Abstract
The American infrastructure network has for generations been underfunded, overextended, and undermaintained, but it was not until the late 1970s and the peak of American manufacturing that the cracks truly began to show. Outdated infrastructure, coupled with soaring inflation, and a series of free trade agreements caused heavy industry to flee to more tax-friendly environs overseas. With manufacturing at its peak, infrastructure maintenance was often overlooked, but as the decade ended and the mills shuttered, the rails hardly ran, and many of the cogs that once built America were now being assembled overseas. The lack of investment in American infrastructure was evident throughout much of the country.
Sometime near the end of the Reagan presidency, as it had become clear the Cold War was thawing and national interest was moving in a different direction, the focus shifted home. Upon closer examination, this emphasis cast light on long-neglected infrastructure issues. Transportation issues, roadways, bridges, rail, and other general infrastructure that had been neglected in the decades since the Great Society and New Deal programs had been failing at a rapid rate. Much of the major industry in the country had been operating on and utilizing outdated infrastructure.
By the late 1980s, as industry fled and infrastructure crumbled the issue began to take center stage. The country had a major problem on its hands, but it was not just a national issue, this was an issue that crippled local governments saddled with aging and costly infrastructure. Places that were built around industry and infrastructure, no longer had either in a functional manner. In 1988 the National Council on Public Works Improvement developed a nationwide report card that rated the American infrastructure a “C”. By 1998 it had dropped to a “D” rating. Decades of disinvestment culminated in an estimated cost of more than $4 trillion to sufficiently repair and replace deficient infrastructure by the year 2017.
Within the context of generations of infrastructure deterioration and underinvestment, Chen and Bartle offer Innovative Infrastructure Finance: A Guide for State and Local Governments. The book provides an approachable “playbook” for government managers to improve decision making by broadening their toolkit. Written with the practitioner in mind, Chen and Bartle propose an overview of challenges and opportunities of financing infrastructure; from defining public goods to trends in state and local government.
The text begins by briefly framing the historical challenges and opportunities of financing infrastructure. The authors discuss the importance of infrastructure and how infrastructure finance has become one of the most urgent issues facing the country, emphasizing that current state and local spending is at its lowest percentage in 45 years. Yet, the case is made that it is not simply a budget and finance issue, but one of governance. Anticipated federal funds will only mask the long-term need for better decision making and investment. Traditional sources of funding must be supplemented by new, innovative finance mechanisms that complement and supplement current mechanisms, and “opening the institutions of governance” to innovation is a necessary step in congruence (p. 2).
The authors point out the uncertainty of the times and emphasize the need for administrators to be adaptable, aware, and willing to take on the challenges of innovation. They discuss the traditional process of capital planning and budgeting as well as common infrastructure finance methods such as taxation, user charges, capital reserves, grants, and debt financing before delving into the discussion of innovative infrastructure finance. Chen and Bartle discuss new funding sources, new financing mechanisms, and new financial arrangements that provide government managers with original funding opportunities by creating a more equitable process that leverages the resources of multiple sectors. The discussion of each mechanism and arrangement is followed by a description, advantages and disadvantages, and several examples.
The text is clear, concise, and informative for a graduate-level course on infrastructure finance or anyone else looking for a primer on the subject, but the text mostly avoids the big questions in the field. Questions such as whether decades of disinvestment can be reversed through the innovative suggestions offered, and whether financing mechanisms alone can overcome the revenue shortfalls that are indicative of the larger problems. Herein, lies some of the utility and points to the direction and intended audience of the authors. Chen and Bartle make clear that a primary goal of the text is to demystify recent innovations in finance by providing examples and discussion for government officials, citizens, and others interested in better understanding of the choices involved. The authors discuss innovation through case study and example in a manner that can be easily applied to practitioner problems, not as a solution, but as a tool toward better decision making and governance.
The Largest Infrastructure Bill in American History
The timing of the contribution is particularly relevant and interesting. With the recent passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the American Rescue Plan Act (ARPA), and most prominently related, the Infrastructure Investment and Jobs Act there has been greater investment in the nation’s infrastructure in the past few years than there has been over the last several generations. The Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, passed with bipartisan support and provided $973 billion from FY 2022 to FY 2026.
The Infrastructure Investment and Jobs Act specifically allocates funds to upgrade transportation, including roads, bridges, railways, port facilities, and airports. As a result of the Infrastructure Investment and Jobs Act, states will receive an additional 20% from USDOT for road and bridge investments. In addition to formula-derived funding, new discretionary grants are available on a competitive basis. Over the next 5 years, the Infrastructure Investment and Jobs Act will allocate $89.9 billion to modernize and expand public transit, emphasizing sustainability and low carbon emissions. The bulk of the funding is federal, yet the vast majority will be spent and applied at the state and local levels. The passage of Infrastructure Act, while historic and substantial, is just a start toward addressing and modernizing American infrastructure issues. It does not obviate the need for innovative infrastructure finance but further emphasizes the importance of innovation and of this text. The public sector must now manage and maximize this new level of investment, and good governance and better decision making will be critical to ensuring the most effective use of the funds for the country and communities.
The Public Sector must Manage this New Level of Investment
The Infrastructure Investment and Jobs Act funds provide an opportunity for states to engage cities and counties to assist in providing funds for capital improvement issues that could not otherwise be addressed without significant implications to the tax base or long-term public-private partnerships. While there is little doubt that public-private partnerships can get projects completed faster and arguably better, the projects still must be funded by someone. The Infrastructure Act is one solution providing much needed funding and direction, but Chen and Bartle identify several others such as state infrastructure banks, sustainable bonds, and new taxes along with new and non-traditional financial arrangements that offer the potential of further untapped resources and organizational best practices.
With the recent influx of federal funds, state and local governments must navigate complex reporting and compliance requirements. Substantial administrative capacity is required for state allocation of federal funds to the local level. Many potential infrastructure projects have already been identified at the state and local levels. Several of these communities have existing research and assessments that can be used to move forward quickly with available funding. And states will continue to contend with challenges associated with private sector contracts and competitive bidding processes. Innovative Infrastructure Finance provides direction and insight into how to move forward in creative ways and how to maximize the new found funding through innovative approaches to governance. The case studies discuss real world application of the mechanisms and arrangements emphasized throughout the book; the lessons learned and challenges, each carefully highlight the potential benefits of innovation in infrastructure finance and the need for sound decision making. A discussion and process laid out in painstaking detail throughout the text.
Conclusion
We seem to be at a crossroads: in life, politics, and how we move forward as country. But we are also living in a time of unparalleled federal investment into public life. Today is an opportunity for the public sector to manage an unprecedented level of investment. Chen and Bartle offer a roadmap for local government administrators to navigate the new normal. Offering examples of how traditional infrastructure finance can merge with innovative mechanisms for local government administrators.
Despite the opportunity, there remains a multitude of challenges. The authors point to three as being the most critical for state and local government. The first is the increasing prevalence and severity of natural disasters. The second is new technology, which presents innumerable opportunities to improve service and efficiency, yet is often costly and challenging to implement. The third challenge is the recent shift toward addressing social inequities and historic discrimination that can have a particular impact on infrastructure policy. Combined these challenges call for a new approach to traditional infrastructure development, of which the authors spend much of the text outlining through discussions of historical foundations, traditional methods, and innovative mechanisms of infrastructure finance. Therein lies the foundational argument of the book: the need for, and the challenge of innovation. It is a challenge made ever more pressing by recent events, from increasingly aging infrastructure to the pandemic. Yet, there is opportunity, with recent legislation providing funding not seen in generations. Chen and Bartle’s Innovative Infrastructure Finance provides a foundation for addressing these challenges and maximizing the ‘once in a generation’ funding opportunity for local government managers interested in exploring new ways of implementation and governance, as well as students looking for a primer on infrastructure finance and its practical applications.