What’s Next for a National Infrastructure Policy: An Encore or a Requiem?

Since its founding, the United States has understood the importance of infrastructure to the growth of a vibrant entrepreneurial economy. In the 19th century, canals, riverboats, and railroads provided the means to overcome geography and distance, first to move agricultural products and natural resources and later, manufactured goods, from source to market. Rivers and steam engines provided power to mills and factories long before the advent of commercial electricity and the telegraph and telephone connected people in real time and enabled enormous leaps forward in efficiency and productivity. To a large extent, most infrastructure was financed with private capital although the railroads did benefit from land grants along their rights-of-way as a means of “opening up the west.”

The infrastructure marvels of the 20th century—high-speed interstate highways, a national electric grid, ubiquitous air travel connections, and the Internet—only refined the goal of moving goods, people, and information quickly and cheaply; they did not create fundamentally new service paradigms. Consequently, one fifth of the way through the 21st century, the nation is faced with numerous questions regarding its future and the infrastructure systems necessary to support continued economic growth and environmental sustainability, while improving equity of access; particularly when those systems are aged and often functionally degraded. How governments at all levels respond to these challenges will be a fundamental domestic policy issue for years to come and the purpose of this essay is to look to recent history for some useful guidance.

Almost 30 years ago, Professor Dick Netzer of NYU published a rather provocative article for the time, entitled “Do We Really Need a National Infrastructure Policy?” (Netzer, 1992). Coming on the heels of “America in Ruins: Beyond the Public Works Pork Barrel” (Choate & Walter, 1981), “Fragile Foundations: A Report on America’s Public Works” (NCPWI, 1988), and “Is There a Shortfall in Public Capital Investment?” (FRBB, 1990), the prevailing logic in the infrastructure community was “Of course we do!” The specter of a crumbling physical environment coupled with the much heralded “peace dividend” to be generated by the end of the Cold War, raised expectations for massive federal infrastructure spending on the scale of the Interstate Highway System or the Clean Water Act of 1972.

Professor Netzer raised three points in the article. First, he did not endorse widespread federal funding of infrastructure projects, viewing the infrastructure problem, such as it was, as primarily a local issue for which local funding should be applied. In essence, he asked why the nation as a whole should contribute to projects that provided only local benefits. He did, however, call for two other actions with national implications.

Perhaps the most far reaching, potentially impactful, but difficult to implement of his proposals was for state and local governments to adopt sound asset management practices. He noted that infrastructure and public works spending at the time was mainly focused on new capital construction to the detriment of maintenance, repair, and replacement of the much larger stock of existing infrastructure assets. Building new while failing to maintain, restore, and update the old, only exacerbated the problem.

The one infrastructure issue he did call out as meriting direct federal involvement was ensuring the adequacy of dedicated transportation funds for new construction and for also maintaining the existing system (primarily highways and bridges) in a state of good repair. He suggested raising the federal per-gallon motor fuels tax, which was 14.1¢ at the time, to $1.50 to cover all federal and state contributions. The federal fuel tax was eventually raised to 18.4¢ in 1993 but has remained at that level ever since.

As the Biden Administration prepares to roll out a multi-trillion dollar infrastructure package, it looks to be a good time to revisit the underlying premises of the Netzer essay and then to reconsider whether a national infrastructure policy deserves a second look or it’s time to lay the idea to rest. First off though, it will be useful to define the terms of engagement. In Netzer’s context, a “National Infrastructure Policy” (NIP) was, and remains, a means of providing federal funds to state and local governments for infrastructure projects of various sorts. While there’s nothing inherently wrong with that from a conceptual standpoint—presumably there is a national benefit if the entire country functions at a high level—Netzer’s original conundrum remains valid. Why should projects such as schools, fire stations, or other public works that serve just local or regional needs be funded by the population at large through Federal grant programs? In taking up the question in 2021, I believe that a NIP must go beyond just redistributing federal funds and actually seek to achieve broad national goals.

One example of a problem of national interest was the goal of improving water quality nationally through the local upgrading of sewerage systems and wastewater treatment plants as funded through the Clean Water Act Amendments of 1992 (P.L. 92-500). Although the improvements were local and had a local financial contribution, the ultimate benefits were national in scope. Now, in a similar vein, replacing lead water pipes locally will markedly improve public health nationally for millions and especially the children who are particularly vulnerable. We have also learned from the COVID-19 pandemic that remote broadband access to education and employment varies drastically across the country and affects both urban and rural areas. Using the power and resources of the federal government to provide universal access to broadband would be in keeping with previous national initiatives to bring electrification and postal services to the entire country. Refocusing in this manner would not preclude the federal funding of local projects; infrastructure is, by its very nature, local. Rather, it only requires that such projects actually serve to advance some aspect of a clearly articulated national policy agenda.

In addition, we are facing challenges today that barely registered as issues 30 years ago. For example, during the past decade, Hurricanes Sandy, Matthew, Harvey, and Florence among others demonstrated that we are long overdue in taking steps to adapt to climate change. This will require building major flood defense works as well as relocating and designing infrastructure to be more flood resistant, or alternatively, less permanent. Investments in resilient infrastructure to address our vulnerabilities to rising sea level, storm surges, and coastal flooding will not only benefit future generations but also spin off employment opportunities and beneficial economic activity in the present.

However, on the matter of employment, despite the constant comingling of infrastructure and jobs, we need to be aware that modern construction isn’t the pick and shovel work of the Great Depression. The country will need a lot more electricians, welders, and heavy equipment operators, to name but a few of the skilled craft jobs that modern infrastructure projects require. A well thought out infrastructure program should include continuing support for training in the construction trades for the vast number of young, displaced, and underemployed workers who would welcome construction employment as a career path. These are good paying jobs with the added benefit that they can’t migrate overseas in search of lower wages. As noted earlier, infrastructure, like politics, is local.

At the same time, the U.S fiscal picture has changed dramatically from 30 years ago. The national debt in 1992 was $4 trillion ($7.5 trillion in today’s dollars) and has increased six-fold to the current level of $26.5 trillion, The debt to GDP ratio was 62% in 1992 and is currently about 136%. Traditionally, such spiraling deficits would have set off all sorts of alarms but in the post-Great Recession and COVID-19 recovery eras, this appears to be far less of a concern. However, regardless of the current thinking on deficit financing of infrastructure, the piper must be paid eventually. This will require revenue generated through taxes or fees and the gap between the resources needed to address infrastructure needs at a national level and the availability of funds to actually do so continues to grow larger.

The reality is that the funding model for infrastructure where the Federal government once paid up to 90% of project costs is no longer sustainable and needs to change. As a case in point, the Interstate Highway System was mostly paid for with user fees in the form of fuel taxes, but during the 28 years since the federal motor fuels tax was raised to its current level of 18.4¢ per gallon, four Administrations and 14 sessions of Congress have refused to seriously consider additional increases. This is despite numerous calls by public and private interest groups to increase it to at least account for inflation (33.8¢ today), significant increases in vehicle fuel economy that depress revenue, and the growing numbers of electric vehicles that pay no motor fuels tax at all. Shortfalls in the Highway Trust Fund have recently necessitated direct transfers from the General Fund and will likely continue to be required unless some remedial action is taken.

Additionally, there are 50 states and tens of thousands more sub-units of government with revenue raising authority that could fund the bulk of what needs to be done and on the transportation side, many states and localities have raised fuel taxes or instituted targeted sales and other taxes to pay for transportation. However, if a National Infrastructure Policy implies that massive federal spending from the General Fund is the “solution” to our collective underinvestment in non-transportation infrastructure (Sozzi, 2021), it is likely to generate some justifiable skepticism.

There are also many infrastructure issues with truly national impact, such as increasing the deployment of renewable energy sources and integrating their power into the national grid, rolling out a refueling infrastructure for electric vehicles, or removing supply chain bottlenecks, fall wholly or partially within the private sector and should not be the financial responsibility of governments at any level despite the opinions of some that resolving these issues should be a federal responsibility (Sozzi, 2021). However, arguing against federal spending to address local or private infrastructure problems does not preclude major federal involvement in their solution. For example, federal policy can involve the private sector through tax credits and other incentives.

There is also a tremendous amount of private capital that is looking to invest in some of this work and public-private partnerships (PPP) can bring many projects on-line in less time than if only public funds are used. Many successful projects have been done in the U.S, but there remains ideological opposition to putting “private” money into “public” systems (Smart Cities Dive, 2018). However, the financial crisis of 2008 to 2010 effectively blurred the lines between the public and private sectors and today we have an opportunity to re-envision the Federal role in infrastructure as investor as well as underwriter. In addition to purely private funds, a NIP should explore how we might invest U.S. private pension funds and possibly social security trust funds in revenue-backed U.S. infrastructure projects so that they not only generate economic and employment benefits today but provide financial returns for U.S. retirees tomorrow.

At the same time, a NIP should address Netzer’s concern regarding asset management. Public agencies grapple with the question of how much should they spend to maintain their infrastructure assets while at the same time, wonder if they are spending too much. The desire is, of course, to avoid spending more than necessary while at the same time, avoiding excessive frugality that could bring on calamitous outcomes, (e.g., major reconstruction, road closure, catastrophic failure, etc.). It would indeed be helpful if a NIP could include funds for research, demonstration projects, guidance documents, and incentives to encourage governments and agencies to improve their asset management practices. The National Academies have provided an ample body of work in this regard which should inform infrastructure policy guidance (NRC, 1990, 1998, 2004a, 2004b, 2012).

There is a real need to encourage such “good behavior” and avoid creating moral hazards, where local officials are incentivized to put off spending local dollars for necessary maintenance, repair, and renewal of infrastructure under the unfortunately quite logical assumption that if it gets bad enough, federal funds will be forthcoming. The net effect is to punish those communities that are prudent stewards of their infrastructure for doing a good job of maintaining those systems.

The February 2021 winter weather-energy crisis in Texas provides an excellent example of this dilemma. By its choice, Texas is not connected to the national electric grid so is not subject to federal regulations. The Electric Reliability Council of Texas (ERCOT) regulates electric power in Texas and did not require the five major investor-owned utilities that provide electricity to the state to winterize their systems. However, the Texas situation has been routinely brought up as one justification for Congress to quickly pass the Biden plan to “Build Back Better” (Sozzi, 2021). Despite the very real suffering endured by many Texans, a valid question to ask is why should private utilities with stockholders and rate payers, that by choice are not part of the national electric grid and not federally regulated, receive federal support to upgrade their infrastructure.

Of course, identifying “what needs to be done” stops well short of “how to do it.” The historically intermittent and somewhat selective focus on infrastructure in the U.S. may be a result of both geography and governance. The U.S. is very large with one of the most ethnically diverse populations in the world. It is difficult to identify issues that affect all parts of the nation on a similar basis and the diversity that is a great strength of the U.S. on many fronts often conspires against effective collective action to address national issues.

Governance in the U.S. is based on a federal, not a national, system. Policy and decision-making are mostly relegated to the 50 states which have widely differing priorities and the means to address them. On one hand, California, Texas, and New York have economies that would rank among the top 10 nations in the world but many states with large infrastructure deficits simply do not have the capacity to make the necessary investments on their own.

Although it is tempting to look elsewhere for guidance on addressing such knotty problems, generating support to invest in flood works in a small country like the Netherlands that faces a well-recognized and existential threat from the sea is quite different from what can occur in the much larger and broadly diverse United States. A strong central government in Singapore can compel national actions unthinkable here. However, despite all the challenges, I believe that the U.S. has a perhaps unique opportunity to move forward boldly on infrastructure investment.

At a minimum, President Biden would be well-advised to link his plan for infrastructure investment with broader national goals that people can readily understand and support. If we are going to invest in infrastructure, as we must, it should be in those systems and places that make us more productive, resilient, and socially equitable, not just projects that generate a short-term economic boost. Linking infrastructure to broader public policy objectives in way that drives sustainable middle class job growth, promotes public health, addresses the threat of climate change, and rebuilds America in a more equitable manner would seem to be a strategy that should both unite the nation and position it to address the many challenges that the 21st century will present. On that basis, I believe the idea of a National Infrastructure Policy definitely deserves a curtain call if not a full encore.