Everyone agrees that America’s roads, bridges, railways, and dams aren’t up to 21st-century standards. The American Society of Civil Engineers gives our infrastructure an overall D+ grade (admonishing us like naughty school kids). Evidence of decay is all around: From New Jersey’s bridges (1 in 11 of which are “structurally deficient”) to Flint’s poisonous water system, there’s an awful lot that needs repairing or replacing.
Hillary Clinton and Donald Trump don’t break bread on many issues, but they do agree on the need for more infrastructure funding. Clinton wants at least $275 billion over five years. And Trump says he will double that (we’re not sure if his Mexico border wall qualifies), though it’s not clear how he’ll raise that money without creating fiscal disasters. But the real trouble is even Trump’s funding numbers look hopelessly short of what’s required. The ASCE says we need $200 billion more each year; it estimates a total backlog of $3.6 trillion by 2020.
Infrastructure is not just necessary in itself. It’s also a good source of jobs. While a manufacturing job is always in danger of being outsourced to a lower-cost country, you can’t build the Tappan Zee Bridge in Taiwan. Also, arguably, creating an infrastructure job is a less artificial activity than creating a manufacturing one. Politicians like Trump talk about “bringing back” manufacturing jobs, invoking the not-very-romantic activity of working on an assembly line. But the truth is American workers don’t want to work for the wages that come with making low-end goods today. (And in reality, American manufacturing isn’t doing as badly as advertised. Output is as high as ever. It’s just that our factories tend to produce more sophisticated products–from refined petroleum and aerospace equipment–not the commodity consumer stuff.)
Infrastructure jobs, by contrast, “often provide more competitive and equitable wages compared to all jobs nationally,” said a Brookings Institution report last year. On average, they paid up to 30% more to low-income workers over the last 10 years. What’s more, infrastructure jobs are good for workers with less education. Only 13 out of 95 infrastructure occupations require a bachelor’s degree or higher; 67 occupations are normally filled by workers with a high school diploma or less, the report says.
So, how can we get more infrastructure projects up and running? Below are a few ideas.
S&P Global, the research arm of the ratings agency, recently proposed paying for infrastructure by encouraging companies to repatriate money currently held offshore. Companies–Apple is the most prominent example–have stashed up to $2.5 trillion in tax havens like Bermuda and the Cayman Islands. Corporate America argues that the current 35% rate is too high, a disincentive for businesses to keep their profits here. So S&P suggests a “holiday” rate of 15%, with all the revenues being specifically set aside for bridges, tunnels, and the like.
From the report:
If American companies repatriated just half of the untaxed income they hold overseas, that would pour $150 billion into infrastructure investment—and repatriation of just one-quarter of the total would mean a windfall of $75 billion that would go directly into repair and refurbishment of our crumbling bridges and dangerously outdated water systems. This, in turn, would have far-reaching beneficial effects on U.S. productivity and growth.
Of course, such a tax amnesty would be rewarding tax avoidance and possibly set a terrible precedent for the future. CFOs will think they just need to keep profits offshore long enough for the next funding crisis to set in. (Congress instituted another holiday in 2004, and it cost the U.S. Treasury $3.3 billion in lost revenues over 10 years, according to one estimate). But perhaps beggars can’t be choosers. We really need at least some of that $2.5 trillion to come home where it can be used to build and put people to work.
In his last budget this year, President Obama proposed spending $300 billion to create high-speed rail systems, metro transit, rapid bus lines, self-driving cars, and other smart transportation. To pay for it, he wanted a $10 tax hike on a barrel of oil, thinking that would not only provide revenue but also cut carbon emissions at the same time. The trouble is, Congress was never likely to pass such a measure. The last time it raised the gas tax was 1993, during the first year of Bill Clinton’s administration. Democrats also balked at raising taxes on the middle class.
The Progressive Policy Institute, a centrist Washington, D.C., think tank, has proposed several ways around relying on the gas tax for infrastructure funding. These include using “dynamic scoring” to assess the true value of public works. Research shows that each dollar invested produces economic value of between $1.5 and $2. So, says the PPI, it makes sense for the federal government to borrow the money directly, especially at a time when interest rates are low. The PPI says we need to get away from the “hardening Republican view” that all public spending is bad, and instead make a distinction between borrowing that funds investment and borrowing that pays for ongoing everyday programs.
Still, America probably can’t meet the funding gap without collaborating with the private sector. Canada, the U.K., and Australia have moved strongly toward public-private partnerships–where government and companies share the cost, responsibilities, and revenues from infrastructure–but the idea hasn’t been much tried here. In 2013, only $200 million of the $81 billion spent on highway and street construction came from these kinds of partnerships. Seventeen states don’t even allow them. Some critics worry about privatization, but it all depends on how deals are put together. The public can retain ownership of bridges and tunnels, while imposing penalties when they don’t work properly (as in this tunnel in Miami).
Will Marshall, president of the PPI, says Congress should agree to a White House proposal to exempt infrastructure companies from certain taxes. And it should seed a self-financing infrastructure bank, which would act as a founding partner as the public-private deals are being signed. Another idea is the West Coast Infrastructure Exchange, which bundles smaller projects across state lines, producing more attractive opportunities for private investors.
Finally, we could also look at ways of speeding up the approvals process for infrastructure projects. Common Good, another think tank, proposes capping regulatory reviews at 2 years (instead of the typical 10) and streamlining “balkanized bureaucracies” at federal and local levels. Having one agency, either federal or state-based, give final go-aheads would stop endless stakeholder engagement, which, after a certain period, really just privileges people opposed to projects.
“America could modernize its infrastructure at half the cost, while dramatically enhancing environmental benefits, with a two-year approval process,” the Brooklyn-based group said in a report last year. “A six-year delay in starting construction on public projects costs the nation over $3.7 trillion, including the costs of prolonged inefficiencies and unnecessary pollution. This is more than double the $1.7 trillion needed through the end of this decade to modernize America’s infrastructure.”
Given the importance of infrastructure in reducing traffic delays, in improving water systems, and reducing the cost of transit, broadband, and electricity–not to mention in producing jobs–it’s high time we looked at new approaches to funding, the balance of federal-versus-state control, and the regulatory process. Versions of the ideas here are surely worth considering in the next few years.
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