infrastructure

Put a money-back guarantee on infrastructure work

Posted on by j.giglio

Americans are told that the most serious problem facing the nation’s transportation infrastructure is a lack of money. Perhaps people would be willing to pay more if they receive a money-back guarantee in return.

Today’s roadway funding depends primarily on motor-vehicle fuel taxes and state and local appropriations. But federal fuel tax revenues no longer keep pace with needs because of the self-serving assumption that it’s become politically impossible to “raise taxes.” Everyone wants better roads and bridges, but almost no one wants to pay for them.

All this makes finding adequate funding to rehabilitate the nation’s highway system, add new lanes and highway corridors a major challenge. Between 2005 and 2015, there were two five-year federal surface transportation reauthorization bills and 34 short-term funding extensions. To maintain the committed level of funding, the federal government was forced to raid the General Fund for an average of $10 billion per year to supplement the dwindling Highway Trust Fund

Even so, Congress struggled to find the revenues to support a long-term bill without increasing the fuel tax, which has remained at 18.4 cents per gallon for cars since 1991. Congressmen have moved in unison to avoid dealing with an increase in the federal fuel tax.

In real terms, fuel tax revenue is actually projected to decline as the nation’s motor vehicle fleet becomes more fuel efficient. It is safe to say that the fuel tax is like a marriage that dies long before divorce papers are filed.

At the same time, state and local government budgets are increasingly burdened with funding demands for education, fighting crime, better security against terrorist threats and a host of other deserving services. Roadway funding inevitability gets shortchanged which is relatively easy to do, since it takes a while for the impact to become apparent.

A new U.S. Department of Transportation “conditions and performance” report estimates that there is a $926 billion backlog of needed highway and transit infrastructure projects, and that many more billions more will be needed to keep up with demand over the next 20 years. The congressionally mandated biennial report identifies an $836 billion highway and bridge backlog.

The public can quibble about the size of these numbers, just as maritime historians do about the size of the iceberg that sank the Titanic. But their magnitude is so enormous that it scarcely matters whether the estimates are off by 5 or 10 percent. What matters is that the needs are enormous, and the longer you wait to address them, the worse they become.

Senate Democrats just unveiled a 10-year, $1 trillion infrastructure plan that includes $210 billion to repair “crumbling” roads and bridges, but they are vague about how to finance it other than through direct federal spending. During the campaign, President Trump also called for a $1 trillion infrastructure investment that proposed leveraging new revenues and using public-private partnerships to incentivize investment and spare taxpayers from bearing the burden.

At one end of the funding spectrum are people who think the public should pay for it via tolls. At the other end are those who argue that the benefits transportation infrastructure provides aren’t confined to users, so society as a whole should pay out of general tax revenues. Between these extremes lies a range of payment mechanisms.

But for a plan to be accepted by American motorists, it must be perceived to deliver superior travel service with appropriate regard for equity and environmental considerations. One thought is to pair any increase in taxes or user fees with a money-back performance guarantee so customers can rest assure that they will get guaranteed travel-time savings in return for paying for access to surface transportation such as highways. This gives the travelling public confidence that they are getting their money’s worth.

The rapid introduction of intelligent transportation technologies facilitates an efficient way to implement a money-back guarantee. The result would be a dramatically transformed approach to transportation infrastructure.

originally published: February 4, 2017

Infrastructure Yes, But Not Just Any Infrastructure

Posted on by j.giglio

The American public is routinely bombarded with messages about the need to spend vast sums of money on infrastructure, drumming the subject into the public consciousness, promoting an often rehearsed-sounding catalog of new capital projects. The need is indeed great, but so is the importance of spending wisely. That means emphasizing the lifecycle management of infrastructure assets.

President-elect Trump says his plan to spend $1 trillion on infrastructure projects over 10 years would be paid for by leveraging public-private partnerships and encouraging private investment through tax incentives. Infrastructure spending is a priority Trump shares with congressional Democrats, who have said they believe they can work with him on the Augean task of renewing America’s infrastructure.

What is often overlooked is that infrastructure spending is not just about new construction, but the maintenance of existing assets. Timely lifecycle management and maintenance is needed to extend the service lives of infrastructure assets in a state of good repair and significantly reduce overall costs. The rationale is to avoid the high cost of reconstruction and replacement that results from deferred maintenance.

Political leaders frequently say that stewardship of infrastructure assets is essential for economic growth. But the evidence suggests that many of them don’t believe it. They are predisposed to defer maintenance because their concept of the future extends no further than the next election cycle, and initial timeframe for infrastructure assets to show the effects of irreversible deferred maintenance is much longer than their likely terms in office.

Consider, for example, that large sections of the Washington D.C. transit system are out of service because maintenance has been shortchanged over decades. Service quality declines substantially when maintenance is deferred. Here in Boston, MBTA maintenance has been underfunded for so long that it will take years to eliminate a $7.3 billion maintenance backlog even though the T plans to devote $870 million to the cause this year.

Also, public officials all too frequently understate the true costs of infrastructure projects by focusing on what they cost to build and ignoring operation and maintenance.

Another factor contributing to the failure to maintain infrastructure assets is that highway funding arrangements, for example, traditionally favored capital expenditures for new construction. As originally established by Congress, the Federal-Aid Highway Funding Program specified that Federal Trust Fund grants would cover up to 80 percent of the cost of new construction and subsequent reconstruction or replacement.

But state and local governments had to bear operating and maintenance costs. When highway links inevitably wore out before their time, state and local governments only had to worry about coming up with 20 percent of the total sum from their capital budgets since federal construction grants covered the rest, so maintenance was not a priority.

All but forgotten in this dubious calculus were costs incurred by motorists who had to struggle with increasingly decrepit highways, as well as plenty of congestion when highway lanes were closed for restoration; an inconvenience, any driver knows, that always last much longer than advertised.

Although later reauthorization bills made federal funds available for rehabilitation, renewal, and reconstruction at levels comparable to new construction, the damage had already been done. Today the advanced deterioration of the nation’s highway system is testament to the consequences of deferred maintenance.

The price tag for renewing America’s infrastructure is astronomical, and comes at a time when a federal funding regime dependent on insufficient fuel tax revenues is least able to afford escalating construction and maintenance costs.

Going forward with a big infrastructure package and setting aside, for the moment, the issue of finding the cash to do it, there needs to be an emphasis on the lifecycle management of infrastructure assets. The health care industry understands that it is far less expensive to keep a patient well than to treat them once they become sick; the same is true for our nation’s infrastructure.

Originally Published: December 10, 2016

How America can become a job creator

Posted on by j.giglio

Unless you have been hibernating, you understand that the debate over the proper role of government is a central issue in America’s current troubled political environment.

The contretemps over this question are exacerbated by high unemployment, which exerts a severe economic drag on the country. We should approach the question of government’s role with job creation as our top priority.

Nearly 11 million Americans are unemployed and another 9.8 million either involuntarily work only part-time or are too discouraged to keep looking for a job. Families struggling to make ends meet on unemployment benefits are no longer able to participate fully in the nation’s consumer economy. And since consumer spending accounts for some two-thirds of the nation’s gross domestic product, their reduced spending poses an obstacle to economic recovery.

People’s views on the role of government are heavily influenced by their political philosophies. Some care most about individual freedom, seeing wealth creation mainly as the product of individual effort; others prioritize promoting the well-being of the community as a whole. These two philosophical conceptions lead to disagreements about government’s proper role in the economy. Those on the right believe less government leads to more robust economic growth and those on the left argue for more government intervention.

The real problem is that what both groups really want is to find a political strategy that will tip a few red states blue and vice versa. That makes the philosophical clash toxic because bad politics trumps smart public policies.

There are, however, some basic areas of agreement about the role of government. For example, government should protect us from violence. To do so, government must have a monopoly on coercive power. Otherwise anarchy develops, and as the 17th-century philosopher Thomas Hobbes noted, “the life of man (becomes) solitary, poor, nasty, brutish, and short.”

Similarly, Adam Smith, the intellectual messiah of capitalism, argued that government should protect “society from the violence and invasion of other independent societies” and protect “as far as possible every member of the society from the injustice of or oppression of every other member of it.” The most limited government, then, is one whose sole function is to prevent its members from being subjected to physical coercion.

But even Smith argued that government should create and maintain “certain public works and certain public institutions, which it can never be for the interest of any individual or small number of individuals, to erect and maintain.” Think roads, bridges and sewers -the infrastructure required for society to function and grow.

Consider the Erie Canal, the transcontinental railroad, the great dams and water systems of the west, airports, seaports, transit, and the highways and bridges that are part of America’s great public works inheritance. They were the envy of the world and supported the growth of the greatest economic power the world has even known.

One way to pay for infrastructure upgrades is to recruit private firms as active partners to help fund and operate these projects. If properly structured, public-private partnerships could tap into billions of dollars in private capital that are looking for a home.

This kind of ambitious infrastructure investment plan could give the nation’s economic growth a vital shot in the arm by creating new jobs and reversing the negative-multiplier effect caused by high unemployment and reduced consumer spending.

originally published: December 14, 2013