States, Localities Are Failing to Seize Their Infrastructure Moment

It’s the best time in probably the last 75 years to overhaul and upgrade our infrastructure, but city halls and statehouses are letting the moment slip away.
June 2013

Many thought the 2009 federal stimulus would kick off a revived era of bipartisan infrastructure spending that would jump-start the economy and rejuvenate our decaying roads, bridges, water systems and transit networks.

It hasn’t turned out that way. After an initial boost, infrastructure investment has almost certainly declined at every level -- federal, state and local. While there are some big-ticket items proceeding here and there, like the tunnel to replace the Alaskan Way Viaduct in Seattle, states and cities are pulling back and the feds are not stepping forward.

It’s more than just a shame; it’s a shocking, hair-pulling example of a missed opportunity of historic proportions. This has been and still is the best time to do heavy infrastructure work -- probably the best time in the last 75 years. And here’s why.

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Building roads, bridges, train lines, fiber-optic networks, inland waterways, libraries and court buildings means borrowing millions and billions of dollars to finance the work. The same goes for what is called “capital maintenance,” replacing worn-out or aging equipment with new stuff. This might mean repaving a road or replacing a catenary line above a train track. With interest rates for long-term borrowing at record lows -- edging close to zero, really -- now would be a good time to do all this work. Money borrowed at such rates means that in future years, the payback will be millions or billions of dollars less -- or would have been, if the project had been built.

Look at construction costs. A huge input into infrastructure projects is labor, the men and women who sit behind the bulldozers, the computer terminals and the drawing boards. These jobs are usually contracted out to private companies, most of which are hurting now and can offer their services at the best rates in decades. Costs for materials like steel and concrete are down too, at least relative to what they would be in a stronger economy.

Let’s not forget that a stimulus affects both the economy overall and individuals. When a man or woman generates productive labor and receives a steady paycheck, this benefits them and society on multiple levels. It’s always better to spend public money on a road crew than on food stamps or unemployment payments.

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And finally and most important, remember that spending on good -- preferably great -- new infrastructure provides for the long-term health and prosperity of a city and state. That’s also true when all we are doing is putting existing infrastructure back into a state of good repair.

All this is simply stating the obvious. But there’s a need to state it because it’s not happening.

On a practical and political level, states are in a bind. To build, you need to borrow, and most states right now have a hard time paying back their existing debt. There are ways to raise more money, but most involve raising taxes or fees, which is a tough sell even in a recovery. And most states and cities are required to balance their budgets.

This all highlights the need for federal action. Unlike state legislatures, Congress can pass bills to raise funds for infrastructure projects, secure in the knowledge that deficit financing is legal and that the Treasury Department and the Federal Reserve Board can be willing partners. States and cities, on the other hand, can’t print their own money.

In April, the State Budget Crisis Task Force, led by noted statesmen Richard Ravitch and Paul Volcker, released a white paper called “Increasing Transportation Investment to Benefit the Economy,” which bemoaned how federal cutbacks were putting more pressure on already beleaguered states. The authors then strategized on ways states could find a path to greater investment, while also noting that states had always carried the lion’s share of infrastructure costs, even though this varied by mode. States have paid most of the costs for roads, while the federal government has almost completely paid for the inland waterways, which are in particularly poor shape.

“According to the Congressional Budget Office, in 2007 state and local governments spent $103 billion on transportation and water infrastructure capital, while the federal government spent $58 billion. State and local governments thus accounted for more than 60 percent of public capital spending on such infrastructure.” And it’s been that way for decades, wrote the authors of the report.

Some states are moving forward, in ways suggested by the Ravitch-Volcker commission. Governors in Massachusetts, Michigan and Virginia have proposed raising tax rates and reorganizing tax systems to raise more money for transportation infrastructure. One can criticize the specifics of these plans while applauding the overall intent.

President Obama is a great cheerleader for infrastructure. He has rhetorically pushed a national infrastructure bank and most recently something called “America Fast Forward Bonds,” which would make borrowing easier for states. But he needs Congress’ assistance to turn words into deeds. That hasn’t happened yet.

On a macro level, all of this showcases the political demise of the late British economist John Maynard Keynes, who advocated public spending to revive a depressed economy. Within the halls of academia, Keynes is vanquishing or converting longtime foes. But within city halls and statehouses, leaders are still reluctant or unable to do what the wiser know should be done: Borrow and spend.

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