The nation’s infrastructure is analogous to the body’s circulatory system: Data, people, goods, energy and water are all distributed via infrastructure. Lacking efficient movement, the economy’s constitution weakens, resulting in diminished productivity and excessively constrained prosperity.
For years, engineers of various types have spotlighted America’s lagging investment in high-speed digital infrastructure, leak proof water systems, and sturdy roads and bridges. According to most analysts, America’s wireline or wireless broadband speeds are not even among the top 20 in the world.
As the birthplace of most of the world’s information technology, America was predicted to enjoy a phenomenal fiber optic future. But OpenSignal
, a company that specializes in wireless coverless mapping, has ranked the United States 55th in the world in wireless LTE speeds—with New Zealand first, followed by Singapore, Romania, South Korea and Denmark. Also, ZDNet indicates America is 41st in average broadband speed. (Lithuania is first, followed by Sweden, Portugal, Latvia and Finland.) In terms of average broadband speed, America ranks behind nations such as Moldova, Ukraine and Greece.
Beyond Broadband to Highways and Water Systems
The most recent American Society of Civil Engineers (ASCE
) report card
on the nation’s infrastructure—which identifies 10-year needs across 10 categories—concludes that inadequate infrastructure costs every American roughly $3,400 a year in disposable income.
In 2013, America’s infrastructure investment gap totaled $1.4 trillion. The bulk of that total, $1.1 trillion, pertained to a lack of adequate investment in the nation’s surface transportation network, which includes roads, bridges and mass transit. The level of underinvestment in electricity infrastructure approaches $200 billion, while the level of neglect in the water and wastewater infrastructure category exceeds $100 billion. Airports require about $42 billion in additional investment to meet existing needs, while America’s inland waterways and ports require an additional $15 billion. Ongoing underinvestment has earned U.S. infrastructure a D+ from the ASCE.
America’s lack of infrastructure investment is not simply a function of stalemated politics, a lack of will or an absence of foresight. The fact of the matter is that government doesn’t have much money to spend. The federal government is sitting on a $19 trillion national debt and faces even larger future funding gaps in entitlement programs such as Social Security and Medicare. Many states are wrestling with underfunded pensions and soaring Medicaid costs. A recent study indicated that pensions in Kentucky, Illinois and New Jersey are only about 40 percent funded—with education and public safety taking priority.
At the same time, America’s private sector, including companies operating abroad, are sitting on billions of dollars of excess capital. According to Bloomberg, by early 2015, U.S. companies were sitting on more than $2 trillion in stockpiled offshore profits. During the current economic expansion, CEOs have deployed surplus capital by raising dividends, purchasing company stock or acquiring competitors and suppliers. While such actions may temporarily boost investor interest and expand earnings per share, they do not necessarily help solve the infrastructure dilemma.
P3s to the Rescue
This capital could be deployed more productively in infrastructure projects through public-private partnerships (P3s). A recent Harvard Kennedy School of Government review, citing PPP Canada, defines P3s as a “long-term, performance-based approach to procuring public infrastructure where the private sector assumes a major share of the risks in terms of financing and construction and ensuring effective performance.”
While the performance and risk-spreading functions are important, ultimately the most crucial element of P3s is financing. Between 2005 and 2014, 48 infrastructure P3 transactions with an aggregate value exceeding $60 billion reached a formal announcement phase. Of these 48 transactions, 40 were successfully closed. 2012 was the busiest year on record, with nine P3 transactions reaching a financial close.
Skeptics often focus on announced transactions that fail to move forward, including Texas’ $3.5 billion SH-121 (2007), the $12.8 billion Pennsylvania Turnpike lease (2008), a $452 million Pittsburgh Parking concession (2010) and the $2.5 billion Chicago Midway Airport lease (2009 and 2013). According to Harvard, the “most common thread in these unsuccessful P3 initiatives is a lack of political consensus to support the underlying project through to completion.”
Here’s the point: P3s are the only conceivable financial solution to America’s infrastructure deficits. Dozens of successful P3s
already have been forged. The bulk of these agreements pertain to roads, though P3s also have been used to improve airports, seaports, water systems and parking lots. More states and municipalities must participate for America to bolster productivity and regain its competitive edge. A growing number of role model communities across Texas, Virginia, California, Colorado, Illinois and Indiana are paving the way.
Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit abc.org/economics.