Originally published on the National League of Cities (NLC) CitiesSpeak blog.
Infrastructure proponents were disappointed by the lack of details addressing the country’s aging infrastructure in President Trump’s Feb. 5 State of the Union address. Trump issued a call for bipartisan cooperation on the issue, but no details.
"Both parties should be able to unite for a great rebuilding of America's crumbling infrastructure," 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 aging infrastructure is a necessity, but no legislation has been passed. The Trump administration proposed spending $200 billion in federal dollars while requiring 4-1 local matches to spur $1.5 trillion in infrastructure improvements, but it remains a proposal. Democrats proposed $1 trillion in funding, but that has not come to fruition either.
The proposed $200 billion would be paired with approximately $177 billion in cuts to other infrastructure programs, according to a Wharton School model. Those cuts would include eliminating zero interest loans for rural projects in the Rural Economic Development Program; eliminating funding for roads and water and sewer infrastructure in Indian Community Block Grants; eliminating funding for water and sewer systems for areas with population below 10,000 through the Rural Water and Waste Disposal Program; and reducing funding for EPA categorical grants to help states meet Clean Air Act, Clean Water Act and Safe Drinking Water Act requirements.
Since the 1960s, when a large portion of today’s infrastructure was completed, the nation’s population has doubled, while the US 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, but over the next 30 years, that fell to below 0.4 percent.
For example, the federal government invested an average of $92 billion annually in 2016 dollars during the “golden age” of infrastructure, 1957-1986, while an average of $69 billion was spent during the following 30 years. State and local spending boosted the total investment up to 3 percent of the GDP during the golden age, while it is 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-plus.
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. Trump has proposed a 25-cent gas tax increase, which would raise almost $400 billion for infrastructure. The move has been endorsed by the U.S. Chamber of Commerce.
Build America Bonds were introduced in early 2009 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 Trump 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 Fed’s 2 to 5 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. It also considers something that frequently is 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 America’s growing infrastructure crisis.
About 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.
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, contact us.