What's needed to Improve U.S. infrastructure competitiveness
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In the contentious run-up to the 2016 elections, a major point of consensus from all parties was the need to address our nation’s outdated and decaying transportation infrastructure.  The average American family loses $3,400 per year in disposable income due to delay and repair costs from inadequate infrastructure. The American Society of Civil Engineers has graded our transportation network a D+.  

In 2015, the World Economic Forum ranked the economic competitiveness of United States infrastructure in 11th place worldwide. But a fix for this problem has been bogged down for more than a decade, partly in discussions of whether private financing, public funding or sweeping regulatory relief promises the best solution.

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If the time for talk has truly ended and the “hour of action” is finally at hand, then addressing this problem will require nothing less than a multifaceted approach which recognizes the strength of private financing, the need for federal and state funding and the absolute requirement of regulatory relief. With a few improvements discussed herein, these three approaches work far better together than as single silver bullets.

Private financing has never been in a better position to turn its attention to public infrastructure. There is abundant capital in the economy and interest rates remain low.  Even after major infrastructure capital investment worldwide over the past few years, there is still conservatively over $100 billion in available infrastructure investment waiting and ready to be invested in such projects. Yet the number of successful public private partnerships in infrastructure projects remains low in this country. At least part of the blame for this must lie in the fact that private investment, which works best in a low risk, stable project environment has been challenged by the uncertainty of the resolve and commitment to development of transportation infrastructure projects in the United States.

Put simply, private financing is no more than just that—financing. It can greatly accelerate the availability of capital, but it relies upon a payback revenue stream, which can sometimes be a privately paid user fee, but more commonly in transportation infrastructure projects is direct public funding or tax benefits over a period of years.

The climate for a reliable stream of federal public transportation funding which could be used to payback private financing, has been dismal over the past decade. Federal public transportation funding has been sparse and only available in a totally unreliable manner, with 36 short-term extensions of transportation funding between the expiration of the SAFETEA funding authorization bill in 2009, and the enactment of the FAST Act in 2015. Even more worrisome, while past authorizations had provided a mechanism to guarantee annual federal expenditures at authorized levels, that guarantee has been removed. This means that even FAST Act funding is subject to the uncertainty of annual appropriations and continuing resolutions, creating a scenario where funding can be doled out for a few months at a time, with minimal increases.

State and local transportation infrastructure funding has proved far more reliable. For example, in California, 20 counties have approved referenda (which must pass by a two-thirds vote) enacting long term or permanent sales taxes dedicated to specific lists of transportation capital projects.  As a result, most California capital transportation programs are greatly overmatched with non-federal funds. Other state and local governments have acted similarly over the past few decades.

However, there exists no federal mechanism to incentivize or reward state and local funding for providing this overmatch capital.  In a perverse way, it may even be financially advantageous for transit systems to forego state or local taxation, let their systems fall into a state of disrepair and rely on the federal government to save them. This was clearly the situation with the Washington, D.C. Metro system, which was given an extra $1.5 Billion in federal funds after decades of local disinvestment. These additional federal funds came “off the top” and left a smaller pool of funds for systems that had maintained their assets in a state of good repair.

Finally, it is fair to say that no accelerated investment program to make America’s infrastructure great again can occur in the current regulatory environment.  This is much less an issue of the substantive requirements themselves, and much more an issue of the burdensome process by which they are interpreted and applied.

The meaning and application of the many conditions attached to federal surface transportation grant funds are subject to differing interpretations by federal bureaucrats in various Department of Transportation modal administrations and regional offices nationwide. This uncertainty can easily become compounded as state or local governments add on their requirements and approval processes. Requirements can be applied to projects already underway, and even retroactively applied, to dramatically increase the project costs midstream. Even simple requests to the federal state or local government for approval or clarifications of requirements can extend project completion schedules at will, leading to increased delay costs. As little as one dollar of federal assistance taints the entire project with all federal requirements and it is not usually possible to have a 100 percent locally funded segment or portion of the project.  The uncertainty associated with these requirements can mean that it will take as much as 14 years to complete a major capital transportation project. 

Is there a way to make financing, funding and regulatory relief work better together to quickly close the transportation infrastructure gap? Here are some suggestions:

--reinstate the federal guarantees of funding so that, when a transportation authorization bill is passed, the authorized funding can be relied upon to be in place on time for the life of the bill;

--conduct early risk assessments and binding risk allocations so that public or private providers of capital and financing have a better assurance of stability in the project future;

-- guarantee that a 100 percent locally funded project segment may be expanded through a future federally funded project and that federal project development requirements will never apply to that locally funded segment.

--make sure that the federal agency has at least one person assigned to the project whose sole duty and responsibility is to expedite the completion of the project;

--lower federal regulatory requirements, or permit a higher level of local project management, where the project is substantially funded by state and local sources;

--create incentives for local funding by making the level of commitment of local funds a factor in decisions regarding federal discretionary funding.

Improvements such as these will go a long way toward attracting private financing, better utilizing public funding and speeding up the delivery of transportation infrastructure projects.

Richard Bacigalupo is a Partner of Cardinal Infrastructure, LLC, an infrastructure development and management consulting firm located in Washington, DC. His focus is on advising industry executives and their staff from California and elsewhere throughout the country on strategies to successfully navigate the challenging process of obtaining federal funds and expending those funds in compliance with an increasingly complex federal regulatory process. 


The views expressed by this author are their own and are not the views of The Hill.