Infrastructure Advisory Team Leader
The incoming administration and the new Congress face a strategic opportunity for the country’s infrastructure. Republicans and Democrats are aligned in principle on the diagnosis, but have not in the past been able to strike a workable deal to cure the patient. Current proposals offer competing ideas to tackle these massive challenges. Republicans favor private investment via Public-Private Partnerships (P3), easing of regulations, and, at least until recently, greater devolution of funding and delivery decision-making to the local level. Democrats have also supported greater use of P3, and while they support state and local governments raising their own funding they strongly favor a robust ongoing role for the federal government to directly fund infrastructure by increasing tax revenues for existing programs such as the Highway Trust Fund. Additional ways to level the playing field could include extending the tax exempt treatment for bonds to P3’s.
Most observers agree on the dire need. The American Society of Civil Engineer’s current “report card” gives the overall state of the infrastructure a “D+” grade. The investment deficit is estimated at over $200 billion annually – this is the unfunded need simply to bring the existing infrastructure up to a state of good repair, let alone to modernize and expand it. A thriving economy needs basic services such as clean water, well-functioning airports, and ease of movement in cities for people and commerce. In a world with strong competition for capital and talent we also need to be at the forefront of affordable and innovative solutions for things such as ubiquitous broadband internet access, reliable low-carbon electricity, and a transport network that enables autonomous vehicles.
An “all of the above” strategy is needed to create the needed step change of an additional $200 billion in investment each year, over and above current funding. The new administration’s pronouncements to date combined with the political re-alignment in Congress, whereby a bi-partisan plan may come forth, give us cause for optimism. As a minimum one can expect a combination of a leveling of the playing field and tax incentives for P3’s, as well as streamlining of permits and approvals. A more ambitious, yet fiscally much more challenging, solution would include a permanent revenue fix for the Highway Trust Fund and new funding. Republicans have floated ideas for the latter from a special tax treatment on repatriation of corporate profits held abroad, for example, with the proceeds dedicated to infrastructure.
An immediate source of encouragement at this time is at the state and local levels. Spurred by their voters’ demands, many locals have recently approved significant funding measures. Notable examples include Los Angeles’ and Seattle’s $120 billion and $54 billion sales tax measures for transportation, respectively, as well as gas tax increases in seven states including Georgia, Pennsylvania and Michigan. States such as Oregon and California are piloting programs to replace their gas taxes with mileage-based taxes, which would put their transportation programs on the sustainable footing that they lack today.
State and local governments, who actually manage and deliver most of the nation’s public infrastructure, are also moving forward with innovative delivery and management models. Their objective is to accelerate delivery, increase quality, and reduce costs. These models include a wider use of design-build, performance-based operations and maintenance contracts, and the use of P3’s. Cities such as Los Angeles and Long Beach in California are delivering needed public infrastructure by using these tools to create value from their existing assets and lowering costs. These apporaches create customized procurement strategies that distribute project risk equitably and stimulate innovation to better achieve these goals.