A National Infrastructure Policy

Efforts persist to find a solution to the funding problem despite political gridlock

By Manuel H. Lazerov

There is considerable gridlock over how to fund the nation’s infrastructure. The administration has still not moved on its position for greater private investment in public infrastructure. While the federal government will make some contribution to the upgrade and expansion of our infrastructure, it expects state and local governments to increase taxes and user fees, and rely upon the “recycling” of existing infrastructure assets, which involves the sale of projects to investors who would upgrade them, releasing money for new public construction.

At the national level, both sides of the isle keep asking the same question: Where are we going to get the money? What this presumes is that projects will continue to be funded by government alone. There is no reference, whatsoever, to private investment in public infrastructure, expect by the administration, which sees it as a major source of funding.

Realistically, the administration may be right. Raising taxes is an anathema. Raising user fees can get public officials tossed out of office. The disposition of public assets infuriates the public.

It is also unrealistic to expect Congress to come to the rescue, since they run for office with greater frequency than local officials and wish to be viewed as responsible stewards of the public purse. Congress is struggling to maintain existing programs and cannot be expected to initiate new spending, which might crowd out existing programs that have strong constituencies behind them.

The President’s current budget proposal reduces the amount of funding for the EPA. Nevertheless there will be more money for: (1) Superfund sites, including remediation and the renewable gas space, (2) State Revolving Fund (SRF’s), and (3) Money for cleaning up environmental conditions in older buildings. Money for stormwater management, for instance, could be completely or partially funded by SRF money – which congress appropriates for the EPA – which funds state and local water, wastewater, and stormwater projects.

While it is not official policy, there is another twist. The President has said that future allocation of federal funds for infrastructure will be dependent upon state and local government being able to prove that their projects are economically sustainable. This would force local government to take lifecycle planning and funding into account. It means that local government might, in the future, have to prove that construction costs, adequate operations and maintenance, and funding reserves for replacement would become a legal responsibility as a condition of receiving federal funding.

The reason for this is that we have accumulated trillions (no typo!) of dollars of deferred maintenance, after the government provided as much as 90 percent of construction costs.

This prospective policy might accomplish having government generate more projects built by private parties. In negotiating concession agreements with private parties, government would require private parties to build, operate and maintain assets, and create reserves for replacement for those properties to eventually turn them to local government in good condition after the concession’s expiration. The level of user fees would have to be periodically set to reflect those expectations.

Stormwater management is the type of infrastructure that can yield societal benefits for new development or redevelopment. Technologies used to retain rainwater to ease the burden on existing sewage treatment plants help to reduce pollutants and build resilient communities.

Regional stormwater systems are an even greater challenge, requiring the acquisition of easements on private property, securing the consent of numerous jurisdictions within a watershed, and coming to agreements on how to pay for a regional system. One way, of course, is to create a taxing authority, which can levy a fee for the construction and maintenance of a system. Another option is to grant a concessionaire the right to build and operate a system, and charge a fee as well, which should be a consideration if a private investor can to do it less expensively. The way something like that would work would be to have local government calculate what it would cost them and, if an investor could do it for six percent less in a competitive bid process, it would go to the private investor.

The economy has had dramatic improvements in the last few years, putting even greater strains on our nation’s infrastructure. State and local government, despite the gridlock in Washington, are creating their own initiatives, which is precisely where the action is today in rebuilding and expanding our infrastructure.

Manuel H. Lazerov is President of Infrastructure Financial, Inc. He may be reached at www.infrastructurefinancial.org.