Repairing infrastructure with the same traditional policies and technologies won’t work anymore, requiring a shift to more resilient infrastructure and a different approach to how the federal government thinks about return on investment.
That was a key takeaway from a 100-page Brookings Institution
“Federal leaders need to build a 21st-century infrastructure vision,” the report said. “That means adopting an American infrastructure policy that can respond to emerging challenges around climate resilience, digitalization, workforce development, and fiscal health in ways that improve the quality of life for all people, reinforce our global economic standing, and protect our planet.”
Extreme weather, a lack of world-leading digital infrastructure, and outdated infrastructure marks a need for a renewed vision, Brookings said.
“Simply repairing our outmoded infrastructure systems with the same traditional policies, technologies, and designs is not enough,” the report said. "Americans are ready for a grand reimagining of and reinvestment in our infrastructure to revitalize the transportation, water, energy, and broadband systems that power our economy.”
To pay for these efforts, federal general funds should be the primary revenue source for most infrastructure spending followed by user fees then financing, Brookings said in the report.
Municipal borrowing can’t be the only way — though tax-exempt bonds should be considered part of the solution — but Brookings called for a more reformative approach.
“The ways in which we measure and even think of determining the return on investments, we need to fundamentally question that first,” said Joseph Kane, a Brookings Institution senior research associate and associate fellow. “In other words, our prevailing approach of building new stuff and just endlessly borrowing to build new projects or to rebuild projects in the same way that we’ve always done — that probably isn’t going to work as well anymore.”
More leadership from federal agencies is needed, Kane said.
The Treasury Department, the Securities and Exchange Commission, the Environmental Protection Agency and the Department of Energy should work with issuers and other capital market experts to develop resilience-focused rules and inform financial tools like green bonds, said Brookings experts.
“We’ve seen increased issuance of green bonds as we look to new types of projects, but also projects that have an environmental benefit,” Kane said. “As there has been more market activity and market appetite around green bonds, that’s something that should be a part of the equation as part of what are the underlying trends we’re seeing and how can those trends be used to stimulate additional investment where it’s needed.”
There needs to be greater federal leadership on costs and benefits of resilient infrastructure, Kane said.
“To what extent can federal agencies ... provide greater technical and programmatic leadership on these issues,” Kane said.
Brookings detailed that in a 2019
“Continued uncertainty around the returns of green infrastructure and other resilience improvements relative to traditional projects not only makes it hard for utilities to try out new designs and approaches but also scares away potential investors who may consider these investments too uncertain or too risky,” Brookings said. “Without a standard definition and measurement of the benefits, it’s no surprise that it’s been hard to match-make between investors and infrastructure owners.”
Congress should also find new methods to deploy emergency relief during downturns, they said.
The Municipal Liquidity Facility — the Federal Reserve’s short-term municipal note program — raised an interesting test case of the Fed getting involved in an area that it’s hadn’t been, Kane said.
“Per our point on experimentation — trying new approaches — that’s not only true at the local level, but we think federally and nationally to what extent out there agencies or federal bodies, what role do they have in this infrastructure investment conversation?” Kane said.
During economic uncertainty or transition, there are opportunities to try new approaches to help give more certainty to states and local governments, Kane added. Federal agencies need to get involved to prevent delays or cancelations of projects, he said.
A long-term infrastructure vision should also include a review of the Transportation Infrastructure Finance and Innovation Act and the Water Infrastructure Finance Innovation Act, the report said.
TIFIA provides long-term, low-interest loans for surface transportation projects. WIFIA provides low-cost loans and loan guarantees to eligible borrowers for water and wastewater projects. Both TIFIA and WIFIA can be used in conjunction with bond financing.
For WIFIA, it’s going to communities that still would have otherwise made the infrastructure investments, Kane said.
“WIFIA isn’t causing more investment, as much as it’s just making it easier and more cost-effective for places that would already be making these investments,” he added.
Brookings isn’t calling necessarily for an expansion of TIFIA and WIFIA, but is calling for lawmakers to consider ways the programs might reach more issuers.
This report was published as Congress reconvenes from recess this week. Kane said he was encouraged by the Biden Administration’s comprehensive approach to infrastructure. President Biden’s proposed $2 trillion plan includes roads, bridges, but also water and broadband among other types of infrastructure.
Biden met with a group of bipartisan lawmakers on Monday where he discussed the potential of raising the federal gas tax by five cents, according to news reports.
Sen. Roger Wicker, R-Miss, told Biden during that White House Meeting that a raise in the corporate tax rate to 28% to pay for an infrastructure bill will be a hard sell, Wicker said during an interview with the Fox Business Network. Wicker also told CNN that reconciliation, a budget tool where just a simple majority of senators would be needed to pass a bill, was not discussed during the meeting.
A rise in the corporate tax rate to 28% from 21% is a sticking point for Republicans, as well as for some moderates.
