Politics, Policies and Pragmatism–Part 2

In June we introduced this topic with a discussion of the TSA, as an example of the pragmatic considerations of airline passenger safety. This time, let’s look at infrastructure. It’s far from an appealing topic at dinner or casual conversation. Only infrequently do political campaigns make it a big deal. This year is an exception. More on that later.

The effects of aging on concrete and metal are well known. As the ad goes for oil changes, “pay me now or pay me later.” The cost of repairs only increase over time. The consequences of catastrophic failure are real and devastating. As it turns out, this collapse came as the result of metal plate too small for the task it should have performed.

The I-35W bridge collapse site as seen from a U.S. military helicopter in Minneapolis on August 4, 2007. Keeping U.S. roads and bridges safe requires federal funding, but lawmakers can’t agree on how to pay for the Highway Trust Fund. Photo by REUTERS/Larry Downing
The I-35W bridge collapse site as seen from a U.S. military helicopter in Minneapolis on August 4, 2007. Photo by REUTERS/Larry Downing

Occasional news reports like the one from NPR that included the photo above, will warn us of America’s deteriorating roads and bridges. The bridge collapse killed 13 people and injured 145. It also cut a rail line, severed utility lines and greatly affected transportation in the Twin Cities for some time, with an economic impact of $17 million in 2007 and $43 million in 2008. Do you suppose the cost of fixing the bridge before the disaster might have cost less? Most likely, not to mention saving lives. Yes, pay now or pay later.

Infrastructure around the world includes way more than those items are included in the broad topic. The electric grid. Drinking water—treatment plants, distribution lines, etc. Waste water, hazardous waste and solid waste. Oil and gas distribution lines. Schools and more. Anywhere in the developed world these things are a part of daily life, directly or indirectly.  It’s too much to take up here, so we will focus on roads and bridges for applying pragmatic principles. If you are feeling wonky or have a desire to check on all those other  items, once every four years the American Society of Civil Engineers (ASCE) issues a report card on all of America’s infrastructure. Dig down into their most recent (2013) report for the grades they gave for all of the above parts of the picture and others. They not only offer grades but an explanation of the role each plays in our lives. In case you were wondering, there are enough items earning a D to give an overall rating of D+ for America’s infrastructure.

How bad are roads and bridges in America? ASCE gives bridges a C+ (surprising, perhaps, given news coverage not just of the I-35W collapse but generally) and roads just a D. Don’t get lost in the weeds; there is a lot of data here. It’s all important in appreciating what needs to be done, but skip over it if you like. Remember, the first step in applying a pragmatic perspective identifying the problem. From there the next step is to consider what to do about it. Finally, considering which of many alternatives to fix it makes the most sense—fiscally and effectively.

  • From the ASCE 2013 bridges report: “Over two hundred million trips are taken daily across deficient bridges in the nation’s 102 largest metropolitan regions. In total, one in nine of the nation’s bridges are rated as structurally deficient, while the average age of the nation’s 607,380 bridges is currently 42 years. The Federal Highway Administration (FHWA) estimates that to eliminate the nation’s bridge deficient backlog by 2028, we would need to invest $20.5 billion annually, while only $12.8 billion is being spent currently. The challenge for federal, state, and local governments is to increase bridge infrastructure investments by $8 billion annually to address the identified $76 billion in needs for deficient bridges across the United States. “ [Emphasis added. For more details from ASCE, click the navigation arrow on the right of the page].
  • From the NPR story: “Today, more than 60,000 bridges in the United States are considered structurally deficient… and 32 percent of U.S. major roads are in poor or mediocre condition” [from the details of the ASCE report on roads].  
  • From the ASCE 2013 road report: “The nation’s system of roadways serves as a critical link moving people and goods throughout the country. [Roads in poor condition cost] U.S. motorists . . . $67 billion a year, or $324 per motorist, in additional repairs and operating costs. . . . Additionally, current estimates show that 42% of America’s major urban highways are congested . . . Americans wasted 1.9 billion gallons of gasoline and an average of 34 hours in 2010 due to congestion.”

So where does the money come from to fix these problems and why isn’t it happening? Money for the interstate highway system and other U.S. highways (along with the bridges, over or underpasses) is supposed to come from the Highway Trust Fund. Revenue for that fund comes from Federal taxes at the pump for the fuel that operates vehicles—both gasoline and diesel fuel. States also have fuel taxes to fix some of their own roads and bridges. Minnesota raised theirs after the I-35W bridge collapse. But the trust fund isn’t keeping pace with the deteriorating infrastructure. Here’s how the Concord Coalition1 explains the problem in a 2016 item about Fixing the Highway Trust Fund: 

For several years there has been a gap between the trust fund’s revenue and spending, annual shortfalls that have been closed primarily with short-term measures. The bill signed into law in December covers those shortfalls only until 2020; afterwards they would return and start growing again, putting the trust fund on a short road towards insolvency.

 

According to the Congressional Budget Office (CBO), from 2021 to 2026 trust fund revenue is projected to total $243 billion, but outlays will amount to $364 billion, resulting in an imbalance of $121 billion. Each year during this period, the trust fund to face shortfalls of between $19 billion to $23 billion. Higher spending in the latest transportation bill has increased these projected shortfalls. This assumes spending at the current level plus inflation. If the trust fund is unable to make payments to states, projects would be halted, endangering improvements to road safety and congestion as well as thousands of construction jobs.

 

Motor fuels taxes, consisting of the 18.4-cent per gallon tax on gasoline and 24-cent per gallon tax on diesel fuels, are the trust fund’s main dedicated revenue source. Taxes on the sale of heavy vehicles, truck tires and the use of certain kinds of vehicles bring in smaller amounts of revenue for the trust fund.

 

If lawmakers indexed motor fuels taxes to inflation when they were last increased in 1993, the tax on a gallon of gasoline would be roughly 30 cents today, while the tax on diesel would be 39 cents. Lower fuel consumption due to the recession, changing driving preferences by younger as well as older Americans, and improving fuel efficiency in vehicles have also reduced the revenue from fuels taxes.

The Concord Coalition item clearly illustrated a political and pragmatic assessment of alternative policy choices to deal with the shortfall of the Highway Trust Fund to repair the roads and bridges. They offered these alternatives:

“Limit Spending to Existing Revenues”meaning cuts that would make the infrastructure situation worse.

“Achieve Greater Efficiency in Highway and Other Transit Programs”—lots of political conflict potential here in trying to impose more order in coordinating state and federal funding priorities. The Coalition didn’t seem hopeful on this one.

“Raise Motor Fuels Taxes”—the obvious choice and one that has had bipartisan support over the years but there’s always been enough opposition from some sources to keep it from happening. With fuel prices still at a much lower level than they were a few years ago it ought to be good time to do this. On the other hand, with the advent of hybrid and electric vehicles (and increasing fuel efficiency standards coming) this won’t be as effective as it once might have been. Which means raising it enough to make up for that effect. Then there’s the issue of equity—poorer people driving less fuel efficient vehicles, trucks versus cars (a perennial hotbed of countercharges on how much interstate truck operators contribute to the fund versus how much damage they cause to roads due to their weight). So that leads to the next alternative.

Finding a New Revenue Source

  • One option is a vehicle miles traveled tax, replacing the fuels tax. That takes care of the electric/hybrid/fuel efficiency issue. But it also impacts rural drivers more heavily while their roads aren’t as worn down by traffic as those traveled by urban counterparts. On the other hand, long-haul trucks might pay a more deserved percentage. Challenges in this approach are how to collect both the data and the revenue, not to mention privacy concerns. As it is, those states with toll roads are already getting that revenue for those roads whether by cash or transponders on vehicles that generate a bill. Such systems may work well enough but are impractical for widespread application.
  • Other fee-based funding options include a national vehicle sales tax (that looks like a nonstarter given the big taxes people pay in some states already), a national registration fee, a drivers license surcharge or a carbon tax. Few of these look like potential winners.
  • There’s more in the Concord Coalition item but the weeds are getting too thick to add more.

So what do the two candidates for America’s President have to say? You can see Democratic Candidate Hillary Clinton’s factsheet on a $275 billion infrastructure plan here. We haven’t been able to find a plan for infrastructure from GOP candidate Donald Trump other than news reports of him saying he would “double her spending” and rely on debt to finance it. These are for everything—not just roads and bridges. So you can figure they won’t cover it all. In an election year, both are claiming that this will not only fix some of the problems but improve the economy by adding jobs, among other virtues. Had these proposals  been enacted in, say 2009, no doubt the recovery would have gone faster and more jobs would have been added sooner. At this point, there aren’t so many construction workers looking for jobs. So there might actually be a shortfall of available labor to work on the roads, bridges and everything else. Check out these commentaries which may help you decide if either can make a dent in the problems of infrastructure.  

It’s one thing Donald Trump and Hillary Clinton unambiguously agree on: Roads, bridges, airports and other U.S. infrastructure assets are in woeful condition.

Both have pledged, if elected, to invest hundreds of billions of dollars on upgrades — putting millions of people to work on projects coast to coast that tend to be popular with voters.

Their dueling plans to tackle the problem have a few things in common: Both would merely scratch the surface of a very big problem, and neither contains a long-term solution to paying for infrastructure maintenance. From CBS News.

 

Ask Congress watchers what major legislation is most likely to pass under the next administration, one answer always comes up: infrastructure investment. It is one of the few issues the two presidential candidates appear to agree on: Both Hillary Clinton and Donald Trump argue that the country’s dilapidated roads, bridges and airports need rebuilding. Both candidates also say those programs will create many new jobs, putting construction workers back to work.

Clinton has proposed a five-year, $275 billion plan, while last week, Trump suggested he would double her proposal. Clinton’s website touts a White House report that every $1 billion in infrastructure spending creates 13,000 jobs.

Only one problem: That report is from 2011 when the construction industry was in the midst of one of its worst economic years in its history. Five years later, things look a lot different. Unemployment is low and wages have even started rising. Instead of creating thousands of jobs, experts now warn that a new infrastructure investment could face the exact opposite challenge: a labor shortage. From Politico.

Then there’s the Atlantic, which cites an economic advisor to pooh-pooh Trump’s plan as well. Undoubtedly there’s more out there dinging Clinton’s plan too. But you get the idea. Check them out if you like, to see what you think. Remember, most of what Clinton or Trump promote will require substantial agreement from Congress; these aren’t executive action items for the most part.

We have no answer as to which is the best prescription to repair the infrastructure. So it’s up to you to consider your financial situation, your driving needs and the options presented.  Feel free to add in your political perspective but be objective, not partisan. Are the objectives and the plans sensible? Are they likely to work? Is the funding adequate and equitable?

 

1The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Concord Coalition was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), late former Senator Warren Rudman (R-N.H.), and former U.S. Secretary of Commerce Peter Peterson. 

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