Why This Is the Year to Begin Addressing the Infrastructure Deficit

With signs pointing to a weakening economy, we need to get ready now, and we need to do it right.
January 16, 2019 AT 6:15 AM
Workers addressing a water main break on a street with traffic cones.
(Shutterstock)
By Michael A. Pagano  |  Contributor
Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago and director of UIC's Government Finance Research Center

Ever since the 2016 presidential campaign, pundits have thought that, above the fray of hyper-partisanship, federal legislation that would address the deterioration of our infrastructure would rally lawmakers of both parties. So far, of course, no such legislation has been seriously considered, even though most of us encounter some form of infrastructure dysfunction nearly every day.

The issue is even more pressing now as we face the likelihood of an economic downturn. Public-works spending early on, just as a downturn gets underway, can go a long way toward dampening its severity while simultaneously addressing very real needs.

The list of those needs just begins with potholes, leaking water mains, congested streets and rusting bridges. Even if we discount the American Society of Civil Engineers' 2017 estimate of the nation's infrastructure investment deficit as little better than a stab in the dark -- is $4.6 trillion, the number ASCE uses, even fathomable? -- it's clear that the management of our infrastructure has been flawed or in some cases ignored.

If and when something emerges from Congress, state and local governments would have to be partners with the feds in managing any new infrastructure initiative. After all, the majority of the nation's non-military infrastructure falls under the auspices of cities, counties and states.

But, even if such a bill were to pass, there are hitches. First, whatever the design of a federal infrastructure bill -- an outright grant to states and localities, matching grants or competitive grants -- assessments of such spending often conclude that federal money only substitutes for state and local money. That means that no more infrastructure would actually be built than would have been in the absence of the grant (academics refer to this as the "substitution" effect).

In addition to dealing with that issue, Congress' infrastructure bill must free government managers to invest in repairing and maintaining existing infrastructure, not just in new projects. How? To begin with, design the infrastructure bill to explicitly allow federal funds to be used for maintenance projects, not just new ones. Yes, ribbon-cutting is the best photo op for elected officials, but too often it only signals the start of disinvestment in the new capital asset, because governments rarely invest what they should to repair and maintain the new bauble. By allowing managers the discretion to maximize public investment in existing capital assets, the infrastructure deficit would -- I am confident -- decline.

That would be a significant departure from previous infrastructure initiatives, such as the stimulus package enacted in the teeth of the last recession, in which much of the talk about infrastructure reclamation focused on "shovel-ready" efforts. But that's a terrible criterion for project selection, unless it is demonstrably connected to economic growth and a deliberate capital improvement plan for states and localities.

Focusing only on new projects serves to demonstrate what most public-works managers already know: Underinvesting in the repair and maintenance of roads, bridges and pipes just means higher costs down the road. Local policymakers can more easily defer spending on infrastructure, which can take years to evidence itself, than on the day-to-day functioning of prisons or Medicaid. A recent Volcker Alliance report indicates that only four of the 50 states have any idea of what their deferred-maintenance bill is.

There is another aspect to the infrastructure challenge: Timing is everything. The U.S. economy has now registered the longest growth period in modern history, but signs of weakening and cracking are abundant. The stock market has become a roller coaster, and tariffs and trade disputes are beginning to raise prices and concerns. A critical role the federal government can assume is to adjust spending levels as a counterbalance to a weakening market. As the economy recedes, the government can use its stabilization powers to spend more, thereby becoming a countercyclical force.

Dramatically increasing government investment in the nation's infrastructure not only can enhance the efficiency of the economy by, for example, reducing transportation costs, it also can blunt the loss of jobs. Unfortunately, however, in the past countercyclical government programs have been adopted at the height of the downturn and implemented after the economy has already begun to recover, dampening the countercyclical effects those programs were intended to address.

If the federal government wants to pursue one of the most direct paths to helping its cities, counties and states, placing an infrastructure bill at the top of this year's congressional agenda is simple common sense. The key: Have the money in hand so that we will be ready to go when the inevitable economic and fiscal downturn occurs.