Skilled Trades

The Importance of Improving Our Infrastructure

It is rare that groups as diverse as the U.S. Chamber of Commerce and the AFL-CIO agree on an issue. It is even rarer when conservatives such as Paul Ryan, one of my heroes, advocate spending billions of tax dollars on an initiative.

But that is the case when it comes to the nation’s critical need to act now to salvage, maintain, improve, and expand its roads, bridges, ports, pipelines, railroads, transmission lines and other critical structures that support travel, commerce, and national defense.
Just over a year ago, the U.S. Chamber and the AFL-CIO, while recognizing the two associations made strange bedfellows indeed, called on Congress to put aside its own differences for the good of the nation.

“With the U.S. Chamber of Commerce and the AFL-CIO standing together to support job creation, we hope that Democrats and Republicans in Congress will also join together to build America’s infrastructure,” they said in a joint statement.

Rep. Ryan (R-Wis.) while stumping against most federal spending has recognized government’s duty to provide certain services. “This ‘core government spending,” including protecting personal property rights, maintaining national security, and building “roads and other infrastructure,” he wrote in A Roadmap for America’s Future, “tends to foster economic growth.”

Leaders from across the political spectrum are just as adamant that Washington must invest in the facilities that undergird America’s commerce. Former Democrat Pennsylvania Gov. Ed Rendell said $200 billion per year from state and federal government is required. The U.S. Chamber agrees, citing reports by the American Society of Civil Engineers that “nearly one-third of roads are in poor or mediocre condition, and one-fourth of the nation’s bridges are either structurally deficient or functionally obsolete…To support a 21st century economy, our highways, bridges and public transportation systems need to be kept in good condition and support growing and shifting populations and trade.  Our infrastructure must be dynamic and improving.  It’s what our competitors around the world are doing every day to gain a competitive edge.”

Construction associations and advocates long have preached the need to invest in infrastructure. Funding, of course, would put construction workers back on the job and support contractors punched in the mouth by the recession. But the construction industry is not the only beneficiary of a dedicated effort to build capital projects.

A report from the College of William and Mary’s Thomas Jefferson Program in Public Policy notes that over two years, one dollar spent on infrastructure construction produces $1.92 in economic output, including 35 cents in indirect economic activity for manufacturers, 20 cents for professional and business services providers, and 10 cents for the finance, insurance, real estate, rental and leasing sector. Sectors ranging from agriculture to entertainment to retail also benefit, as do federal, state, and local government coffers through tax revenue.

“The bottom line is that there’s a big difference between investment and wasteful spending,” said Toby Mack, president and CEO of the Associated Equipment Distributors, who commissioned the study. “When the federal government pays to build a road or sewer, it’s like a business buying a bulldozer or computer. It’s a productive asset that will spur economic activity and generate revenues for years to come.”

Without infrastructure investment, commerce will stagnate and American exports, which HIS Global Insights expects to increase by 40 percent by 2020, helping to lead the country out of recession, will die on the vine, warns the U.S. Conference of Mayors. The conference cites several instances of inadequate infrastructure in retarding commerce – too-shallow ports on the East Coast, poor roads in the Southwest, bottlenecks at New York’s JFK Airport not only cost American businesses money but also delay shipments of products such as steel, electronics, and commodities crucial for the country’s security.

The situation is exacerbated by the economy and the tight grip banks maintain on private investment capital. With private investment hamstrung, government investment is the solution in the short and medium term. Unfortunately, government, too, is tightening its belt owing to lower revenue streams. The gas tax, which pays for a huge chunk of road and highway funding, has not been increased since 1993 and is quickly running out of money. The trend toward alternative-fuel automobiles will further drain gas tax revenues.

The answer may lie in alternative funding sources. Public-private partnerships represent another way government can provide its citizens with the infrastructure it needs without the red ink that comes with bond issues.

“With both employment and consumer spending down, income and sales tax revenues are at all-time lows, and no one truly believes that they will increase in the near future. There also is reluctance among governments — and taxpayers — to increase municipal debt. Issuing municipal bonds is undesirable right now because of the requisite public hearings and the fear of harming credit ratings,” notes Bill Sprague, managing director at Gruppo, Levey & Co.