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Now that the infrastructure bill has passed, here comes the hard part

Infrastructure deal looms
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After months of tortuous negotiations and political brinksmanship, President Biden’s $1.2 trillion infrastructure bill has passed. It is a moment to celebrate — a landmark legislative achievement and the largest U.S. infrastructure investment since the Eisenhower administration created the Interstate Highway System.

Now comes the hard part.

Like most funding bills, the infrastructure bill is light on specifics. It assigns blocks of funding: $110 billion for roads and bridges, $73 billion for the power grid and so on. The actual allocation of funds will be the responsibility of an array of federal agencies that match funds to projects and provide grants to states.

It is the allocation process that will determine success or failure. It can be short-sighted and politically dominated, or it can be strategic and launch a new era in infrastructure. 

Not surprisingly, political considerations are currently in the foreground. President Biden suggested it will be possible to see the effects of the bill “probably starting in two to three months” as areas “get shovels in the ground.” Transportation Secretary Pete Buttigieg spoke of the need to unblock projects that are already approved, but that need funding. 

The political appeal of such statements is obvious. There is immediate pressure to show results. But in the past, excessive focus on immediate impact and “shovel-ready” projects has brought infrastructure initiatives to grief.

There are several problems. The first is that funding shovel-ready projects diverts funds from other projects that need financial support. Shovel-ready projects are called that because studies and permitting are complete, and funding is already allocated. But the purpose of the bill is to target new projects for which no funding is available, rather than existing projects. 

A focus on immediate impact is equally troublesome. The infrastructure bill allocates funding over eight years (with some front-loading in the first five years). Shifting those investments further forward — to the first year or two — risks creating inflationary pressures. 

An additional risk is created if, in the rush to get started, an excessive amount of funding is directed at projects of the kind that the private sector typically supports. There would then be a “crowding out” effect in which federal spending supplants and discourages private investment. That would have an adverse impact on economic growth. 

Apart from the rush to get started, there are additional risks — allocating funds irrationally, or under political influence, in a way that leads to waste, inefficiency and pork-generating roads to nowhere, and the many missteps, conflicts and cost overruns that result if funds are not managed once they are allocated.

Is there an alternative?

Indeed, there is, and it is what we should all be aiming for. The infrastructure bill presents an extraordinary opportunity to invest our tax dollars in innovative ways and to launch a new era in infrastructure. To accomplish that, we need to:

Ensure that funding is allocated over the full life of the bill. Instead of front-loading with short-term projects, distribute funding as evenly as possible over the five-year peak funding period and the full eight-year term that the bill provides. This will help reduce inflationary pressures and crowding-out effects;

Take advantage of a long-term funding process to rationalize infrastructure planning. It is not just a matter of extending the timeline — it is also essential to ensure that funds are directed to projects that are still in the design phase. This provides an opportunity to influence them. Projects still in the design phase can be evaluated rationally, according to multiple criteria including financial criteria. The best-performing projects can be selected, and designs in progress can be optimized. Australia takes this approach. A central agency, Infrastructure Australia, acts as an independent body to prioritize federal infrastructure spending, maintaining a prioritized list that ranks each project based on analysis of costs as measured against economic, social and environmental benefits. And;

Use the funds to establish a new, rational, long-term infrastructure funding system. The best-case answer is to use the bill’s $550 billion in new funding to establish more permanent sources of capital. These include public-private partnerships — and public-public partnerships in which public entities such as state and other pension funds invest in public infrastructure. Finally, create a permanent alternative to 100 percent federal funding by establishing an infrastructure bank. Such a bank was originally included in the bill but was then, sadly, removed. This not-for-profit “InfraTrust” can act as a catalyst for combining public and private money. It would direct investment to infrastructure projects, creating a long-term funding source not captive to political whims or short-term appropriations cycles. It would also serve as a source of expertise to state and local governments, which often lack such resources, helping manage complex infrastructure projects and minimizing delays, contactor disputes and cost overruns. And it would function as a project clearinghouse, identifying the most promising projects and evaluating them rationally for effectiveness and economic impact.

With such a framework in place, a stream of effective new infrastructure initiatives would result. And as infrastructure improves under the new regime, a new opportunity emerges to create still more funding pathways through user fees. A national survey I recently helped conduct indicates that Americans will willingly pay more in return for the better infrastructure service they would receive.

That is the real opportunity inherent in the bill — to innovate, to rationalize the way we fund infrastructure and to shift away from total reliance on federal funding, as the U.K., Australia and Canada have done. If that can be accomplished, then there will be no need to repeat the drama of the infrastructure bill. We can instead, calmly and systematically, build the 21st century infrastructure we truly need and deserve.

Sadek Wahba is a member of the Advisory Council of the Wilson Center, the nation’s key non-partisan policy forum for tackling global issues. He is also chairman and managing partner of I Squared Capital, an independent global infrastructure investment company based in Miami. The views expressed in this paper do not necessarily reflect those of the organizations mentioned above.

Tags bipartisan infrastrcure framework Civil engineering Construction Infrastructure Infrastructure-based development Joe Biden Pete Buttigieg Public–private partnership Sadek Wahba Shovel ready

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