Bipartisan Work Needed to Address Aging Infrastructure

No comments

This is a guest post by Bill Eller, Vice President, Business Development at HomeServe. He is responsible for working with municipalities to educate and develop the best program options for their residents.

America’s aging infrastructure systems are in need of repair and restoration. President Trump issued a call for a bipartisan effort to address our nation’s infrastructure crisis during the State of the Union.

“Both parties should be able to unite for a great rebuilding of America’s crumbling infrastructure,” President Trump said. “I know that the Congress is eager to pass an infrastructure bill — and I am eager to work with you on legislation to deliver new and important infrastructure investment, including investments in the cutting-edge industries of the future. This is not an option. This is a necessity.”

Improving our infrastructure is a necessity, but it has been neglected far too long. In 2018, the Administration proposed spending $200 billion in federal funding while requiring 4-1 local matches to spur $1.5 trillion in infrastructure improvements, and Congressional Democrats proposed a $1 trillion infrastructure package, but neither has gained broad support. A new proposal from the House has been discussed, but no legislation has been introduced in the new Congress yet.

Since the 1960s, when a large portion of today’s infrastructure was completed, the nation’s population has doubled, while the U.S. infrastructure quality ranking has fallen to tenth. The peak occurred between 1957 and 1986, when the federal government invested nearly half a percent of the GDP in infrastructure. Unfortunately, over the next 30 years, that investment fell to below 0.4 percent.

For example, in 2016 dollars, the federal government invested an average of $92 billion annually during the “golden age” of infrastructure, 1957-1986, while spending an average of only $69 billion during the following 30 years. State and local spending boosted the total national investment in infrastructure up to 3 percent of the GDP during the golden age, compared to less than 2 percent today.

The American Society of Civil Engineers estimates that federal and state governments must invest an additional $206 billion annually to address long-time underspending that has resulted in the current infrastructure crisis. In the society’s most recent report card, issued every four years, America’s infrastructure was given a D+.

If infrastructure has bipartisan support, how do we bridge the funding gap? One solution would be a mix of selling infrastructure bonds, increasing the federal gas tax and encouraging public-private partnerships.

The federal gas tax is 19.4 cents per gallon for gasoline and 24.4 cents for diesel, and it hasn’t been increased in 26 years, since 1993. It was reported that the President floated a 25-cent gas tax increase, which would raise almost $400 billion for infrastructure, but the Administration has not publicly committed to increasing the tax. An increase of 25 cents has been endorsed by the U.S. Chamber of Commerce.

In 2009, Build America Bonds were introduced to lower state and local governments’ borrowing costs as the country dug itself out of the Great Recession. Although they expired the following year, investors have speculated that the bipartisan support for infrastructure investment may mean that similar bonds, offering federal subsidies and tax credits, may be used to fund it. During the bonds’ short run, more than $180 billion worth were sold by the Treasury. Democrats have proposed selling $300 billion worth of 40-year, higher-yield bonds to fund an infrastructure bank, and the president has proposed sweetening the pot for private investors with tax credits.

While the current Federal Reserve interest rate is at 2.5 percent, the lower end of the Federal Reserve’s two to five percent “sweet spot” for economic growth, indications are that it will go above 3 percent in coming months. When interest rates are low, it’s a good time for local and state governments to take on debt for infrastructure projects.

Finally, public-private partnerships, or P3s, can help stretch tight budgets by having private entities take on a portion of the risk and management of a project, in exchange for a later consideration, such as tolls when building roads or water rates when improving a utility. P3s also consider something that is frequently overlooked – the overall cost for maintenance and upkeep of the life of the infrastructure.

Infrastructure needs are urgent and the window to address them is closing. It’s no longer time for proposals, it’s time for action. With bipartisan support and a multi-pronged approach, we can address and reverse America’s growing infrastructure crisis.

The NLC Service Line Warranty Program partners with cities to educate residents about their responsibilities for water and sewer service lines and offer optional repair service plans to protect them from unexpected repair costs. For more information, visit utilitysp.net.
bill eller headshotAbout the author: Bill Eller currently serves as Vice President, Business Development at HomeServe. He is responsible for working with municipalities to educate and develop the best program options for their residents.