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On the pot-holed highway to hell
By John Gapper
Published: May 8 2008 03:00 | Last updated: May 8 2008 03:00
If anyone doubts the problems of US infrastructure, I suggest he or she take a flight to John F. Kennedy airport (braving the landing delay), ride a taxi on the pot-holed and congested Brooklyn-Queens Expressway and try to make a mobile phone call en route.
That should settle it, particularly for those who have experienced smooth flights, train rides and road travel, and speedy communications networks in, say, Beijing, Paris or Abu Dhabi recently. The gulf in public and private infrastructure is, to put it mildly, alarming for US competitiveness.
You might have expected that investing in US infrastructure would be a hot political topic this year. Well, no. Hillary Clinton spent the final week of her Indiana campaign standing on the back of a pick-up truck arguing for a temporary suspension of the "gas tax", the fuel duty that pays for highways.
You read correctly. Faced with the emptying of the Highway Trust Fund, established in 1956 as the US entered a period of growth and prosperity, Mrs Clinton suggested cutting its source of funds (which she claimed could be made up by a tax on oil companies). It was more important to give Americans a summer break from $4-per-gallon petrol.
At times I wonder whether the world's biggest economy has the will to solve its challenges or will end up wandering self-indulgently into the minor economic leagues. I expect it will get serious when the crisis is too blatant to ignore, but it has not done so yet.
Perhaps that is a bit unfair. Some leaders have recognised the problem for economic development, as well as safety. They include Arnold Schwarzenegger and Ed Rendell, governors of California and Pennsylvania, and Mayor Michael Bloomberg of New York. The trio have allied to press for the states and Washington to act.
I think I sensed defensiveness on the part of Mr Rendell, one of Mrs Clinton's big supporters, when I talked to him on Tuesday about her gas tax proposal (which happily may have backfired on her). He insisted he would have spoken out against her plan if she had not proposed to fill the coffers from oil taxes.
Mr Rendell's main point was that the US needs all the cash it can get for its transport infrastructure, as well as water and power networks. He took a tour d'horizon of the problem: "Dams are in a horrible condition . . . We have no real rail transport, unlike most nations in the world . . . Summer delays make flying in America a disaster."
As it happens, I heard a similar lament from Mr Schwarzenegger at the Milken Institute Global Conference in Los Angeles last week. He recalled a recent visit to France during which he travelled with Nicolas Sarkozy, the French president, on the country's new high-speed train. "I could not believe we were going at 350km an hour," the erstwhile film action hero marvelled.
There are lots of ways in which infrastructure inadequacy matters to the US but I would focus on two.
First, it imposes a drag on economic growth. The private infrastructure is poor enough - broadband speeds lag behind other countries and mobile coverage is spotty. But much of the public infrastructure is unfit, a fact that was becoming clear even before Hurricane Katrina flooded New Orleans and a Minneapolis bridge collapsed during rush hour last year.
Second, it presents an awful image of the US to investors and other visitors. The state of transport and communications infrastructure is a symbol of a nation's economic development and the US is starting to look like a third world country. In fact, scratch that. Many developing countries look and feel better.
Of course, they are in a different phase of development. The US invested 10 per cent of its federal non-military budget in infrastructure in the 1950s and 1960s as it built the interstate highway system - at the time, the envy of the world. While US investment has fallen to less than 1 per cent of gross domestic product, China has been matching its double-digit postwar record.
The bigger problem is that, unlike European countries including the UK, the US shows little sign of finding the will or the funding mechanisms to maintain what it has or to build anew. Mr Schwarzenegger spoke enviously of public-private partnerships in both Canada and the UK that have enabled these countries to start redressing their inadequacies.
In the US, the Highway Trust Fund is likely to run out of money next year and the voters' tolerance for tax rises is strained. They have seen spending overruns and delays on projects such as Boston's $20bn (£10bn) "big dig" and the "bridge to nowhere" - a dubious Alaskan project to which federal funds were allocated.
Meanwhile, people are finding it hard to accept that if they do not pay for roads and rail links through taxes, they will have to stump up in other ways. Indiana's politicians ran into a backlash after Macquarie-Cintra, an Australian-Spanish consortium, took control of a state highway and raised the tolls on those using it.
But cutting taxes, balking at tolls and, in the case of California's public sector unions, opposing public-private partnerships on principle will not get the job done. The bill will have to be met, whether through increases in federal and state spending (in a more lucid moment, Mrs Clinton suggested issuing infrastructure bonds) or higher user fees and tolls.
Americans may not like the sound of that, but they cannot expect the US to maintain the economic dynamism of the late 20th century in the 21st unless they buckle down. Sooner or later, wishful thinking is going to crash into financial reality.
You need not look far to be reminded of the nation’s ongoing infrastructure problem.
A sinkhole large enough to swallow a car opened in the middle of Interstate 70 in Maryland last month; if an alert state trooper hadn’t discovered the problem as it was developing, that very well could have happened. In March, two miles of I-95 in Philadelphia had to be closed for two days to repair a corroded support pillar. The commuter backup was a nightmare, but at least no one was killed. Thirteen people weren’t so lucky when an I-35 bridge collapsed in Minneapolis last August.
It isn’t just roads. In New York’s borough of Queens, more than 100,000 people went without electricity for nine days in the summer of 2006 in an outage reminiscent of the record blackout three years earlier that affected 50 million people. A two-foot steam pipe installed more than 80 years ago exploded a year later under a street in midtown Manhattan, killing one person and injuring dozens more.
It goes on: failing levees, record airline flight delays, deteriorating rail lines, water and sewage treatment facilities that cannot keep up. It’s clear to most everyone that we are in trouble, but as with so many pressing issues, the problems persist and serve as a metaphor for our paralyzed politics. And as with so many issues, states, counties and cities are being forced to shoulder more of the load.
A nonpartisan coalition of 15 governors, plus New York Mayor Michael Bloomberg, have found federal infrastructure spending declining as a share of non-defense expenditures, from around 10 percent before 1966 to 4 percent or less since the 1990s. Now three-quarters of all infrastructure spending is by states and localities. The group’s co-chairman, Gov. Edward G. Rendell , said that while his state of Pennsylvania has increased spending significantly in the past five years, the “country can’t do it without federal leadership.”
Assuming no significant increase in federal aid, state and local leaders face four main options: raise taxes and fees, borrow in the bond market, raise tolls significantly or look to the business community for capital and know-how. To some extent, political leaders are trying all of them.
California is the champion borrower, since voters in 2006 approved a plan to take on nearly $40 billion in new debt for roads and levees. This spring, the Virginia Assembly voted to borrow $1.4 billion to fund construction projects and will return in June to consider various tax increases to pay for more work. But borrowing heavily in the municipal bond market has become more problematic in the wake of the credit crisis. And the faltering gasoline tax is almost impossible to increase at a time of soaring prices.
Taking a Heavy Toll
Increased tolling seems to be the solution of choice for many states. At peak times, crossing the nation’s busiest toll bridge, the George Washington connecting New Jersey and New York, costs cars $8, up from $5, and trucks $35, up from $25. New tolls are being planned on interstates across the country, particularly in the Northeast and Mid-Atlantic.
Some governors have turned to this option after being frustrated in attempts to try the fourth alternative: leasing public assets to private-sector entities. But Rendell is about to announce the highest bidder for operating the Pennsylvania Turnpike and wants the legislature to approve the plan in the next six weeks. Gov. Rick Perry recently pledged to keep pushing a recalcitrant Texas Legislature to approve his proposal for private toll roads. And it’s the solution of choice at the U.S. Transportation Department, at least through this year.
Addressing the problem isn’t only a question of money; it’s also a matter of how effectively it can be done. In a widely publicized report on global infrastructure, released a few months before the Manhattan steam pipe explosion, the consulting firm of Booz Allen Hamilton fixed the price in the next 25 years for modernizing and expanding the interrelated water, electrical and transportation systems of cities in the United States and Canada at $6.5 trillion — and $40 trillion for the cities of the world. The key word here is “interrelated,” the report said, because of “a controversial truth: transportation, energy and water infrastructures are so interdependent that they cannot be effectively addressed separately from one another.”
The public-vs.-private debate on who can best build and operate infrastructure of any kind is a false choice, the report said, since both sectors can mess it up. What’s needed is a public-private relationship, in the report’s words, in which government exerts its influence in the conceptualization and design of projects, “with a firm but light-handed oversight role that emphasizes goals instead of means.” The planning process needs to be inclusive and transparent. Business should lead in “financing, pricing and ownership” in part because government, for various reasons involving financing and incentives, “makes a poor owner over the long term.”
Clearly, we will be moving to some alternative form of financing infrastructure, perhaps sooner than later, because old methods are no longer adequate. Ideas are bouncing around in Congress, but in the end it may be experimentation out in the country that leads the way.
States & Localities: Falling Bridges
Peter Harkness is the editor and publisher of Governing magazine, published by Congressional Quarterly Inc. For a complete listing of his column, click here. |
