Increasing U.S. infrastructure development through creative funding models may reignite economic growth, according to a report by McKinsey & Co.'s Global Institute.
Raising annual infrastructure investment by one percentage point of GDP could create up to 1.8 million jobs and boost annual GDP by $320 billion through 2020, the global consulting firm said in a July 17 publication that details five opportunities for U.S. growth and renewal. McKinsey identified shale energy opportunities, increasing competitiveness in knowledge-intensive industries like automobiles, harnessing digital analytics, and greater education efforts as the other four "game changers."
The U.S. has been underinvesting in infrastructure for the past two decades, and the backlog of maintenance to roads, highways, bridges, transit and water systems is reaching critical levels, the report said. The U.S. ranks second-to-last in infrastructure quality among 15 comparable advanced nations, according to McKinsey. With interests rates remaining low, the firm believes there is a unique window of opportunity for investment that won't always be open.
The single percentage point of GDP would equate to $150 to $180 billion of investment annually, funded by both traditional municipal bonds as well as variations on offerings, such as private activity bonds and public-private partnerships. Public-private partnerships, more common in Canada, Europe and Asia, may supply capital and impose efficiency in project selection and delivery, McKinsey said in the report.
By making project selection and execution focal points in rebuilding, the impact of infrastructure investment could expand GDP by as much as $600 billion annually by 2030, according to the paper.