US infrastructure investment needed
September 2014 | FEATURE | SECTOR ANALYSIS
Financier Worldwide Magazine
The debate surrounding infrastructure development in the US has intensified in recent months. In particular, the funding issue has generated intense scrutiny, with the latest Congressional standoff bringing infrastructure into even sharper focus.
The recent Congressional predilection for financial ‘cliffs’ has resurfaced, focusing on the funding of infrastructure maintenance and upgrades, specifically the Federal Highway Trust Fund. At the time of writing, Congress has been unable to reach an agreement on a funding deal for the US’s network of highways and bridges. Should the row continue to rumble on and the Highway Trust Fund dry up, thousands of jobs will be put at risk and much needed infrastructure programs across the country scrapped.
Given the current state of US infrastructure, the country can seldom afford to cancel any projects and industry analysts have identified a number of major deficiencies. It is believed around a quarter of all US bridges are structurally deficient. Additionally, a marked increase in recent rail accidents has exacerbated road congestion. Mobile telephone networks offer variable and unacceptable levels of coverage. And airlines are increasingly desperate for the advent of next generation air traffic control systems to reduce both delays and fuel burn.
While American infrastructure is known for its vast highways and railway networks, the level of traffic congestion in the US is unmatched elsewhere. According to the ‘Making the Grade’ report released at the end of June, 42 percent of major US urban highways are congested. The overall cost of that congestion to the US economy is estimated to be around $101bn annually in lost worker productivity and wasted fuel. Meanwhile, an $846bn funding gap in roadway investment has opened up – a gap which continues to grow. In light of the country’s myriad infrastructure issues, the network was given a barely adequate D+ grade by the American Society of Civil Engineers in 2013.
It is important that the country’s political class puts aside its ideological differences and cooperates fully to invest in infrastructure. President Obama has called on Congress to act quickly, though he has not ruled out acting unilaterally, outlining a four-year $302bn initiative that would pay for renewing the transportation fund, in part by closing corporate tax loopholes. Although Mr Obama’s plan has been met with derision and threats of legal action from Republicans, there are many analysts in the US who feel swift action must be taken to avoid further damage to the country’s infrastructure network.
The ‘Making the Grade’ report emphasises the need for change across the country’s entire network, and not just to the way funding is secured. According to the report, American infrastructure redevelopment should go beyond merely securing funding commitments from Congress; there must be a clear new direction for infrastructure development. The report outlines a six point plan designed to wholly reform infrastructure funding and planning. Primarily, the report’s authors believe infrastructure needs to become a cabinet-level priority. A dedicated individual or department should be established whose sole responsibility would be to “support the vision, arbitrate competing interests, and remove obstacles to success for an integrated network of systems that support the nation’s infrastructure operations and its imperatives”.
There is also a need for coordination on a city and state level. This can be achieved by encouraging states and cities to appoint their own chief infrastructure officers, as well as by forming infrastructure regions which can integrate agendas, and efficiently allocate capital and natural resources to worthy projects.
Much more needs to be done to bring the country’s infrastructure network up to speed. Some analysts have mooted a national infrastructure bank. A centralised bank would provide a number of benefits such as enabling local governments to accelerate projects in line with wider goals. In order to create a dedicated infrastructure bank, however, more needs to be done to attract and retain new funding streams. Attracting private sector and public pension investment would be crucial; once the private sector has become engaged this will open up a number of new financing opportunities. To encourage greater integration of the private sector, the sale of ‘opportunity’ bonds could be offered, as could tax reforms, which would encourage further private investment.
More can be done to nurture and encourage public-private partnerships (PPPs) in American business, as well as in infrastructure development. Although they require strict and well managed governance, PPPs can provide benefits to all parties, including bridging any funding holes which may form. PPPs can also have a profound impact in other areas, seeing the project’s lifecycle costs shared while accelerating project delivery. Equally, the long-term operation and maintenance of a project is drastically improved through PPPs as they are more focused on achieving long-term performance and profitability goals than traditionally state-run projects.
Given its poor state of repair, American infrastructure is approaching a crossroads, and with Congress unwilling to act and the Highway Trust Fund rapidly depleting, there is an opportunity for private business to step in and pick up the slack. Changing the course of infrastructure development will, however, require engagement across the broad spectrum of American society.
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