The Highway Trust Fund is a good first step to funding infrastructure, but private investment is key.
Before we celebrate pending congressional action over funding for the Highway Trust Fund – be it a short-term deal now or long-term deal later – consider that the United States needs about nine times that amount annually to get U.S. infrastructure back on track.
The Department of Transportation estimates that we need to spend between $124 and $150 billion a year just to maintain our current, decrepit, system. In 2013, the American Society of Civil Engineers estimated that to actually improve the quality of current infrastructure, the price tag rises to about $450 billion annually, or over $3.6 trillion, by 2020.
The Highway Trust Fund supports about $50 billion in infrastructure projects annually. This is known as the infrastructure funding gap – the country needs to spend a lot more on infrastructure than current policy funding allows for. No matter how you calculate the need, the heralded Highway Trust Fund starts to look more like legislative symbolism than pragmatic policy solution.
There is broad bipartisan agreement around the importance of infrastructure and the Highway Trust Fund, but little consensus on how to pay for it. This political gridlock, and overall federal and state belt-tightening, means there’s a need for new ways to pay for infrastructure.
That’s where the private sector comes in. They have the resources to help fill this gap and modernize America’s infrastructure.
There are large benefits to modernizing. New research from economists Douglas Holtz-Eakin and Michael Mandel for the McGraw Hill Financial Global Institute (which I run), “Dynamic Scoring and Infrastructure Spending,” shows that infrastructure investment has a spending multiplier that yields a significant contribution to gross domestic product, ranging from a conservative estimate of 0.8 to 1.6 times the original amount invested. A survey of existing studies shows that $100 billion in infrastructure spending would contribute between $62.5 billion and $165.5 billion over 20 years, with $12.5 billion to $33.1 billion in new tax revenue receipts.
Investments in public infrastructure projects consistently produce stable, long-term returns on capital. Institutional investors, looking to match these qualities with their own long-term liabilities, are eager to leverage low interest rates and an economic upswing to invest in U.S. infrastructure. By one estimate, there could be as much as $7 trillion available around the world for long-term investment in U.S. infrastructure. With new financial products like Build America Bonds and the proposed Qualified Public Infrastructure Bonds, this untapped capital reserve is waiting to close the U.S. infrastructure deficit.
Given the critical importance of rebuilding U.S. infrastructure, the significant returns on investment and the contribution to national output, restarting the Highway Trust Fund is a good first step. But let’s be clear-eyed about the large funding gap and the potential sources for filling it.
This piece was cross posted from U.S. News & World Report.
