Members of Congress have always wanted to stem the rising flood of state and local infrastructure problems. It’s a powerful political image — using federal taxpayer dollars as the metaphorical finger in the dike, holding back the flood of failing infrastructure. Special interests have used this image for decades as their candidates climb the ladder of elective office from selectman to state representative, congressman, senator, and president.
The metaphor works in the political world, but the story is fiction. In the real world, no conceivable federal grant program can stop the flood that Congress has created for state and local governments across the nation with the proliferation of infrastructure that no one can afford to maintain.
The United States has $32 trillion in public and private infrastructure holdings. We have a clear idea of what this can look like at its best because $20 trillion of these assets are privately held by people who depend on them, usually for profit.
These holdings are operated, maintained, and repaired by private businesses or organizations. These assets include private sector healthcare facilities, offices, malls, stores, restaurants, churches, schools, lodging, amusement parks, airports, terminals, roads, warehouses, factories, power and communication facilities, mines, shafts, and wells. Maintenance, repair, and replacement are simply a matter of course. Well-run private owners use modern asset management systems to take effective action at the right time and place and at competitive, affordable prices. Well-run companies do not defer maintenance and repair. A manager who fails to properly run these assets is out of a job. On an annualized basis, the life cycle tab for infrastructure repair and maintenance runs between 4 to 6 percent of asset value.
State and local governments hold $10 trillion of the nation’s $32 trillion in infrastructure assets. Buildings comprise half of that value — schools, hospitals, courthouses, police, fire, jails. One-third are highways and streets — virtually all roads and bridges in the country. One-seventh are water and sewer systems.
Here’s the problem: If state and local governments matched the private sector’s techniques and spending for maintenance and repair, the annualized life cycle cost would be $400-$600 billion per year each and every year. That’s a hole far too big for Congress to plug.
In 2016, total federal spending on all physical resources was $121 billion, just 3.2 percent of total federal outlays. This is all spending for Energy, Transportation, Natural Resources and Environment, and Community Development. In the same year, 73 percent of all federal outlays were for human resources — education, healthcare, Medicare, income security, Social Security, and Veterans. Congress will not divert any of these funds to state and local infrastructure.
Raising the federal gas tax won’t close the gap, either. Total federal transportation revenues (from all sources) were $55 billion in 2012. An increase of twenty-five cents in the federal gas tax would produce $46 billion, leaving us 90 percent short of what we’d need to meet maintenance needs. A gas tax increase of $2.50 per gallon would grievously harm the economy, yet, even this would not be enough, for such a doubling of the price of gas would cause fuel usage to decline sharply.
States could raise state gas taxes, but only a dramatic increase would make a difference. Total state and local transportation revenues (from all sources) were $125 Billion in 2012. States would gain more from such a hike than from a corresponding hike in the federal gas tax.
Congress should stop making things worse. It must end its 100-year policy of making grants for unsustainable new design and construction. For every $10 spent on design and construction, $100 must subsequently spent on operation, maintenance, and repair. Congress has been enticing current local governments to build facilities that subsequent officials cannot afford to operate and maintain. A federal grant for $9 of the first $10 to pay for new construction leaves a local government with a life cycle bill of $100, or 100 times its initial investment of one dollar.
The disruption to state and local balance sheets is a flood for which Congress is largely to blame. And more grants for new construction will only raise the waters.
Privatization is not the answer. The solution is already known. It is proven from private sector experience with open competition, international standards of asset management, reliable records of source and use of funds, and benchmarking. Our research at MIT indicates that only 65 percent of what governments spend on infrastructure is optimal. The remaining 35 percent create avoidable costs that must be captured and directed away from other infrastructure needs.
Congress can at least stop creating the problem. It must structure its next infrastructure program to help grantees build the records, benchmarks, and competitive systems necessary to drive down avoidable costs. Given the proper tools, state and local officials can and will stop the flood.
John Brown Miller, an expert on infrastructure procurement, is a former professor of civil engineering at MIT and chair of the ABA Section of Public Contract Law.
