A Plan for Spending More -- and Wisely -- on Our Decaying Infrastructure
By Felix G. Rohatyn and Warren Rudman
The Washington Post
Tuesday, December 13, 2005; A27
Two recent, very different events on opposite sides of the United States serve as startling examples of our unwillingness to support needed public investment or to consider the consequences of failing to do so.
On the Gulf Coast, the failure to invest adequately in the levees of New Orleans and to prepare for or manage the resulting disaster was obvious to the world.
On the Pacific Coast, in the state of Washington, a quieter crisis loomed. The region's infrastructure had been outstripped by growth. But the new governor, Christine Gregoire, had the courage to impose a phased-in motor fuels tax to repair the state's dilapidated and congested roads and bridges. Her opposition tried to repeal the legislation with a ballot initiative, but thanks in part to the support of the state's most powerful business leaders, voters stood by her and supported the tax, which would cost the average driver about $1 a week. They appeared to understand that this is a small price to protect lives threatened by bridges such as Seattle's Alaskan Way viaduct, a twin deck freeway that is used by 100,000 vehicles a day and that could collapse in an earthquake. Their last-minute intervention may have prevented one more disaster for now, but the opposition will undoubtedly be back.
Neither the Gulf Coast nor the Washington state experience is unique. In many parts of the country, the population has outgrown its infrastructure. The resulting decline in quality of life is having a direct effect on the region's corporations as well as on its residents.
Private investment has led U.S. economic growth for two centuries, but it could not have done so without a series of complementary public investments in canals, railroads, roads, the airspace system, water projects, public transportation, public schools and the like, which improve business productivity and our standard of living while generating significant increases in private-sector employment. But these investments have been badly neglected in recent years. A biannual survey by the American Society of Civil Engineers, grading all categories of infrastructure from schools to sewers, indicates a gap of $1.6 trillion over five years between what is needed to bring national infrastructure up to reasonable standards and what is now in prospect. School buildings alone would require $125 billion to reach a minimal standard of safety and soundness.
Americans may not want "big government," but they want as much government as is necessary to be safe and secure. Today state and local governments spend at least three times as much on infrastructure as the federal government does. In the 1960s the shares for both were even. Even so, increases in state spending have not been enough to check the decline in many of our public assets. A new type of federal involvement would be a powerful initiative and would require a new focus. Rebuilding America is a historic task; we have the means to do it.
The shortfall in investment is aggravated by the fact that most infrastructure money is given out by formulas that do not force all projects to be evaluated on consistent or rational terms. The solution to both issues could begin with a national investment corporation (NIC) that would be the window through which states and groups of states and localities would request financing or grants for all infrastructure projects requiring federal participation. It could, over time, replace the existing dedicated trust funds, as well as address new missions for America's public infrastructure programs, including renovation of public school buildings.
The NIC could use its financial power to bring about improvements in policy. Funds for new highways, airports or water projects would not be granted unless modern technology, appropriate user fees and other non-structural solutions had been brought to bear. Capital grants to individual school districts would be contingent on adopting management and human resource practices that would improve school performance.
The NIC should have the authority to issue bonds with maturities of up to 50 years to finance infrastructure projects. The bonds would be guaranteed by the federal government. Such long-lived bonds would align the financing of infrastructure investments with the benefits they create; the repayment of those bonds would allow the NIC to be self-financing. In Europe, the European Investment Bank finances infrastructure in a similar fashion; it has created a superb and efficient European infrastructure, including a high-speed rail network, which is an enormous asset.
The federal budget is in crisis thanks to unwarranted tax cuts, unbounded entitlements, and open-ended commitments for hurricanes and homeland defense. But the budget does not recognize assets; it recognizes only expenditures and liabilities. Under the rules as we have them, the Louisiana Purchase would have been accounted for on the basis of the debt issued to Napoleon, with no recognition of the astounding value created. An entity as large as the U.S. government must have a cash budget. But the use of dedicated, long-term bonds within an NIC would become a de facto capital budget, providing us with better information about the stock of public capital.
There will no doubt be opposition to solving this problem. Advocates of "small government" will characteristically oppose government's performing its valid, historical role. Critics will accuse the NIC of being a "new bureaucracy" when, in fact, it might be the only practical approach to reform in the existing bureaucracies.
The coming year represents the last practical chance President Bush has to make a difference here. The nation's infrastructure crisis is no less serious for being silent. A federal role is needed to fix it, but that role must be reconceived, redrawn and refinanced. Success will improve our quality of life, our standard of living and our competitiveness. That will require government big enough and smart enough to be effective. That was the government of Lincoln and the transcontinental railroad, Jefferson and the Louisiana Purchase, and Eisenhower and the national highway program. From Seattle to New Orleans, events are now making it clear that we must return to that long-standing, bipartisan tradition.
Felix G. Rohatyn, an investment banker, and Warren Rudman, a former Republican senator from New Hampshire, chair the Commission on Public Infrastructure of the Center for Strategic and International Studies.
By Felix G. Rohatyn and Warren Rudman
The Washington Post
Tuesday, December 13, 2005; A27
Two recent, very different events on opposite sides of the United States serve as startling examples of our unwillingness to support needed public investment or to consider the consequences of failing to do so.
On the Gulf Coast, the failure to invest adequately in the levees of New Orleans and to prepare for or manage the resulting disaster was obvious to the world.
On the Pacific Coast, in the state of Washington, a quieter crisis loomed. The region's infrastructure had been outstripped by growth. But the new governor, Christine Gregoire, had the courage to impose a phased-in motor fuels tax to repair the state's dilapidated and congested roads and bridges. Her opposition tried to repeal the legislation with a ballot initiative, but thanks in part to the support of the state's most powerful business leaders, voters stood by her and supported the tax, which would cost the average driver about $1 a week. They appeared to understand that this is a small price to protect lives threatened by bridges such as Seattle's Alaskan Way viaduct, a twin deck freeway that is used by 100,000 vehicles a day and that could collapse in an earthquake. Their last-minute intervention may have prevented one more disaster for now, but the opposition will undoubtedly be back.
Neither the Gulf Coast nor the Washington state experience is unique. In many parts of the country, the population has outgrown its infrastructure. The resulting decline in quality of life is having a direct effect on the region's corporations as well as on its residents.
Private investment has led U.S. economic growth for two centuries, but it could not have done so without a series of complementary public investments in canals, railroads, roads, the airspace system, water projects, public transportation, public schools and the like, which improve business productivity and our standard of living while generating significant increases in private-sector employment. But these investments have been badly neglected in recent years. A biannual survey by the American Society of Civil Engineers, grading all categories of infrastructure from schools to sewers, indicates a gap of $1.6 trillion over five years between what is needed to bring national infrastructure up to reasonable standards and what is now in prospect. School buildings alone would require $125 billion to reach a minimal standard of safety and soundness.
Americans may not want "big government," but they want as much government as is necessary to be safe and secure. Today state and local governments spend at least three times as much on infrastructure as the federal government does. In the 1960s the shares for both were even. Even so, increases in state spending have not been enough to check the decline in many of our public assets. A new type of federal involvement would be a powerful initiative and would require a new focus. Rebuilding America is a historic task; we have the means to do it.
The shortfall in investment is aggravated by the fact that most infrastructure money is given out by formulas that do not force all projects to be evaluated on consistent or rational terms. The solution to both issues could begin with a national investment corporation (NIC) that would be the window through which states and groups of states and localities would request financing or grants for all infrastructure projects requiring federal participation. It could, over time, replace the existing dedicated trust funds, as well as address new missions for America's public infrastructure programs, including renovation of public school buildings.
The NIC could use its financial power to bring about improvements in policy. Funds for new highways, airports or water projects would not be granted unless modern technology, appropriate user fees and other non-structural solutions had been brought to bear. Capital grants to individual school districts would be contingent on adopting management and human resource practices that would improve school performance.
The NIC should have the authority to issue bonds with maturities of up to 50 years to finance infrastructure projects. The bonds would be guaranteed by the federal government. Such long-lived bonds would align the financing of infrastructure investments with the benefits they create; the repayment of those bonds would allow the NIC to be self-financing. In Europe, the European Investment Bank finances infrastructure in a similar fashion; it has created a superb and efficient European infrastructure, including a high-speed rail network, which is an enormous asset.
The federal budget is in crisis thanks to unwarranted tax cuts, unbounded entitlements, and open-ended commitments for hurricanes and homeland defense. But the budget does not recognize assets; it recognizes only expenditures and liabilities. Under the rules as we have them, the Louisiana Purchase would have been accounted for on the basis of the debt issued to Napoleon, with no recognition of the astounding value created. An entity as large as the U.S. government must have a cash budget. But the use of dedicated, long-term bonds within an NIC would become a de facto capital budget, providing us with better information about the stock of public capital.
There will no doubt be opposition to solving this problem. Advocates of "small government" will characteristically oppose government's performing its valid, historical role. Critics will accuse the NIC of being a "new bureaucracy" when, in fact, it might be the only practical approach to reform in the existing bureaucracies.
The coming year represents the last practical chance President Bush has to make a difference here. The nation's infrastructure crisis is no less serious for being silent. A federal role is needed to fix it, but that role must be reconceived, redrawn and refinanced. Success will improve our quality of life, our standard of living and our competitiveness. That will require government big enough and smart enough to be effective. That was the government of Lincoln and the transcontinental railroad, Jefferson and the Louisiana Purchase, and Eisenhower and the national highway program. From Seattle to New Orleans, events are now making it clear that we must return to that long-standing, bipartisan tradition.
Felix G. Rohatyn, an investment banker, and Warren Rudman, a former Republican senator from New Hampshire, chair the Commission on Public Infrastructure of the Center for Strategic and International Studies.
posted by Hanan Elbadry at 9:40 AM
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