Infrastructure Weak

Infrastructure Weak

No, that’s not a misspelling. This is Infrastructure Week – well, at least in the United States, or, well, at least in Washington, or, well, at least on K Street in Washington. But it’s not much of a week. It is a very, well, “weak” week. Let’s take a few minutes to chart the course of the public discussion on infrastructure since the previous infrastructure week, because it’s come a long way. Not a long way to anywhere, just a long way. And where it may be going.

In 2017, Infrastructure Week was a VERY big deal in the US. And not just in the US, as a lot of the world looked on to see what the much-touted “trillion-dollar infrastructure plan” for the US would mean for them – a whole new flow of opportunities for investors and infrastructure companies? The US finally becoming the largest market in the world in this critical area? A giant sucking sound of capital coming into American infrastructure that would draw capital away from infrastructure needs elsewhere in the world? Even raising interest rates? In fact Infrastructure Week in 2017 was such a big deal there were two of them.

The same coalition of builders and contractors and infrastructure companies that is this week sponsoring the 6th Annual Infrastructure Week was at it in 2017, again in May. Then completely separately the White House proclaimed Infrastructure Week on its own, in June 2017. And then it came again… [For the running joke aspects of it, try National Public Radio’s “Why, it’s Infrastructure Week, Again” segment of two days ago, or the Atlantic’s “Infrastructure Week is Always Next Week.”]. Everyone was expecting the 2017 infrastructure week to culminate in a momentous announcement of a momentous plan to create the biggest infrastructure program the world had ever seen (except for China). Either the first Infrastructure Week, or the second Infrastructure Week. But no. That announcement came… in February 2018. And promptly dropped off the news agenda, proving to be neither momentous as an announcement nor as a plan.

Now it’s not like the US does not have a problem to fix. Picking a problem to illustrate the dire state of US infrastructure is a bit like shooting fish in a barrel. There are 55,000 structurally deficient bridges in the country, and multiple boil water orders every day in the US (which no longer make the news). In cities bus lines are deteriorating, and traffic congestion is getting worse; a concrete contractor for the Washington DC Silver Line to Dulles Airport was sued this week for knowingly selling defective product, potentially delaying the DC area’s flagship public transportation initiative (and when was the last time you had fun at an airport?). The American Society of Civil Engineers estimates the costs of inaction at over $4 trillion in lost GDP – over $100,000 for every household in the country. That’s the “backward-looking” infrastructure needs, and then you have the “forward-looking” needs as well. Scott Pruitt said something about climate change – oh wait, got that backwards, he said to NOT say anything about climate change (for those unfamiliar with US Government agencies, Scott Pruitt heads the EPA, the Energy-users Protection Agency). If you do try and fix those needs, the US would need a trillion dollars in investment – at least – and that’s just to fix the “backward-looking” problems.

Yet, as announced earlier this month by the White House, there will be no infrastructure bill in the US this year. Last month, the architect of the Trump administration proposal which was released in February, DJ Gribbin, quietly resigned. Hard to find anyone else who was involved in the plan. All the hope for large-scale investment evident in the 2017 Infrastructure Week had disappeared for the 2018 version.

So, what? Same old, same old? Infrastructure Week will always be next week?
Maybe not.

In infrastructure (indeed, in many high-complexity areas), it’s unusual to get everything right the first time. It takes sticking with a challenge, and going back to get key details right to achieve success. Infrastructure Ideas covered several examples of this in our recent Second Efforts column. We’ve also begun to cover some of the ways politics interfere with getting to solutions, and implementing needed infrastructure plans in many countries (Infrastructure meets politics). In the 2016 2017 2018 US infrastructure plan from the Trump administration, it was clear politics played a large, and mostly unhelpful, role in shaping the proposal. Not that you can implement any meaningful infrastructure program without politics, but without a balance, the politics will overwhelm the feasibility and usefulness of a plan. So the hope for improving infrastructure in the US may lie in ideas and plans that gather fewer headlines. In the US, that means two things clearly, and probably a third.

The first silver lining for US infrastructure is that frustration with Federal inaction is leading to local action. While nothing is coming from the White House (Congress has proposed something — $20B as part of an omnibus spending bill, or if math serves correctly, 2% of a trillion dollars…), state and city governments are finding ways to raise resources. Over half of US states have raised gasoline taxes in order to fund infrastructure projects, and many cities are looking at new revenue sources as well. The Washington DC city government is debating raising the revenue tax on ridesharing Uber and Lyft services: the Mayor proposed a 4.75% increase, the City Council wants 6% — either way, it’s the right idea. Even more importantly, DC is looking at a regulatory change to access the data generated by ridesharing companies – and that data is an asset which is likely to become a source of future income for the city – a much better approach to regulating these new businesses than New York’s attempt to simply bar them from operating. This push for new revenue sources from states and cities makes sense in the US given the low share of infrastructure spending at the Federal level: higher Federal spending would in any case have been in large part channeled to states and cities. And it is the kind of approach that will increasingly make sense in most countries, not just in the US. Changing mobility technologies, along with distributed generation, and the need for climate adaptation investments, will all contribute to increasing the share of infrastructure spending that happens at the local level relative to the national level. Frameworks for enabling sub-sovereign governments to invest in local infrastructure will be increasingly important, as will the ability and willingness of sub-sovereigns to raise revenues from the beneficiaries of that local infrastructure.

The second silver lining is that the US may finally get more serious about Public-Private Partnerships. PPPs, or P3s, have for the last two decades been a growing part of infrastructure investments in developed and emerging economies alike. The US, interestingly, has been a laggard, in spite of its northern neighbor, Canada, being among world leaders in developing and using this approach. A handful of US states have been in recent years using PPPs as a funding and execution model to address their infrastructure issues: Virginia is one of the US leaders here. Interest seems to be growing, and not just in traditionally more commercial aspects of infrastructure like ports or energy. Pennsylvania is engaged in a program to rebuilt some 500 mostly rural bridges using a PPP model. What PPP programs take is an understanding that general revenue funding won’t be enough to meet all investment needs, and then good detailed analysis of burden-sharing and benefit-sharing. It’s work, but not rocket science. Now that hopes that the US infrastructure deficit would be solved with a wave of the magic Washington money wand are disappearing, PPPs should get more attention.

The third area in the infrastructure debate that is looking different than it did is technology. We’ve already written about this and will continue to, but the here’s the short version. When technology arrived in telecommunications, three decades ago, it had two major and related impacts: it made it a lot cheaper to deliver and use communications services, and in turn those lower costs meant that communications infrastructure became entirely commercial – costs were low enough that user payments covered them. Technology arrived in energy infrastructure over a decade ago, and its had similar effects: it’s made it a lot cheaper to deliver and use electricity. The effects of lower electricity costs are just starting to play out, as new cheap solar and wind, and in some cases gas-fired, power displaces older and more expensive thermal alternatives. In countries that rely on state-subsidies to state-owned utilities for electricity, the switch to a fully commercial model will arrive soon. And now technology is arriving in transport infrastructure, with shared-services (enabled by data and communications technology), electric vehicles (getting cheaper fast), driverless vehicles, drones, 3-D printed bridges, and more. Whether hyperloops ever become viable or not, technology will have a similar effect on transportation infrastructure than it has had in communications infrastructure and energy infrastructure – making services cheaper. This will require less spending in the future. And increasingly enable commercial models to finance the spending. Still some years out, but in all likelihood another game changer for the infrastructure debate.

There are of course further problems with all three of these potential silver linings. Greater reliance on local revenues, the complexity of PPPs, and the dynamics of new technologies are all likely to further grow the gaps between leaders and laggards, between higher-income and faster-growing states and municipalities, and lower-income places that are not growing. Among other issues. But they are still silver linings on the current dark clouds over US infrastructure. And they are hopeful factors for all countries that are trying to address their own infrastructure problems.

In 2018 it is “infrastructure weak” this Infrastructure Week. But the game is changing, and this annual marker of the State of Infrastructure, as discouraging as it may look in 2018, is likely to be a lot more interesting in coming years. Stay tuned…

 

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