Fixing US infrastructure

The election of Democratic Barack Obama as US President at a time of economic crisis, with a willing Congress to work with, and a divided and demoralised Republican opposition, significantly raises the chance of greater infrastructure spending in the United States.

Transportation secretary Mary Peters called in August for a rethink of how infrastructure is funded after the recent spike in oil prices caused a record nominal decline in US driving miles and a result massive fall-off of gasoline tax revenues. A year earlier, in summer 2007, the parlous state of US infrastructure was demonstrated by the collapse of the Interstate 35 Bridge in Minneapolis, Minnesota. Back in 2005, the American Society of Civil Engineers put the cost of bringing the nation’s infrastructure to good condition at 1.6 trillion dollars. The Department of Transport was more modest, speaking for a bureaucratic agency rather than contractors directly, but still gauged that up to 2.6 trillion dollars would be required to keep the highway system functioning over the next twenty years.

There is substantial political will to change the system, though with consumers clamouring for instant relief it might be difficult to prioritise road and mass transit repairs (let alone less visible fixes to water systems and river ) over more immediate and visible spending priorities. Nevertheless, a useful first step, currently under discussion, is the creation of a national infrastructure bank -- proposed by chance just hours before the I-35 bridge collapse by Senators Chris Dodd and Chuck Hagel. This would guarantee lending for states and municipalities looking to fund infrastructure investment, and would try and keep costs under control, at least in theory, by use of a model similar to European-style public-private partnerships. The risk of cost overruns could be handed over to contractors, and a notionally more efficient service delivered, in exchange for a steady income stream for the private firm. 

Apart from the risk of generating more ‘pork’, the plan depends on well-functioning capital markets at a time when municipal finance is in severe disarray. Moreover, if the spending is to have more than a short-term stimulus effect the issue is not so much raising the capital as spending it intelligently. The ‘bridge to nowhere’ controversy prior to and during the election highlighted that what federal funding there is often goes far away from the crowded urban areas where it would do most good (big-city mayors such as Michael Bloomberg have lobbied to make infrastructure spending a priority). Innovative proposals are neglected, and cost-benefit analyses are little considered either on a project basis or to compare between alternative investments. The Dodd-Hagel provisions attempt to generate a system for making these sorts of decisions. Whether the lure of constituency demands can be resisted in making these choices, and whether fiscal reserves will hold out in the process, will determine success.