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Investing in Crumbling Infrastructure in the States Before It's Too Late
John Bacino on August 9, 2007 - 6:28am
LegAlert: Investing in Crumbling Infrastructure in the States Before It's Too Late
The recent tragedy in Minneapolis, along with the explosion of an underground steam pipe in New York City just weeks ago, has brought public attention to the problem of our country's crumbling infrastructure, a problem the Progressive States Network has been highlighting over the past year.
As we outlined in May in a piece entitled U.S. Infrastructure: An Economic Disaster Waiting to Happen, the warnings of the danger to both the public and America's economic future have been clear. After the steampipe explosion in Manhattan, we wrote in Manhattan's Aging Infrastructure Causes Explosion and Concern that initial concerns that it was a terrorist attack should have been converted into alarm that a decaying infrastructure poses a deadly threat, a worry too quickly confirmed with the death toll in Minnesota.
The Challenge: A report by the Urban Land Institute this year found that 83 percent of the nation's transportation infrastructure was not capable of meeting the nation's needs over the next ten years and that $1.6 trillion in investments were needed for infrastructure spending by 2010.
The US spends less than 1 percent of its GDP on infrastructure like transportation, power grids and water systems, compared to economic competitors like China which is spending 9 percent of GDP on infrastructure. A broken transit system means slower delivery of goods and a less competitive US economy in the world. Underinvestment in our power grids means wasted energy and blackouts when the system is stressed.
Finding the Money
The estimated $1.6 trillion needed to fix the infrastructure throughout our states is a daunting number, but a reorientation of fiscal priorities would mean not only eliminating dangers to our population but a pro-growth investment in new jobs throughout the country.
Raising the Gas Tax: The first place to start is to repair the most traditional source of transporation funding, the gas tax:
- The federal gas tax at 18.4 cents-per-gallon, a major source of transit investments across the country, has not been raised since 1993. Adjusted for inflation, the federal gas tax is half of what is was in the 1960s.
- Although twenty-eight states have raised their gas taxes between 1992 and 2003, only three raised it enough to keep pace with inflation. In inflation-adjusted terms, the average gas tax rate declined by 14 percent.
- Other nations around the world pay far higher taxes on gas, helping them both fund infrastructure and encourage the purchase of more fuel-efficient vehicles, strengthening their energy independence as well. Europeans routinely pay $3 to $4 per gallon in gas taxes (see graph), so even a significant increase in the gas tax in the U.S. would still leave US motorists paying far less than other developed nations-- and we would have additional funds to repair infrastructure.
Tolls: While in many ways less attractive than the gas tax, since tolls do little to encourage fewer gas guzzling cars on our highways, increases in tolls in busy transit corridors or over bridges could help reduce congestion and raise the funds needed to maintain and repair infrastructure.
Bonds: Infrastructure is a long-term investment and states can raise capital to upgrade their infrastructure. By its nature, such infrastructure investments generate new jobs and more vibrant state economies, so much of the long-term interest payments on infrastructure investments can be paid for with the increased state revenues associated with new economic growth.
Change Other Tax and Spending Priorities: The $1.6 trillion needed for infrastructure repairs is actually far less than the multiple trillions of dollars handed out to wealthy taxpayers in the Bush tax cuts and the money wasted in the Iraq War. In fact, the Bush Tax cuts will increase the federal debt by over $2.6 trillion between 2001 and 2010, according to Citizens for Tax Justice, and will cost even more in coming decades if they are renewed.
Similarly, the War in Iraq has cost almost $500 billion and the costs keep rising. One reason state legislatures across the country demanded an end to the escalation in Iraq and a plan for leaving is that they recognize the misguided fiscal policies of a futile war even as a rotting infrastructure endangers American lives every day.
Privatization: A Dangerous Diversion
Financial predators are already circling state legislatures offering privatization of public infrastructure as a "quick fix" solution to funding infrastructure in the states. As we wrote back in February in Ripoff Privatizations-- And Why They Keep Happening, these deals promise billions of dollars from private investors, but actually cost taxpayers bilions of dollars more over time as future toll revenues are diverted into the pockets of the new owners' shareholders.
The Indiana Boondoggle: For example, the much publicized sale of 157 miles of the Indiana Toll Road could cost Indiana taxpayers $21 billion over the course of the 75-year lease. Current politicians can make headlines with some immediate investments, but they will just be making the revenue problem worse down the road. "That is money that could go to our children, our grandchildren and our great-grandchildren," said Indiana House Democratic leader, Patrick Bauer, last year. Bauer became Speaker partly based on public reaction against this toll road taxpayer ripoff as new progressive leadership was elected in that chamber.
"Pay to Play" Corruption: Such deals are not just financially dangerous but create an opening for multi-billion dollar "pay to play" corruption as campaign contributions will flow to politicians willing to sell-off public assets at fire sale prices. Financial firm Goldman Sachs, which handed out $16 billion in bonuses or an average of $600,000 per employee, has been lobbying at more than 35 statehouses for privatization. And those Goldman Sachs bonuses end up in big money political contributions. The firm was hired by Indiana to design its Toll Road deal, worked for Texas on that state's privatization projects, and now is ready to jump to the other side of the negotiating table to bid on deals it helped design-- a sweet setup for any firm.
Federal Policy and Privatization: Dangerously, national politicians are lining up with national legislation to encourage more bad privatization deals. Just this week, U.S. Senators Chuck Hagel and Chris Dodd introduced the National Infrastructure Bank Act of 2007 to distribute funding, including tax credits for new infrastructure projects. While the goals of focusing attention and new funds on these infrastructure needs is laudable, the bill dangerously proposes funding more privatization deals. A "fact sheet" included in the materials distributed by the bill's sponsors specifically promotes "public-private partnerships" where public assets are turned over to ownership by the private sector. Unsurprisingly, companies like Goldman Sachs looking to reap billions in profits from the deals at the expense of taxpayers has lauded the sponsor's "leadership on this critical issue."
Counter to this new push for privatization in the Senate, the Committee on Transportation and Infrastructure of the United States House of Representatives, which has held hearings on many of these privatization deals, has sent a letter to Governors and Legislators around the country explaining that the Committee "believes that many of the [privatization] arrangements that have been proposed do not adequately protect the public interest" and warning that the Committee would work to undo any deals that "do not fully protect the public interest and the integrity of the national system."
Building a Economically and Environmentally Sustainable Alternative
There are alternatives to privatization to fund and repair infrastructure throughout our states. New revenues from the gas tax and changing spending priorities nationwide can yield much of the $1.6 trillion needed. And the reality is that state governments can raise capital through low-interest state bonds far more cheaply than private sector borrowers, so raising capital through private sector investments is inherently less financially sound than using the state bonding authority.
In any infrastructure deals, strict democratic accountability should be a key goal, both to assure financial returns for the taxpayer and to avoid the potential "pay to play" corruption of privatization deals. The State PIRGS in association with a number of coalitions nationwide have promoted principles for public accountability that any state government should apply before entering any public-private partnership.
The long-term decay of our states' infrastructure is a challenge, but one that not only states can meet but can benefit from through new jobs and long-term economic growth if investments are done right. "Quick fix" deals with global firms looking to profit from this crisis need to be avoided, but with the right political will, real revenue solutions to address this need are quite possible.
Progressive States Network
Urban Land Institute, Infrastructure 2007: A Global Perspective
Brookings Institution, Fueling Transportation Finance: A Primer on the Gas Tax
Privatization: A Dangerous Diversion
US House of Representatives, Commitee on Transportation and Infrastructure, Letter to State Leaders on Public-Private Partnerships