The C-minus grade awarded U.S. infrastructure by the American Society of Civil Engineers highlights the need for legislative provisions that would make it easier and more cost-effective for states and localities to finance crucial projects.
In a report released Wednesday by ASCE, the group called for bold action from Washington to help fund a $2.6 trillion infrastructure gap over the next 10 years. This is the first time in 20 years that infrastructure has received a grade above a D, but the picture of American infrastructure still leaves much to be desired.
Municipal bond provisions enacted by Congress, including the reinstatement of tax-exempt advance refunding, would help improve that picture.
“There is still a lot of work to do on infrastructure,” Michael Decker, senior vice president of policy and research at Bond Dealers of America. “Improvement is great, better our grade is moving up than moving down, but there is still a lot to do. A C-minus is nothing to be proud of.”
Bond advocate groups have long pushed for a variety of municipal bond provisions including reinstating tax-exempt advance refunding to help pay for infrastructure. Last week, Sen. Roger Wicker, R-Miss., and Sen. Debbie Stabenow, D-Mich., reintroduced a bill to reinstate tax-exempt advance refunding. A House version of that bill is
Other muni bond provisions include increasing the cap for bank qualified issuance to $30 million from $10 million, increasing the federal cap on private activity bonds and creating a new kind of direct-pay bond.
“If you can reduce the costs of financing infrastructure investment, state and local governments will be able to afford more infrastructure,” Decker said.
Many expect Congress to use H.R. 2, a 2020 infrastructure bill that failed to pass the Republican-controlled Senate, as a template. That bill, the Moving Forward Act, included many of the provisions being pushed by municipal bond lobbying groups including tax-exempt advance refunding and expanding the issuance of PABs.
“There are a lot of options available to Congress to address infrastructure by expanding the use of tax-exempt bonds,” Decker said. “We saw Congress delve into that topic last year in H.R. 2. That had a number of provisions which are designed to reduce the costs for state and local governments to finance new infrastructure investment.”
Muni provisions are low cost to the federal government and are effective in financing infrastructure needs highlighted in the ASCE report, said Leslie Norwood, managing director and associate general counsel of municipal securities at the Securities Industry Financial Markets Association.
“Our feeling is that if you can invest more money in your infrastructure, then the conditions would improve and the grade would them improve,” Norwood said.
Tax-exempt advance refunding, specifically, would reduce interest costs for issuers, which then could be used towards additional infrastructure projects, Norwood added.
ASCE’s 2021 grades range from a B in rail to a D-minus in transit. Five category grades went up including aviation, drinking water, energy, inland waterways and ports. Bridges took a tumble to a C. Stormwater infrastructure received its first grade — a D.
“Overall, eleven category grades were stuck in the D range, a clear signal that our overdue bill on infrastructure is a long way from being paid off,” ASCE wrote.
Almost $6 billion will be needed over the next decade to bring a variety of infrastructure sectors up to speed. Surface transportation needs the most funding with about $2.8 billion dollars needed followed by $1 billion needed for drinking water, wastewater and stormwater.
ASCE called for fixing the Highway Trust Fund, a major part of funding surface transportation, which has been depleted for years. The HTF runs mostly on gas taxes and has used $144 billion of transfers from the U.S. Treasury’s general fund since 2008. ASCE recommended raised the gas tax by five cents each year for the next five years to fund the HTF.
Over 40% of roads are in poor or mediocre condition, ASCE said.
Thirty-seven states have raised their own gas taxes, which is encouraging, ASCE said.
State and local governments need a federal partner, said Rep. Peter DeFazio, D-Ore. DeFazio, who chairs the House Transportation and Infrastructure Committee, introduced legislation to fund infrastructure last year.
“Once again we have a comprehensive scorecard from the American Society of Civil Engineers and America’s overall infrastructure is rated at C minus,” DeFazio said. “Wastewater, highways, transit are all rated in the Ds. This is not acceptable. The states can’t go it alone. The cities can’t go it alone. They need a federal partner.”
Though lawmakers say they’re pushing for a broader bipartisan infrastructure bill, some say the next infrastructure bill could pass through budget reconciliation — where only a simple majority in the Senate would be needed to pass that bill.
Municipal bond provisions would still stand a chance if they do go that route, though a ten-year horizon would be challenging. A reconciliation bill would mean all costs would have to be incurred within 10 years, which contrasts with bonds with a decades-long life, said Emily Brock, director of the Government Finance Officer Association’s federal liaison center.
“Our motivation is to make sure that we have ten Republican senators on all of our initiatives so that there is the possibility of movement outside of reconciliation,” Brock said. “Should reconciliation be the tool by which infrastructure can move? We can work with that.”
If reconciliation is used, lawmakers would not be able to include surface transportation reauthorization. The current surface transportation law has an impending deadline at the end of September. Chair of the Senate Environment and Public Works Committee Tom Carper, D-Del., has said he plans to get a surface transportation bill marked up by Memorial Day. DeFazio and Carper both hope to lead a bipartisan effort to push that through.
“The ASCE report is further proof that America needs to modernize its infrastructure," said Chris Iacovella, ASA CEO. "We support a comprehensive bill that includes reinstating the tax-exemption for advance refundings of municipal projects, promoting sustainability, closing the resource divide among rural/urban communities, and streamlining project permitting.”
