be paid for by user fees is worthwhile and those that are subsidized aren’t worthwhile. If it’s subsidized, you have to ask if it’s even wanted in the first place.”
O’Toole said he has watched costs soar and maintenance lag on transit lines, attributing the problem to a lack of motivation to provide upkeep since government subsidies keep the trains running. User fee-based systems, like toll roads and bridges, work better because the revenue pays for the upkeep.
“Politicians know they get [hit] bigger when they do something new instead of maintaining what they have, so they don’t bother fixing what is already there,” O’Toole said.
Even with funding, there is a call to utilize more than just one tool in the chest. The ASCE said increased investment at all levels of government and from the private sector is needed to modernize highways, bridges, airports and railways in disrepair. Others say the nation’s infrastructure requires a national solution beyond a toll component.
“Keep in mind that we have a national system, and the national system needs national coordination,” Stewart said. “You need a strong federal department of transportation through its transit, highway, airport and rail programs. It needs to be done in a coordinated fashion and not a Balkanized state-by-state manner.”