U.S. infrastructure is reaching its breaking point – it’ll take public and private commitment to catch up
There’s never been a more pressing time for the United States to revive its neglected infrastructure.
In fact, the Trump administration’s proposed $1 trillion infrastructure plan only scratches the surface of what the American Society of Civil Engineers estimates would cost upward of $3.3 trillion
through 2025. What’s more, the U.S. faces challenges with the current plan, as only one-fifth of it is guaranteed through public funding.
This is where public-private partnerships come into play. These partnerships, or PPPs as they are known, will be a key factor in accounting for the remaining $800 billion on the table. This has proven to be the elephant in the room for the plan, and for good reason.
Not all infrastructure investments are profitable ones, so getting the private sector involved is easier said than done. But before we get too far ahead of ourselves, it’s
important to understand not just the role of each sector and why they matter, but which of the three “P”s really matters most in PPPs.
In most cases, the public sector is financially strapped. The Pew Research Center estimates there is a $10 trillion aggregate state pension fund deficit. Not all states are
in this boat, but many are. In some counties and municipalities, essential services such as waste removal and first responders are being cut back while real estate taxes—their
main funding source—increase.
The federal government has a substantial budget deficit and is struggling to align spending with potential tax revenues. This is not an easy thing to do as Medicare is on the path to insolvency by around 2030 and a number of foreign powers require the U.S. to have a solid defense budget.
But even a financially strapped public sector remains key to any infrastructure investment. No matter how much money is available to fund a project, infrastructure affects the public and requires a public sector agency with an interest in the project, and in particular a project champion. No matter how much legislation is passed, how much funding is available, or how much demand there is for new and improved infrastructure, the effort will languish without a project champion.
No matter how much money is available to fund a project, infrastructure affects the public and requires a public sector agency with an interest in the project, and in particular a project champion.
Additionally, there are hefty price tags attached to much-needed infrastructure projects such as highways, navigation channel deepening, and road/rail grade separations.
Funding needs for infrastructure aren’t anything new, but over the years the public sector has in essence been robbing Peter to pay Paul.
According to a Congressional Budget Office (CBO) report, infrastructure spending has fallen from close to 3 percent of GDP in the 1960s to below 2.5 percent in 2014, when the data was most recently available.
Although the percentage decline is relatively small, GDP is much larger now than it was in the 1960s, meaning that a small percentage decline in infrastructure as a share of GDP is a big deal. The decline in infrastructure spending as a share of GDP also does not factor in the reality that U.S. infrastructure cannot last forever.
The typical bridge or river lock, for example, is designed to have a 50-year lifespan. With a proper inspection schedule, 75 years of acceptable service levels can often be derived from infrastructure, but 100 years is stretching it too far. Some U.S. infrastructure, notably the locks and dams on the Mississippi River, is already over 75 years old. Over time, breakdowns become
more frequent, as do the resulting traffic jams on waterways that can take weeks to clear up and cost shippers and transportation providers real money.
Some groups have estimated that the U.S. needs to spend up to $4 trillion on infrastructure to bring it back to a general state of good repair. However, if projects are prioritized by their true impact on economic activity, it may be possible to focus spending on the highest priority projects in a way that minimizes spending on less critical infrastructure.
No matter how you look at it, there is a lot of catching up to do on infrastructure investment, and the public sector simply doesn’t have the funding. Meanwhile, private wealth in the U.S. equates to roughly $95 trillion. That is more than enough to replace all U.S. infrastructure many times over, hence the interest in developing PPPs.
Articulating a clear need for infrastructure, available funding and mechanisms such as PPPs are all necessary in securing investments. Unfortunately, those things aren’t always enough to guarantee success.
It’s critical to have a public agency, like a port authority, with a clear interest in the project as well as a competent staff and
strong leadership.
Rather than focus on developing more legislation in anticipation of PPPs and courting investors and Wall Street institutions, it may behoove U.S. elected officials
to identify their own agencies and project champions. PPPs are not always successful, but the common element among those that are is the existence of project champions.
Federal funding and loan programs for infrastructure, such as TIFIA and RIFF, were born out of public agency champions who rallied for legislative changes and
new funding mechanisms to accomplish large-scale projects. If the U.S. is going to reinvigorate its economy by reviving its infrastructure, it seems we’ve at least
identified the starting point.
Walter Kemmsies is managing director, economist and chief strategist for JLL Ports, Airports and Global Infrastructure.