Why fixing US infrastructure matters: $9 per household per day

The average household would save $9.31 a day by 2025, by one estimate, if the federal government fixed deteriorating roads, public transit, and other infrastructure. But as President Trump prepares a $1 trillion package to address the need, there are big divisions over how to fund it.

Everyone agrees the $19.5 trillion US economy needs roads, bridges, railways, communications, and other modern infrastructure to run smoothly. But when these deteriorate, safety suffers and costs rise.

But the US has been underfunding infrastructure maintenance for years. Already, 1 in 5 miles of highway is in poor condition; 2 in 5 miles of urban Interstates are congested, according to the American Society of Civil Engineers. Four out of 5 major US airports could soon see Thanksgiving-like peak traffic at least once a week. 

Internationally, the US ranks ninth among nations for overall infrastructure, but 26th for the quality of its electrical supply. Overall, the ASCE gives US infrastructure a ‘D-plus.’ 

Where is the problem worst?

“All of the above,” says Jacob Leibenluft, senior adviser at the Center on Budget and Policy Priorities in Washington. In the ASCE's report last year, only the rail system rated a "B," and that's due in part to freight railroads funding their own maintenance. Every other category rated a "C-plus" or worse. Public transit earned a "D-minus."

Part of the problem is that the US spends about 2.4 percent of gross domestic product on infrastructure, whereas 5 percent is the norm in Europe, and China spends 9 percent, the Business Roundtable points out. That “deficit” grows yearly as infrastructure ages and the backlog of unfunded projects grows.

What would it cost to fix the deficit?

ASCE puts the infrastructure deficit at just over $2 trillion.

But in the long run, infrastructure spending pays for itself, according to several studies. To get that $9.31 in daily benefits per household, the US would have to spend $4.26 a day per household, ASCE calculates. According to projections in a Standard & Poor’s 2014 report, a $1.3 billion infrastructure plan would add $2 billion to GDP as well as 29,000 jobs.

That economic boost is why Democrats and Republicans have each talked up $1 trillion infrastructure plans.

If there’s bipartisan concern, will Congress act?

Many political analysts are doubtful, noting that the plan would need at least some Democratic support in Congress, and Democrats look little inclined to help the Trump administration score a legislative win heading into fall congressional elections.

“I’m hoping that there will be a path to some bipartisan support for a smart infrastructure investment plan from the federal government,” says Heidi Crebo-Rediker, an adjunct senior fellow at the Council on Foreign Relations in Washington. But “finding the ‘pay for’ is a significant hurdle.”

A key provision would be to raise the 18.4-cent-per-gallon gas tax, which funds the Highway Trust Fund. It hasn’t been raised since 1993 and has lost 40 percent of its value to inflation. As a result, the fund now needs periodic infusions of money from the General Fund to keep going.

But many Republicans are leery of raising taxes, especially so soon after passing huge income tax cuts.

The Trump administration is talking about pushing more responsibility onto states and localities, which already fund roughly 75 percent of infrastructure spending. And it wants to streamline permitting so projects can get under way faster.

Are there innovative approaches to funding?

The US typically uses general taxes or user fees to fund projects – and economists generally say the latter makes more sense. If somebody uses more water or drives more on roads, he or she pays more of the cost to maintain the needed infrastructure.

Federal funds could be used to incentivize states to launch projects using best practices, says Rick Geddes, a visiting scholar at the American Enterprise Institute. “There’s so much value created in the private sector” on every front, says Mr. Geddes, who makes the case for carefully designed public-private partnerships.

In an infrastructure outline released last year, the administration suggested privatizing the air-traffic control system – an arrangement used in Europe but roundly criticized in the US – as well as incentivizing more private investment in infrastructure. The Obama administration also pushed for more private investment, which is necessary, says Ms. Crebo-Rediker, “but it’s not a silver bullet.”

Will the US modernize infrastructure?

The Information Technology and Innovation Foundation is pushing for new information-technology networks, such as internet-connected sensors in water mains, which could detect leaks and reduce the 240,000 costly water-main breaks that occur every year. Smart traffic lights, which adjust on the fly to changing traffic flows, could cut travel time in cities by a quarter, ITIF says.

“Overall, studies find that investments in IT-enabled infrastructure can have 60 percent greater productivity impacts than investments in roads alone,” reads an ITIF report.