Why America’s Infrastructure is Failing

by Joanie Hollabaugh nyc-infrastructure

 ASCE currently grades it at a D+

Bridges collapsing, roads buckling, water and gas lines causing flooding and explosions – while residential and commercial construction are slowly recovering, what is happening to America’s infrastructure?

According to the article “Inside America’s crumbling infrastructure” published in The Week:

Every four years, the American Society of Civil Engineers (ASCE) releases a comprehensive assessment of U.S. infrastructure. Its most recent report card, from 2013, had an overall grade of D+. Catastrophic events remain rare, but the nation’s 607,380 bridges have an average age of 42 years, and one in nine is rated structurally deficient.

So, that means we have a report due out next year in 2017, and unfortunately, I can’t imagine the grade will get better. According to the article, most of our network of roads and freeways were built in the 1950’s and weren’t built for the amount of traffic growth or to last longer than 50 years. That means we’re pushing 70 years in service for many of our most traversed roads, bridges, and pipelines!

Who’s responsible for fixing it?

Technically, the government “owns” the upkeep of highways and roads via the Highway Trust Fund, which spends around $40 to $50 billion annually on construction projects. That amount was recently increased to a $91 billion, but the Federal Highway Administration thinks THAT amount needs to be doubled!

The domino effect on the grid

The Week’s article goes on to explain:

…serving the needs of 316 million people is so large and expensive to maintain, and it encompasses so many different services and utilities. It includes roads, bridges, mass transit systems, waste- and drinking-water management, levees, dams, ports, electrical grids, and broadband communication systems. And it is all interwoven into a complex web, so that failure in one area can have a cascading effect across the grid. For example, power outages during Superstorm Sandy shut down several water treatment facilities, which led to the release of roughly 11 billion gallons of raw sewage into East Coast waterways. “What we really need is some innovative thinking about financing,” said Department of Energy senior scientist Tom Wilbanks. “It’s kind of a national crisis.”

The Business Roundtable published a paper titled “Road to Growth: The Case for Investing in America’s Transportation Infrastructure” in September of 2015. They aggregated some convincing statistics:

  • America Is No. 16: The United States’ overall infrastructure quality ranks 16th, behind Germany, France and Japan.
  • Highways and Bridges: Urban highway congestion cost the economy more than $120 billion in 2011, and nearly one in four bridges in the national highway system is structurally deficient or functionally obsolete.
  • Waterways and Ports: Lock delays, port congestion and lack of facilities for larger ships added $33 billion to the cost of U.S. products in 2010.
  • Aviation: The United States is home to just four of the world’s top 50 airports, and aviation congestion and delays cost the economy $24 billion in 2012.
  • Transit Rail: Only 25 percent of transit rail station infrastructure is rated “good” or “excellent.”

Increased investment in public infrastructure leads to significant economic benefits:

  • Up to $320 billion in economic output would be generated in 2020 if U.S. infrastructure investment were boosted by 1 percent of GDP per year.
  • 1.7 million jobs would be created over the first three years by an $83 billion infrastructure package.
  • As much as $3 in economic activity is created by every $1 invested in infrastructure.

The Business Roundtable paper advised: “The nation’s leaders can change course and rebuild this vital national asset. It’s time to strengthen our economic foundation by reinvesting in transportation infrastructure.” (Download the entire paper here.)

Overall impact on the economy

From a ConstructConnect (CMD Group) article entitled, “Construction Spending Edges Down In September And Is Up Modestly For The First Nine Months Of The Year Amid Private-Sector Growth & Public-Sector Declines,” they quoted the Association of General Contractors, as “urging” Congress and voters to pass water, building, and infrastructure repairs.

As construction starts are generally considered an indicator of economic health, the neglect in infrastructure investment is diluting overall construction spending. ConstructConnect contributor and AGC’s chief economist, Ken Simonson, states:

There is still plenty of oomph in private demand for construction and growing support for school construction, but public infrastructure investment is crumbling just when it is needed most,” said Ken Simonson, the association’s chief economist. “These conflicting trends have left total construction spending nearly flat for the past 15 months.

The AGC notes that a few states have increased spending on infrastructure, but many have NOT. So, they are taking their case to the public, in the hopes that will cause the government to take action:

Public-sector funding cuts for infrastructure aren’t just hurting the construction industry, they are also slowing commutes and undermining quality of life in many communities,” said Stephen E. Sandherr, the association’s chief executive officer. “Voters should send a strong message that they want to drive better roads, drink better water and learn in better facilities.

Is a Private-Public Partnership the Answer?

Industry experts clearly are calling for an investment into the public arteries of our country. While cases have been made for individual states to take over the investment in repair and rebuilding, others have suggested a new type of management: the PPP model (private public partnership).

In this scenario, the potential for government overspending and over schedule is less risky. David Besanko, a professor of strategy at Kellogg School of Management at Northwestern endorses this innovative partnership (from the Kellogg Insight website):

There are several benefits of funding projects through public-private partnerships. One is that it provides access to large amounts of up-front capital. “Many states have constraints on their ability to raise taxes or borrow money, and PPP projects can relax those constraints,” Besanko says. For example, a company might offset the price of a given highway in exchange for a license to run the rest stops along a particular corridor.

These partnerships might also lead to faster construction and better maintenance. Evidence from the World Bank suggests that PPP projects are more often completed on time than projects funded entirely by governments. And when private companies are responsible for not just the design and construction of a project but also its operation and maintenance, results tend to be more positive.

“You’re likely to design the project better if you know you’ll be responsible for maintaining that project for 30 years,” Besanko says. “This is in contrast to the traditional public model where you have a design firm and a construction firm responsible for engineering up front, and then there is a government agency responsible for maintenance.”

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Sources:

http://theweek.com/articles/444361/inside-americas-crumbling-infrastructure 

http://businessroundtable.org/sites/default/files/2015.09.16%20Infrastructure%20Report%20-%20Final.pdf

https://www.agc.org/news/2016/11/01/construction-spending-edges-down-september-and-modestly-first-nine-months-year-amid

http://insight.kellogg.northwestern.edu/article/can-the-private-sector-solve-the-us-infrastructure-crisis