Infrastructure 2011: A Strategic Priority, a report produced jointly by ULI and Ernst & Young and released at ULI’s Real Estate Summit at the Spring Council Forum in May, assesses the state of infrastructure and what progress is likely over the next several years, tracks disparate strategies and major projects in the country’s primary metropolitan areas, and recommends approaches for overcoming substantial political and fiscal obstacles.
Hoping to gain footholds in a rapidly evolving global marketplace, most of the world’s leading countries have reaffirmed infrastructure repair and development as high investment and strategic priorities in 2011 but struggle to address funding shortfalls. Governments and business leaders realize that carrying out well-established, national infrastructure programs and policies is integral to future success and prosperity. Countries appear to gain an edge when they can execute forward-looking plans that tie infrastructure needs directly to securing future economic advantages, giving them the ability to direct project funding more strategically and efficiently.
But the United States notably continues to lag in the global infrastructure competition—laboring without a national infrastructure strategy, lacking political consensus, and contending with severe federal, state, and local budget deficits that limit options. Metropolitan areas that can forge plans and pool resources for new transit lines and road systems across multiple jurisdictions tend to fare better.
In most of the developed world and in many emerging markets, countries have committed to fulfilling infrastructure agendas as essential for sustaining or enhancing living standards in an increasingly competitive global marketplace. The U.K., China, and Brazil in particular are making big infrastructure strides:
Despite a severe austerity budget, the U.K. has committed $326 billion (£200 billion) over the next five years to continue national infrastructure projects focused on rail, energy production, and broadband access, with an emphasis on reducing the nation’s carbon emissions.
Flush with cash from its role as an export-driven manufacturing powerhouse, China is moving ahead with wide-ranging infrastructure programs, including completion of an unprecedented 10,000-mile (16,000-km) high-speed rail network by 2020. Newly constructed airports, ports, and subway systems in China’s major centers facilitate the country’s growth into the world’s second-largest economy and help it deal with mounting congestion from burgeoning urban populations.
Brazil is accelerating road, transit, and water projects to accommodate its burgeoning economy and buttress an enhanced standing on the world stage; it does not want to disappoint people visiting for the 2014 World Cup and the 2016 Summer Olympics.
In contrast with its global competition, the United States is lurching along a problematic course—and potentially losing additional ground. After more than 30 years of conspicuously underfunding infrastructure and faced with large budget deficits, increasing numbers of national and local leaders have come to recognize and discuss how to deal with evident problems. The overriding stumbling block to generating support for rebuilding the country’s infrastructure, though, remains simple public resistance to paying more for these systems—either through higher taxes or user fees. Although voters have passed bond issues and even some sales tax increases for new projects at the state, regional, and city level, the U.S. Congress perennially refuses to raise the federal gasoline tax or allow states to put new tolls on interstate highways, which could help ramp up funding for mass transit alternatives and repair existing highways and bridges.
States and cities, suffering from decreasing revenues—from sales, property, and gasoline taxes—also face the phase-out of federal stimulus money and the prospect of further declines in federal funding. Most local officials find it more politically palatable to reduce infrastructure budgets than to call for tax hikes, and governments scramble for available dollars.
Among the evident trends are the following:
Reduced federal funding threatens projects. As stimulus funds run dry and Congress plans budget cuts, many infrastructure capital projects on the drawing boards could be stopped in their tracks or delayed. Federal funding accounts for nearly 40 percent of capital spending for road and transit projects. Local officials are keeping their fingers crossed about federal funding commitments and must become more resourceful in holding deals together.
Lower sales tax revenues contribute to transit troubles. High unemployment and anemic economic recovery crimp sales tax revenues that many local governments—including Seattle, Denver, and Charlotte—had targeted for building out rail corridors. Cities in states that do not provide gasoline tax revenues or general fund support for mass transit are really feeling the pinch. Phoenix, Dallas, and Atlanta are taking further hits.
Aging infrastructure challenges older cities. Older cities—including Boston, Philadelphia, Chicago, and San Francisco—are retrenching on new projects and are still coming up short on budgeting for necessary repairs. They must make difficult triage decisions, including service cutbacks and fare increases for transit systems.
Shared approaches reap some dividends. Metropolitan areas where local governments pool resources and gain consensus in planning and spending strategies—including Denver, Minneapolis, Seattle, and Salt Lake City—have a better chance of achieving at least some of their objectives and can better prioritize projects.
Multiple agencies create conflicts. Multistate regions with multiple agencies in control of infrastructure budgets typically have more trouble prioritizing initiatives and work at cross-purposes. Schisms become more problematic in places like the New York metropolitan area.
Public/private partnership numbers rise. More states latch on to public/private partnership (PPP) models to finance new projects and raise revenues, following the lead of Virginia, Florida, and Texas on roads and Denver for light-rail investments. More cities can be expected to follow Indianapolis’s lead in figuring out how to sell parking concessions. Toll roads and high-occupancy toll lanes will become more familiar along the interstate landscape.
Constituents must be convinced. States, counties, and cities can benefit when their leaders and constituents determine they have more to gain through a concerted effort to plan and pay for infrastructure improvements, either through higher user fees, sales taxes, or creative funding solutions with private operators. Voters usually pass referendums for new projects, though some initiatives rely on pushing out costs to future taxpayers through bond issues.
Real progress may still be possible if waste hawks concentrate more of the limited funding available on merit-based projects with significant national and regional economic benefits, and government agencies are motivated to fashion workable partnerships with private operators through improved procurement protocols. The interest in gaining access to private capital and expertise through PPPs should accelerate as public funding sources diminish. Officials realize these transactions can help reduce expenditures for building and/or managing certain types of projects and concessions. Some states and local governments wisely are beginning to undertake realistic life-cycle budgeting for operating and maintaining systems, which can result in lower costs and greater efficiencies over time.
The report recommends:
Fix infrastructure first by giving priority to making necessary repairs and upgrades to existing systems.
Develop a national infrastructure strategy, then use a "Race to the Top" model for funding merit-based projects at the state and local level that dovetail with the country’s overall economic priorities.
Concentrate on the nation’s primary metropolitan areas, and in particular on the global gateway markets where population and business activity are concentrated, and at the same time integrate infrastructure and land use planning to gain greater efficiencies.
Provide greater long-term certainty for federal funding to support planning for capital projects.
Institute federal and state infrastructure banks to help support project financing.
Phase in user fees to help fund infrastructure initiatives on a continuing basis.
For 2011, the United States has plenty of worldwide company in coming to grips with infrastructure ambitions and soberly assessing what can be done under challenging circumstances. That often means downscaling ambitions, doing more with less, and finding creative solutions.