Bold solutions to finance falling bridges emerge, but there's no consensus on the best route.
While it will create jobs, the American Recovery and Reinvestment Act doesn't do enough to fix the nation's failing infrastructure. In fact, the $132.4 billion allotted to repair and maintain the crumbling roads, bridges and water supply is only a fraction of the $2.2 trillion needed. That's the conclusion of a new report from the Urban Land Institute and Ernst & Young, titled “Infrastructure 2009: A Pivot Point.”
The majority of the 330 developers ULI surveyed believe that given state and local government cash shortfalls, most of the burden of infrastructure investment will fall to them, says Maureen McAvey, executive vice president for ULI's initiatives group. Sixty percent of the developers said their projects have been curbed by lack of spending on infrastructure.
With the U.S. population expected to grow from 300 million to 410 million over the next 40 years, the demands on existing infrastructure are mounting.
To prepare, the Washington, D.C.-based non-profit research group is advocating bold finance solutions to pay for roads, bridges, water systems and light rail. Ideas range from the creation of a national infrastructure bank to provide incentives for public-private partnerships, to toll roads and smart technologies that charge end users.
“If you look at the [federal] gas tax, it hasn't been raised since 1986. It's been 18.4 cents ever since then,” says Mike Lucki, global infrastructure leader for Ernst & Young. At the same time, gas mileage per vehicle has likely doubled, reducing the revenue potential of the gasoline tax.
A new concept, VMT (vehicle miles traveled), would employ GPS to charge drivers by miles driven, time and location. Similarly, meters could be use for electricity, water and other utilities, shifting the burden of paying for infrastructure from the taxpayer to the end user.
While the pay-to-play model could change user habits, ULI and Ernst & Young are proposing a national infrastructure bank based on a European model to serve as a carrot.
“The proposed bank would fund infrastructure projects initiated by developers that are looking at regional issues, not just local issues,” says Lucki. The idea also is gaining traction at the federal level. President Obama and Transportation Secretary Ray LaHood have both expressed interest in the concept, he says.
The planning and execution of a comprehensive, national infrastructure plan would move beyond the current job-creation strategy to create investment opportunities. “Pension funds, insurance companies and other institutional investors are looking to invest in infrastructure projects as a hedge against their long-term liabilities,” says Lucki. “An estimated $150 billion has been raised worldwide from the private sector for infrastructure development.”
Where and how commercial real estate projects are built in the future will undoubtedly be decided by the strategy — or lack thereof — that ultimately emerges to repair and expand the country's critical infrastructure. The jobs created by the current stimulus are not enough to bring U.S. infrastructure into the 21st century, notes ULI.
“It's encouraging to see the federal government take an interest in infrastructure issues for the first time in a generation. But the need for policy changes is getting muddled in the rhetoric about creating jobs, reviving the economy and fixing potholes,” says McAvey.
“The jobs program is not an infrastructure strategy,” she adds. “Our nation has an unprecedented opportunity to craft a definitive re-engineering strategy. It must not be squandered.”