When the newly elected president entered office, he brought along an ambitious plan to rebuild the nation’s crumbling infrastructure, promising to substantially invest in construction and repair of roads, highways and bridges. His goal was to put Americans back to work and spur economic growth.
Donald Trump in 2017? Guess again—that was Bill Clinton in 1993. While campaigning, Clinton made infrastructure investment a pillar of his economic plan, and in his first address to Congress promised to pursue “an investment program designed to increase public and private investment in areas critical to our economic future.”
As the example from the Clinton administration clearly shows, the need for investment in infrastructure is not a new problem. The United States has underinvested in both construction and maintenance of roads, highways and bridges; ports and waterway networks; transit facilities; drinking water and waste systems; schools; airports; dams and energy transmission grids; and rail lines.
A recent assessment by the American Society of Civil Engineers (ASCE) released March 9 highlights the seriousness of the situation. The ASCE’s 2017 Infrastructure Report Card, a quadrennial review and scoring of the nation’s infrastructure needs, gave an across-the-board grade of “D+” for the state of U.S. infrastructure. That grade is unchanged since the last such assessment in 2013.
The ASCE estimates the nation needs roughly $2 trillion over the next ten years—or about $206 billion per year— in additional infrastructure investment, at both the federal and state levels, to boost that grade to an acceptable level.
“In infrastructure, you get what you pay for and for decades we haven’t been paying nearly enough. It shows in the grades,” the ASCE report says. “It’s time to change that, not in one-time, short-term patches and small-scale investment increases, but through bold leadership, thoughtful planning, and—most importantly—sustained strategic investment. Through such transformative action, our infrastructure will be improved and built for the future.”
The case for investing in infrastructure now
Like Bill Clinton in the early 1990s, President Trump has made infrastructure investment a centerpiece of his economic plans. In his February 28 address to Congress, the President cited the historical example of former President Dwight Eisenhower, who launched the construction of the Interstate Highway System. Trump called for “a new program of national rebuilding” centered on new infrastructure development.
It remains to be seen what form the president’s proposal will take. But however the policy debate shapes up, there’s a strong case to be made that investment in public projects needs to be a critical priority now. Here’s why:
1) Investment in infrastructure can boost the economy—and failing to do so can be a drag on growth. As the Infrastructure Report Card makes clear, failing to close the infrastructure development gap could lead to $3.9 trillion in losses to U.S. Gross Domestic Product and 2.5 million lost American jobs by 2025. Investing in infrastructure now can boost job growth and productivity, helping to drive further economic growth.
2) There is substantial public support for infrastructure construction and repair. A summer 2016 poll of Americans by the Association of Equipment Manufacturers found remarkable bipartisan support for fixing the nation’s infrastructure:
Voters across the political spectrum think that the federal government should do more to improve the nation’s overall infrastructure, with 68 percent of Republicans, 70 percent of Independents and 76 percent of Democrats sharing this sentiment.
Nearly half of those surveyed (46%) believe the state of U.S. infrastructure has gotten worse since 2011, and a stunning 90% agree that the nation’s roads, bridges and energy grids are in desperate need of repairs and upgrades.
3) Infrastructure transcends partisan divisions. Partisan policy disputes exist, but agreement about infrastructure investment crosses party lines. Multiple candidates in the 2016 election made such investment a key part of their platforms. Democrats and Republicans may disagree on the best way to get there, but they should recognize they share a common destination, and work to negotiate a plan that works.
4) It’s more affordable now than ever. Relatively low interest rates make these projects, many of which will be financed with long-term debt, more affordable. Leading economists have made the case that with borrowing costs so low, now is the time to take advantage of those favorable conditions to fund delayed construction and repair.
5) New creative methods of financial and construction management make projects more efficient and cost-effective. Significant infrastructure projects require complex arrangements for financing, design, procurement and construction. However, there are ways to make these projects more timely and efficient. In September 2016, SIFMA’s Ken Bentsen and RBC Capital Markets’ Chris Hamel detailed in The Bond Buyer how innovative “design-build” strategies, combined with the judicious use of public-private partnerships and carefully crafted tax incentives, can help spur infrastructure revitalization.
The capital markets and financial industry stand ready to assist in this mission, by helping to provide the needed private funding to make these projects a reality. An effective strategy for infrastructure funding is based on the public and private sectors working together. “Meaningful public-private partnerships should also be a key component of any plan, as they will ease the burden on the cash-strapped federal government by leveraging our capital markets to create expanded financing options.”
The careful deployment of long-term debt issued through the capital markets is a powerful tool for making public investment projects affordable for state and local governments. It’s one reason so many municipal bond ballot initiatives meet with success when put to the voters—they’re often willing to support capital projects with tangible results that improve their communities and create jobs.
Likewise, investors appreciate these projects, which provide steady and reliable returns that are exempt from federal and state taxes. Preserving the tax advantages of municipal bonds is key to ensure that this funding stream remains attractive to investors at a time when public funding sources are tight, SIFMA’s Michael Decker notes.
“SIFMA strongly advocates that the tax exemption for municipal bond interest remain intact, so that it may continue to help America’s cities and states boost their local economies through the construction of new projects such as roads, hospitals and schools,” Decker says.
Washington should not allow the pattern of drift and inaction on our most critical public investment needs to continue. The tools are in place for policymakers to pursue a new era of infrastructure revitalization to strengthen the American economy and create jobs. It’s time to find the will to get it done.