Constrained public budgets and a growing recognition at the local level of the importance of infrastructure—combined with lack of action at the federal level—are causing states, regions and cities across the U.S. to seek innovative infrastructure approaches and solutions. Local governments are utilizing a range of strategies, including ballot measures taken directly to the public, increased utilization of technology and pricing, and public/private partnerships, according to Infrastructure 2012: Spotlight on Leadership, released May 9 by the Urban Land Institute (ULI) and Ernst & Young LLP.
This year’s report looks at an overall decline in infrastructure funding globally, and it focuses on funding solutions underway in the U.S. Even as efforts to increase infrastructure revenues at the federal level remain stalled, states and localities are looking at other ways of overcoming fiscal woes in an effort to move forward with projects that can lay the foundation for economic growth. State and local governments are funding critical infrastructure building or refurbishment needs with increased sales or gas taxes, bond issues, and user fees, including tolls. Public/private partnerships are a growing part of the equation.
Infrastructure 2012 notes that in many localities, people are voting to raise taxes for infrastructure investment—from 2008 through 2011, ballots allocating funds to transit capital or operations had a 73 percent success rate. More than a dozen states have raised fuel taxes over the past year, and drivers nationwide are accepting higher tolls for roads and bridges. Local governments are taking advantage of tax increment financing and special assessment districts as well as public/private partnerships, while exploring alternative sources of private investment such as sovereign wealth funds and pension plans.
The study highlights six case studies showing how local and regional governments are moving forward with much-needed infrastructure investments such as transit, ports, bridges, roads, parks, and water supply. “Global economic competitiveness demands new kinds of regional entrepreneurship,” the report states, noting that each of the case studies can provide insight and inspiration for other localities seeking infrastructure solutions.
The examples cited are:
- North Carolina’s Research Triangle is raising local funds for a planned regional transit system spanning three counties. In late 2011, one of the three counties (Durham) passed a ballot referendum to fund its portion of the system; now the other two must follow suit.
- Ballot measures also are being used in Oklahoma City, which has achieved success with bundling proposed civic projects into short-term, focused packages and subjecting them to a vote. The city’s third Metropolitan Area Projects initiative passed in late 2009 and is generating $777 million for downtown parks and other civic infrastructure.
- In Los Angeles, strong leadership from public officials and grass-roots campaigning supported a $40 billion ballot initiative, Measure R, to fund critical transportation investments.
- In northeastern Illinois, a broad regional effort has produced a new plan to ensure future water supply.
- In San Francisco, a cutting-edge parking program uses new technology and pricing to better manage the city’s parking resources, encourage transit use, and achieve environmental goals.
- In New England, the “Knowledge Corridor” brand provides a regional hook that is being leveraged by leaders of two states to build a more sustainable, transit-oriented future.
The report calls out New York City as a national infrastructure innovator, citing its investments in the World Trade Center transit hub, the long-awaited Second Avenue subway, the Long Island Railroad tunnel under the East River into Grand Central Station, and planned replacement of the Goethals and Tappan Zee Bridges. Chicago is also taking a new infrastructure investment tack, with its aggressive $7.2 billion Building a New Chicago plan and the Chicago Infrastructure Trust.
“Progress often precipitates from failures – tough times have a way of helping reshape priorities,” said ULI senior resident fellow Maureen McAvey. “Local governments are stepping up to the plate, assuming more responsibilities and leveraging many sources of funding to build the infrastructure to bolster flagging economies and position for the future.” Still, she noted, without a clear federal policy, these localized, ground-up approaches are limited in their effectiveness. “Lack of a clear federal direction for policy and funding can create uncertainty and inertia that undermines progress,” McAvey said.
As in previous years, the 2012 report stresses that the U.S. continues to lag behind its global competitors in infrastructure funding. However, this year’s report points to a marked spending decline in Europe, which has been reeling from the debt crisis, and is adopting austerity measures as a result of the crisis.
“Europe, like the U.S., is struggling to bolster deteriorating decades-old systems, and is retreating on investments in major improvements after leapfrogging the U.S. on high-speed rail and other signature transportation projects,” said Ernst & Young LLP’s Global Real Estate Leader Howard Roth. “In both the U.S. and Europe, the era of massive infrastructure investments may be over. Although local governments may have success in doing more with less, the overall state of the infrastructure in these nations will deteriorate unless the political will and funding to make the needed investments materializes.”
Infrastructure 2012 also notes that the global recession has resulted in scaled-back spending in China — which for years has invested billions on state-of-the-art transportation lines and other infrastructure—and in a pullback in India and Brazil. The report found that:
- In the United Kingdom, private finance approaches are under fire at the same time that fiscal austerity is forcing the country to rethink infrastructure priorities.
- Europe’s depleted treasuries make new infrastructure projects look like an unaffordable luxury for now.
- Even China’s aggressive infrastructure building program has been slowing down, along with its economy, and it has scaled back its high-speed-rail program. Increasing internal debt, water supply, and environmental issues are pressing concerns.
- Despite spending eight percent of its gross domestic product on infrastructure, India may not be able to keep up with the needs of its exploding urban population.
- Brazil, South America’s emerging market superstar, has ambitious infrastructure development plans tied to the 2014 World Cup and 2016 Olympics, but may miss deadlines due to its weakened currency, red tape and corruption in contracting, and other issues.
- One bright spot: Canada, which has made infrastructure investments a national priority, and as a result, has an infrastructure relatively manageable deficit of no more than $125 billion. Canada’s public/private partnership approaches are a model for the world.
“Despite global austerity and continued economic uncertainty, leadership is key as politicians, procurers and service providers are finding bold new ways to collaborate, innovate, and leverage new technologies in an effort to support infrastructure initiatives around the world,” says Malcolm Bairstow, Ernst & Young’s Global Infrastructure and Construction Leader.