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Why We Still Can't Afford To Fix America's Infrastructure

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The United States has an infrastructure problem. Globally, the U.S. ranks 19th — behind Spain, Portugal and Oman — in the quality of its infrastructure, according to the World Economic Forum’s Global Competitiveness Report. The American Society for Civil Engineers (ASCE), in its annual Infrastructure Report Card, gave the U.S. a D+, saying we need to invest some $3.6 trillion by 2020 to upgrade our infrastructure.

Yet investment in U.S. infrastructure continues to lag, even as jobs growth, GDP growth and home sales all have rebounded since the end of the recession. Economists have long argued that better infrastructure — roads and highways, bridges and ports, tunnels and dams — results in greater jobs growth and business investment. So as government finances improve, why aren’t we seeing infrastructure spending return?

I was surprised to find out it's state and local governments who are to blame.

The answer to what’s holding back U.S. infrastructure investment lies not so much with President Obama and Congress as with county commissioners and state legislatures.

Most of the money spent on building schools, highways and waste disposal facilities comes from state and local governments, not from the federal government. As of April 2014, more than 90 percent of the $267 billion spent by the public sector (at a seasonally adjusted annual rate) was at the state and local levels, according to the latest Census Bureau report on construction spending.

State government spending has grown over the the last few years as fiscal balances have improved.5 For the first time in five years, no state is expected to run negative balances in both its general and rainy day funds, according to the latest Pew Charitable Trusts Fiscal 50 report.6

So why aren’t states pulling the trigger on big capital projects? First, states are continuing to struggle with the legacy of the financial crisis, paying down debt they acquired during the boom years. And second, many state transportation projects are in limbo as the federal government’s Highway Trust Fund is expected to run out of money in August, unless Congress replenishes it.

State and local governments remain heavily indebted. They’re on the hook to pay pensions and benefits to retired government workers, and they borrowed a lot of money in the capital markets in the run-up to the 2008 financial crisis. As a result, they’ve been more focused on paying down debt than on investing in big capital projects — and in some cases, they’re proud of that. Florida’s transportation secretary, Ananth Prasad, spoke with me last week and pointed out that Gov. Rick Scott has paid down $3.6 billion in state debt.

Economists looking at aggregate entities by arbitrary systems of governments and borders will always lead to suboptimal analysis. 

The story is about population patterns in both size, age and income. 

How can a state that is poor, decreasing population, and increasing age keep up with investment?

How can a coastal region like N California keep up with demands on systems?

How can NY with the failing upstate region deal with Ny city 

at all?

The town, city, county, state, federal distinctions will become less and less workable.   Failing systems lead to migrations and excess demand on superior systems that cannot handle it which again forces migration. 

This is what statewide and national standards are for: we support each other rather than localizing the ability to afford things. 

Unfortunately this point of view -- supporting each other -- is less popular these days.

From 2011:

“A national infrastructure bank is a great place to start securing the funding we need to increase our mobility, create jobs, and enhance our global competitiveness,” said Donohue. “With a modest initial investment of $10 billion, a national infrastructure bank could leverage up to $600 billion in private investments to repair, modernize, and expand our ailing infrastructure system. While private capital is badly needed, we must also recognize our public financing mechanism is broken. Receipts to the Highway Trust Fund have fallen dramatically, funds are being diverted to non-infrastructure projects, and the gas tax has not been increased in 17 years. We need a multiyear highway bill to meet immediate needs, but we have to figure out a way to ensure we have adequate public investments for years to come.”

Especially with interest rates as low as they are, borrowing in 2011 (or even now!) to develop infrastructure makes a lot of sense. 

You know who could move the needle on this?  JOHN OLIVER.

Yes, John Oliver! I'm surprised he has not tackled this issue yet. 

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