The $18 trillion U.S. economy relies on a vast network of infrastructure from roads and bridges to freight rail and ports to electrical grids and internet provision. But the systems currently in place were built decades ago, and economists say that delays and rising maintenance costs are holding economic performance back. Civil engineers raise safety concerns as well, warning that many bridges are structurally deficient and that antiquated drinking water and wastewater systems pose risks to public health. Meanwhile, Americans’ international peers enjoy more efficient and reliable services, and their public investment in infrastructure is on average nearly double that of the United States.
During his campaign, Donald J. Trump promised to focus on the issue, and debate has since intensified over how to improve the nation’s infrastructure. Skeptics of federal spending have pushed for new models of private sector involvement, arguing that it is more efficient and cost-effective. Others argue that increased public spending will be necessary to meet the country’s growing needs and ensure that development is in the public interest.
How important is infrastructure to the U.S. economy?
Economists argue that robust investment in infrastructure in the twentieth century set the foundation for the nation’s strong growth in the aftermath of World War II. And as engineer and historian Henry Petroski explains in his book The Road Taken: The History and Future of America’s Infrastructure, poor infrastructure can impose large costs on the U.S. economy. In addition to the threat to human safety of catastrophic failures like bridge collapses or dam breaches, inadequately maintained roads, trains, and waterways cost billions of dollars in lost economic productivity.
According to Petroski, the delays caused by traffic congestion alone cost the economy over $120 billion per year. Airports are another choke point: international tourism supports 1.2 million U.S. jobs and brings in hundreds of billions of dollars of tax revenue. But some studies have found that delays and avoided trips due to the poor state of the nation’s airports cost the economy over $35 billion per year.
Many analysts say that investing in both new infrastructure and current maintenance would positively impact the economy in a number of ways. By increasing efficiency and reliability and lowering transportation costs, it would boost long-term U.S. competitiveness and insulate the economy from shocks. It would also directly add demand and employment, as some fourteen million workers, or 11 percent of the total U.S. labor force, are currently employed in infrastructure-related sectors, according to the Brookings Institution.
Economists generally see infrastructure spending as having a significant “multiplier effect,” though estimates differ. A 2014 University of Maryland study found that infrastructure investments added as much as $3 [PDF] to GDP growth for every dollar spent, with a bigger effect during a recession. Global consulting firm McKinsey estimates that increasing U.S. infrastructure spending by 1 percent of GDP would add 1.5 million jobs to the economy.
What is the overall state of the nation’s infrastructure?
The U.S. population has more than doubled since the 1960s, when most of the country’s major infrastructure systems were designed. Many are reaching the end of their lifespan, and are dangerously overstretched, experts say.
The American Society of Civil Engineers (ASCE) has compiled regular “report cards” on the state of U.S. infrastructure since the 1980s. In its 2017 report, the ASCE finds that the nation’s infrastructure averages a “D,” meaning that conditions are “mostly below standard,” exhibiting “significant deterioration,” with a “strong risk of failure.” The group estimates that there is a total “infrastructure gap” of nearly $1.5 trillion needed by 2025.
Other analysts agree that the shortfall is large. The U.S. Department of Transportation (DOT) estimates that over $800 billion is required just to shore up the nation’s roads and bridges. McKinsey researchers say that $150 billion per year will be required between 2017 and 2030 to keep abreast of all the country’s infrastructure needs.
Transportation will require the largest chunk of funding needs. The DOT finds that one in four bridges are structurally deficient or not designed for the traffic they now support. While America’s airports carry the most passengers of any country in the world, its aviation infrastructure is also overburdened, with some 20 percent of all arrivals and departures delayed, according to the DOT.
The country’s rail systems are a mixed bag. U.S. commercial rail is among the most developed in the world, moving nearly 40 percent of the nation’s goods, more than any other country. At the same time, the focus on freight rail has relegated passenger rail to a lower priority. According to the DOT, nearly a fifth of all passenger rail lines are in “poor condition.”
The country’s water and energy systems are under stress. The Environmental Protection Agency estimates that drinking water, wastewater, and irrigation systems will require $632 billion in additional investment over the next decade. Ports and waterways, which handle over one-fourth of the country’s freight transport, face mounting delays. The operators of the U.S. electrical grid are struggling to make the necessary investments, and increasing power outages are costing the economy billions of dollars.
New technologies are also posing challenges. The next generation of cell phone and wireless service will require [PDF] major investments in “small cell” wireless nodes, which are expected to replace traditional cell towers. Quickly advancing drone technology has the potential to revolutionize transportation, disaster response, and delivery services, but it also threatens to expose vulnerable infrastructure to attack or sabotage.
Meanwhile, experts warn of the “broadband gap,” in which rural and low-income communities suffer from a lack infrastructure to deliver reliable, fast internet, referred to as broadband. A 2017 Brookings report on the state of the nation’s internet access finds that a quarter of Americans live in “low subscription” neighborhoods, in which less than 40 percent of residents have access to broadband. Less than 20 percent live in “high subscription” areas with broadband coverage of over 80 percent.
How does that compare internationally?
The United States generally lags behind its peers in the developed world. According to the World Economic Forum’s Global Competitiveness Report, in 2016 the United States ranked [PDF] tenth in the world in a broad measure of infrastructure quality—down from fifth place in 2002. That places it behind countries like France, Germany, Japan, and Spain.
U.S. infrastructure performance suffers from its comparatively low quality, with consequences for businesses, workers, and travelers. Average commuting time in the United States, at forty-eight minutes per day, is well above that of its peers due to congestion and poor public transit; it is thirty-eight minutes in the United Kingdom and thirty-one minutes in Italy. U.S. passenger trains average just half the speed of Europe’s high-speed rails. Aviation industry rankings cited by Business Roundtable [PDF], a group of American CEOs, put only four U.S. airports in the top fifty worldwide, with the top-ranked coming in at number thirty.
When it comes to internet, the World Economic Forum ranks the United States nineteenth worldwide in broadband coverage. At the same time, Americans pay more than their European peers, and receive slower internet speeds. Some analysts attribute this to the lack of competition in most U.S. markets, which are often served by only one internet provider. Others argue that the incoherence of federal internet regulations discourages telecommunications companies from investing in better infrastructure, especially in rural areas where running broadband lines across vast distances is more expensive.
Much of the discrepancy between the United States and its peers can be traced to very different funding levels. On average, European countries spend the equivalent of 5 percent of GDP on building and maintaining their infrastructure, while the United States spends 2.4 percent. Other countries, including Australia, Canada, France, and the United Kingdom have also developed national infrastructure frameworks that allow the central government to direct and prioritize projects in a way that the United States’ more decentralized system has struggled to do.
How is U.S. infrastructure funded and financed?
The United States differs from most other industrialized countries in the extent to which it relies on local and state spending to meet its infrastructure needs. While most European countries fund the bulk of their infrastructure development at the national level, only 25 percent of U.S. public infrastructure funding comes from the federal government. That is down from a peak of 38 percent in 1977, leaving often cash-strapped local governments to bear more of the costs of investment and maintenance.
Washington’s primary mechanism for funding transportation infrastructure is through direct grants to states, paid out from the Highway Trust Fund (HTF), created in 1956 to fund the creation of the interstate highway system. The HTF raises money through the gas tax and other transportation-related taxes, and spends it on roads and highways (about 80 percent) as well as mass transit projects (about 20 percent). But analysts say that the HTF is facing insolvency, and that without a rise in the gas tax (which has not been increased for over two decades) or other additional funding sources, it could run out of money as soon as 2021.
The federal government supports infrastructure in some indirect ways, through financing mechanisms or tax incentives. These include the 1998 Transportation Infrastructure Finance and Innovation Act (TIFIA), which provides low interest loans and other credit assistance that local governments can use to finance their infrastructure projects. The Congressional Research Service (CRS) calculates [PDF] that TIFIA has provided nearly $25 billion in financing since its creation.
The federal government also supports the municipal bond market, which is what local governments mostly rely on to finance infrastructure projects. States and other municipalities issue bonds to raise money from private investors, and Washington gives these bonds a number of tax incentives. Most significantly, the interest on municipal bonds is exempt from federal taxes. The CRS estimates this costs the federal government some $37 billion a year.
Finally, a small but growing number of infrastructure projects are being organized as joint efforts between government and private developers, known as public-private partnerships, or P3s. Under this model, private firms win a concession from the state to build infrastructure, say a highway, as well as the right to charge tolls or user fees on it in exchange for the responsibility of operating and maintaining it. P3s are much more popular in European countries partially because, experts say, the low cost of private financing via municipal bonds in the United States is often an easier and cheaper route for local governments to secure financing.
Will President Trump’s tax overhaul impact infrastructure?
Some experts say the major changes to the U.S. tax code pushed through by the Trump administration in 2017 could raise the costs of infrastructure finance in several ways. Cuts to both the individual and corporate tax rates reduce the attractiveness of municipal bonds as tax-free instruments, says Aaron Klein, a fellow at the Brookings Institution. Municipal bonds are by far the biggest source of financing for local governments, and lower demand for them will make them more expensive to issue, raising costs.
The legislation also made changes to the state and local tax (SALT) deduction: SALT previously allowed for an unlimited deduction of local taxes from one’s federal return, especially benefiting wealthy taxpayers in high-tax states such as New York and California. The new tax law caps the SALT deduction at $10,000, which analysts say will likely put pressure on local governments to cut their own taxes. This dynamic could further undermine states’ and cities’ abilities to fund needed infrastructure projects, though some commentators believe this could lead local authorities to spend their funding more efficiently.
What are the proposals to improve the system?
Many observers argue that the United States will have to find ways to spend significantly more money to address its infrastructure deficit. Proposals to do so often break down along partisan lines, with Democrats backing more direct federal funding, whether financed by debt or higher taxes, and Republicans generally arguing that better results can be achieved at lower cost by encouraging more private sector development.
Many economists support raising revenue by increasing user fees, like tolls, or taxes on infrastructure usage. They argue that requiring users to shoulder more of the cost of the nation’s infrastructure both raises revenue and encourages more efficient use of resources. At the federal level, the most common proposal is increasing the gas tax. (The Obama administration also unsuccessfully floated the idea of taxing drivers by the mile.) States could also increase the use of toll roads in order to raise revenue for road maintenance.
Cities like New York have considered following the example of their international peers, like London and Singapore, by imposing congestion pricing, or fees on cars entering certain parts of the city. New York’s 2007 proposal would have reduced car traffic in Manhattan while raising funds that could be spent on upgrading the city’s aging transit and other infrastructure. The New York State Assembly never approved the plan, however, and in general such user fees remain politically unpopular in the United States.
Another proposal that has seen some support [PDF] in Congress is a national infrastructure bank. Such a bank would be a government-owned corporation and, like the TIFIA program, would provide cheap, long-term financing for infrastructure projects. Supporters argue that this could overcome the fractured nature of local spending, help coordinate developments that cross state borders, and give Washington greater ability to prioritize important projects; they point to the European Union’s version of such a bank, the European Investment Bank, as evidence of this. Skeptics point out that municipal bonds already offer very cheap financing, especially with interest rates near record lows.
Some conservative and libertarian economists also worry about expanding the federal role, given what they see as a history of politically driven and economically wasteful federal infrastructure spending. Some argue that a steady flow of federal money gives states an incentive to build things they don’t need and that they struggle to maintain. Others say that onerous regulations and complex approval processes slow down projects and raise costs, and that the federal government should work to reduce them.
What has President Trump proposed?
In June 2017, the White House released its 2018 infrastructure budget proposal [PDF], which sought to elaborate on Trump’s campaign promise of an infrastructure plan worth $1 trillion. According to the proposal, that total would mostly consist of private capital that the administration says would be incentivized by $200 billion of new federal spending, including low-cost loans. Though few details are provided, the proposal foresees increasing spending on the TIFIA federal loan program and a similar program for water infrastructure, expanding tax-exempt bonds, increasing public-private partnerships, and reducing environmental reviews and other permitting processes. Trump also champions the privatization of certain infrastructure assets, including the air traffic control system.
In the wake of Trump’s tax bill victory, Republicans have signaled potential legislative action on infrastructure in the first half of 2018. But divisions within the administration appear to have deepened, after Trump repeatedly criticized the public-private partnership model, suggesting he would prefer more direct spending, and raised the possibility of dramatically increasing the gas tax.
But analysts say there is little appetite for those measuresamong congressional Republicans. And as CFR Senior Fellow Heidi Crebo-Rediker points out, Trump’s original proposal for $200 billion in additional infrastructure spending would be offset by infrastructure cuts elsewhere in his proposed budget, including reductions to the Department of Transportation, the national passenger rail service Amtrak, and the highway trust fund.
Meanwhile, other analysts say that the focus on using P3s and relying on private sector financing alone won’t address major gaps in the system, such as maintenance of existing roads, bridges, and water lines, since those projects are unlikely to be profitable enough to entice private investors. And, as Crebo-Rediker argues, the United States lacks a culture of private ownership of major infrastructure, which may pose enduring political barriers to efforts to privatize swaths of the transportation system and public utilities.