Infrastructure Debate

More than 26 percent of the nation’s bridges have been classified as either structurally deficient or functionally obsolete, according to the American Society of Civil Engineers (ASCE) 2009 Report Card for America’s Infrastructure. The distressing report (that gave roads a D- score and bridges a C), underscored the pressing need for a long-term infrastructure funding strategy. 

Congress has historically employed multiple short-term extensions to the highway authorization law (SAFETEA-LU), which supplies the funds and the framework for investments needed to maintain and grow the nation’s infrastructure. But this strategy has only been a temporary solution. With the extension on the current highway bill set to expire March 31, infrastructure issues have finally taken the spotlight on Capitol Hill.

The outcome of these debates will have a significant impact on contractors who have lost jobs because states have been reluctant to plan long-term projects. The Associated General Contractors of America (AGC) outlines the problem: “State budgets have been cut significantly, and the lack of action on highway and transit program authorization and funding has created huge uncertainty forcing states to be cautious in the number of highway contracts that they are able to put out for bid. This uncertainty not only affects state highway programs but the contractors, designers, subcontractors and material suppliers who work within these programs.”

Contractors will not be the only ones who stand to gain from a bill with long-term vision. The Association of Equipment Manufacturers (AEM) estimates that “for every $1 billion invested in our infrastructure, 35,000 jobs are created.”

Recently, both the House and the Senate introduced separate versions of a long-term funding bill. On February 10, the Senate began deliberating about MAP-21 (Moving Ahead for Progress in the 21st Century), which is a $10.5 billion two-year surface transportation reauthorization bill. The Senate passed a motion to proceed, and with bipartisan support, the bill is still up for debate at press time.  With many proposals for this bill still relying on funds from the gas tax, which will not cover necessary funding, the question of how to account for budget shortfalls remains. 

Meanwhile, on the House floor, committees have completed action on H.R. 7, a Republican-sponsored $260 billion five-year surface transportation reauthorization bill that is composed of many moving parts, including funding provisions through expanded oil drilling. At press time, intense controversy is expected to erupt over the issue of drilling as well as the amount of revenue that should be allocated to mass transit.  

At its core, the debate will center on how to fund the new bill in a climate that calls for fiscal conservatism and the need to cut the federal deficit. The issue is deciding which programs are in the federal interest and which ones should be left to the state and local municipalities. 

In short, approval for a long-term transportation bill that will become law before March 31 is far from completion. However, CBO will continue following the progress of this important piece of legislation that will have far-reaching impacts on the construction industry.

Beyond Construction Jobs: Why Infrastructure Funding Matters

The Associated Equipment Distributors (AED) commissioned a January 2012 study by The College of William and Mary Thomas Jefferson Program in Public Policy to “understand the short- and long-term effects of public infrastructure spending on the U.S. economy as well as to contribute new suggestions toward alternative financing of future road construction.”

“The Economic Impact and Financing of Infrastructure Spending,” study found that $1 spent on infrastructure produces approximately double the initial spending in economic output, with the largest benefits to the manufacturing and business services sector. “Investing in infrastructure goes beyond mere improvements to the quality of roads, highways, sewers and power plants. These investments also generate significant economic returns for other portions of the U.S. economy and substantially increase ultimate tax revenue for the government,” the study concludes.

As for estimated long-term effects, researchers determined that over a 20-year period, “investing $1 in highways and streets returns approximately $0.35 in tax revenue to federal and state/local governments, of which $0.23 specifically accrues at the federal level.”

Researchers caution that the findings “dictate” the expected impact of present spending, and any drastic fluctuation in our nation’s capital or spending would alter the results.

Proposed Funding Solutions 

“The Case for Infrastructure & Reform,” an AGC special report, acknowledges that lawmakers must seek innovative solutions for funding, or they will risk public backlash. “The fact is that our federal infrastructure programs have become so convoluted, unfocused and/or ineffective that public support for funding them has declined precipitously,” the report says.

Though the method to fund the highway bill is a subject of contention, most experts can agree that adequate future funding will not come from the gas tax alone. 

The recent AED study concludes that the U.S. must search for creative ways to fund public infrastructure heavily reliant on stimulating the private sector. Researchers state, “Programs like public-private partnerships (P3s), individual and corporate contributions to road financing and user fee lanes are potential mechanisms through which public spending on infrastructure can be supplemented beyond the gas tax.”

While P3 projects have been slow to gain traction in the U.S. compared to international markets, FMI, management consultants and investment bankers for the construction industry, expects that P3s may pick up momentum with these new infrastructure challenges. FMI’s recently released white paper, “Public Private Partnerships: What You Need to Know” explores this option in depth: Researchers contend that there is resistance to P3s and an overall lack of understanding about them because they typically involve dozens of stakeholders from differing backgrounds. “While it is unlikely that P3s will become the dominant delivery model in the future, we expect the model to thrive in certain pockets in certain states; it will certainly represent a sizable robust niche market worth considering in the future,” the report concludes.

MARCH 15, 2012 UPDATE:

On March 14, the Senate approved its $109 billion surface transportation and infrastructure bill, MAP-21 (Moving Ahead for Progress in the 21st Century), with a bipartisan vote of 74 to 22. It allows for funding to remain at current levels for two years. According to AEM (the Association of Equipment Manufacturers), this bill “reforms the way highway programs are administered, allowing for quicker and more efficient project approval… .”

The New York Times reported on March 14 that the Senate bill provided funding not through raising the gas tax, but rather “with an array of revenue provisions, tapping a trust fund established to clean up leaking underground storage tanks and adjusting the way pension fund contributions and liabilities are calculated.”

But this issue is far from being resolved: this bill would still have to be approved by the House before the federal highway trust fund expires. With nearly three million jobs expected to be generated or saved, most of which are in the construction industry, the House cannot afford to sabotage some kind of resolution.

As the AED (Association of Equipment Distributors) reports, “With the expiration of the most recent highway extension set to expire on March 31, rapid action is desperately needed to keep federal transportation programs operational.”