Fixing the Political Disconnect Between Infrastructure Needs and Funding
Much of our infrastructure is invisible to its users, and so are some of its costs. Those problems can be addressed in ways that can hold down the costs of infrastructure and make it more self-sustaining.
Much has been written about the need for infrastructure investments to keep our economy competitive. Yet Congress is dialing back federal infrastructure funding to state and local governments, and there's no groundswell of support from constituents either. How can we reconcile the need for infrastructure funding and the lack of political support?
Here are a few of the reasons why there is a disconnect between the country's need for infrastructure and the public's willingness to pay for it:
When infrastructure works well, it is almost invisible and people take it for granted. You turn on the faucet and water comes out. You get in your car and then arrive at your destination.
Related to this invisibility factor is that in many cases we have divorced payment for infrastructure from its consumption. When we go to a store, we part with our money and come away with something that we want. But when we pay our taxes, we don't have a clear understanding about how the money is spent -- on infrastructure or anything else. And because it often appears to be free to use streets and highways, we drive and park in congested places at congested times more than we would if we had to pay the true costs of doing so.
Another reason for the disconnect is that when infrastructure is well-designed and well-implemented, it often inflates the value of well-served land. So after paying taxes for highways or transit, if I want to get the most value out of them I want to have my home or business near a highway interchange or a transit station. But the value of land near these facilities has increased, enhanced by that new infrastructure. So now I must pay a landowner a premium rent or price to have access to the land that my taxes made more valuable in the first place. Paying twice for infrastructure does not make the public happy or enthusiastic about paying for more.
Fortunately, there are ways to lessen the impact of some of these issues.
If it costs more to drive on a highway when it is congested, I might drive at an off-peak time or take a different route. Due to the nature of traffic congestion, only a small percentage of drivers need to change their behavior to significantly increase overall speeds. This has been the result of such congestion pricing wherever it has been implemented.
Likewise, what is known as "value capture" can transform the property tax into a public-service access fee by reducing the tax rate on building values and increasing the tax rate on land values. The lower tax on buildings makes them cheaper to construct, improve and maintain. The higher tax on land (which returns publicly-created values to the public) helps keep land prices more affordable by reducing speculative profits and demand. This helps make infrastructure financially self-sustaining (at least to a greater degree than today) and thereby reduces the need for other taxes and subsidies.
While politicians love ribbon-cutting ceremonies for new infrastructure, they don't get public acclaim when they appropriate funds for infrastructure repair or maintenance. But keeping taxes low is always going to be a political winner.
For a full report on this topic, click here.