The United States “effectively shrugs off infrastructure” amid escalating government deficits and cash-strapped taxpayers, according to an annual report released by the Urban Land Institute and Ernst & Young on Monday.
The annual report, which is based on research and interviews with industry leaders, warns that the country’s infrastructure has fallen into a financial and political trap and there’s little optimism about escaping it.
“There is consensus on the problem. There is not consensus on how we should raise the money,” Maureen McAvey, the institute’s executive director of initiatives, told reporters during a webinar.
Infrastructure improvements consistently rank around fifth in polls on national priorities, the report said. But Americans also have strong anti-tax sentiment and oppose toll roads and transit fare hikes.
The last “highway bill,” the six-year spending authorization for transportation infrastructure, expired in 2009. Federal aid to states and cities has been kept going with short-term legislative extensions, the latest of which will run through Sept. 30.
For now, new highway bills are still in the drafting and lobbying stage in both the House and Senate. The institute sees little hope for any better progress than during the last two years. “Politicians will likely budget less (or not enough) and take their chances in the years ahead,” the report says.
Governors and state legislatures face a choice between letting their roads and bridges deteriorate or facing political storms over higher taxes or user fees. They usually choose potholes and corrosion, according to the institute.
That’s how it will be “until disaster strikes or our decline becomes to obvious to ignore,” said one industry expert quoted by the report.
All of that may be true, but has to be reconciled with another fact: since 2007, 70% of ballot measures to improve transportation have passed, though they required higher taxes or user fees.
At the national level, Americans want to “avoid boondoggles, keep taxes low, and reduce deficits” according to the report. At the local level, they are willing to pay to get to work faster and to have better bridges.
McAvey said that when the public “understands what the funds will be used for, specifically who will administer them, and understand somebody will have to pay for this,” then they are willing to pay up.
The Urban Land Institute lists a series of recommendations to get federal transportation policy back on the road. It suggests putting money into repairs, rather than construction and dumping grandiose projects for the first year.
The report recommends that the public get used to paying more. Deterioration has been slow up to now.
“We’ve approached the point where systems will deteriorate more quickly and increasingly affect mobility,” the report warns. Disruptions will lead consumers and businesses to complain and they will have to be told that fixing things costs money.
A national infrastructure plan must be created, according to the report: “A Congress promising thrift and frugality might consider ditching embedded practices that appropriate funds and grants willy-nilly for disconnected projects.
The report also recommended procuring more private capital. Public-private partnerships or P3s were the “new thing” in transportation financing a few years ago. But they were “oversold before the economic crash as a solution to get new transport projects built and improve performance of existing systems” and they didn’t live up to expectations, the report said.
Governments had trouble with pricing, private companies were overleveraged, risks weren’t properly allocated and “political storms erupted over higher costs,” the report said. Investors began to see deals drying up.
Now the level of interest in P3s is rising again as public funding is drying up. The report pointed to successful projects in Dallas and Denver.
What people have to understand, said Jay Zuckerman, U.S. infrastructure leader at Ernst & Young, is that P3s represent new ways of financing, not new funding.
“Revenues are needed,” he said. “They generate alternative revenues but they do not increase the revenue pie.”
The report’s recommendations for P3s include recognizing that not all infrastructure is a “cash cow.” While a P3 might work well for building a new toll road, it would be less suitable for road maintenance, for example.
State and local governments should use private money for other infrastructure needs, not for one-time budget bailouts, and they should develop more uniform approaches to bidding for P3 projects, the institute said.
