Strengthening Our Infrastructure for a Sustainable Future

Bruce Katz
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University

February 22, 2009

(As Delivered)

Good afternoon everyone. I want to commend NGA and Governor Rendell for dedicating such a substantial portion of your winter meeting to the topic of infrastructure. This is a topic that is routinely relegated to specialists in the field – whether they are civil engineers, or heads of your state DOT’s, or advocates.

As national leaders like Governor Rendell and his co-chairs at the Building America’s Future coalition—Governor Schwarzenegger and Mayor Bloomberg—so eloquently and effectively point out is that infrastructure needs to be moved to the front burner of our national policy conversations. Not just as a problem that needs to be dealt with, but also as a key solution to the economic, energy, and environmental challenges we face and it’s a principle driver of our nation’s prosperity.

It turns out that hard times are the right time to focus on infrastructure.

Now there are those who naturally see the current situation and want to spend more to repair our deficient infrastructure, to address our major gateways and corridors, to make transit more the norm than the exception.

But this is not just about more spending. First and foremost we need reform, then we need to invest.

So let me begin with my first point: after years and years of benign neglect, infrastructure is truly getting public hearing.

First, as we all know, the American Recovery and Reinvestment Act that the President signed into law last Tuesday provides a lot of money for infrastructure.

It may not be as much as some governors had hoped for and most of the money does go to tax relief, but according to our analysis–which uses the broadest possible definition–we find that there is $152 billion going to infrastructure from the recovery package.

Most of the money ($54 billion) is going to transportation infrastructure – roads, rails, and transit, mostly. There are also big chunks for water/sewer and the energy grid. The “other construction” category includes housing, military, health facilities and others.

As the Governor likes to say, there are three good reasons to use this money for infrastructure: jobs, jobs, jobs.

According to the Bureau of Labor Statistics, today over 11.5 million Americans are employed in occupations related to infrastructure provision.

That’s 8.6 percent of total U.S. employment—though unfortunately down 6 percent from the same time last year. Investing in infrastructure now can help put Americans back to work. Apart from the recovery package, infrastructure is also at the heart of several forward-thinking policy innovations.

President Obama—along with a bi-partisan group of Senators and House members—have repeated their support the idea of a National Infrastructure Bank or Corporation to provide financial assistance to qualified and innovative infrastructure projects that matter to the nation as a whole or to a group of multiple states.

I know Ambassador Rohatyn will talk about this next.

Many of you have equivalents of infrastructure banks in your own states. By our count 33 have established state infrastructure banks that have provided over $6 billion in financing for meritbased projects. That’s the same kind of approach we want to see implemented on the federal level.

The attractiveness in these kinds of financial vehicles lies not just in their ability to provide loans or bonds for projects but also, in a deliberate and purposeful way, to take advantage of the partnership opportunities presented by the amassing of private sector infrastructure funds.

Despite the downturn we believe there still remains considerable interest among private investors about a range of infrastructure opportunities such as:

  • Creating new markets in sectors like alternative energy through investments in advanced research.
  • Using market mechanisms like real-time pricing to enable consumers to manage their energy consumption in their homes.
  • And unleashing private sector investment and inventiveness to stimulate market-led responses to energy efficiency.

But infrastructure is also getting a hearing because of some of the unfortunate challenges and problems associated with infrastructure today.

Part of this is simply that our infrastructure is in bad shape.

From our nearly 2,000 “high hazard potential” dams, to the 60% of urban roadways that are less than “fair” condition, to the 72,000 bridges that are considered “structurally deficient.” It is not hyperbole to say that our infrastructure is crumbling before our eyes. And the tragic reminders of that are all too familiar for me to recite here.

But in addition to its condition, the very design of our nation’s infrastructure is becoming obsolete.

  • Take our nation’s air traffic control system. It is so outdated that it is considered one of the primary reasons we haven’t been able to make a dent in our airport congestion problems.
  • Or our transit systems that are laying off hundreds of workers—literally—in major metropolitan areas because they don’t have the ability to cope with skyrocketing demand or the resources to operate the existing system.
  • Or our water systems that are in such bad shape that leaking pipes lose seven billion gallons of clean drinking water each day – at the same time aging sewer systems discharge billions of gallons of untreated wastewater because they are too old or insufficient to meet demand.

But all this is still only part of the story.

The average driver in metropolitan America wastes 26 gallons of fuel each year due to traffic congestion. If we add this up, that’s 3 billion gallons every year—the equivalent of one-fifth of the oil imported annually from the Persian Gulf.

But the problem is not just our wasting fuel – infrastructure-related expenditures continue to cost American households a trillion-and-a-half dollars each year, mostly in categories such as utilities and transportation.

In fact, after housing, transportation is the second-largest component of the average family’s household budget: 18 cents out of every dollar. Utilities such as electricity and natural gas consume seven percent but are a disproportionately larger burden for low income families.

The question for the country remains: how are we going to be able to take advantage of the promise for a new commitment to infrastructure, repair what is broken, and set our country on a path to a clean, green future?

That is a lot to lay on our existing policy apparatus.

And it actually leads me to my second point. Despite the recent commitment to infrastructure as part of the recovery package, we’re finding the federal government struggling to respond to these major challenges.

At the precise time when the nation desperately needs to prioritize its limited investments and resources, our response has been mostly to keep throwing money at the problem without any real purpose, targeting, or accountability.

There are several problems:

First, the federal government is absent where it should be present, and fails to lead on infrastructure issues of national significance.

We are simply incapable of focusing on infrastructure issues that transcend state borders and therefore we’re not experiencing the same kinds of economic impacts from transformational programs like the interstates … the social impacts from iconic programs like rural electrification … or the sustainability benefits from air and water pollution control programs in the 1970’s and 1980’s.

And, quite frankly, states have also not targeted funding on infrastructure with bold, long term visions for the future. Just as on the federal level, there has been a tendency to spread dollars around like peanut butter rather than reflect that most state economies are more and more dependent on their major cities and suburbs – their metro areas – for jobs and prosperity.

We saw this reflected in the list of ready-to-go projects some states put forward as emblematic of where they planned to spend their transportation dollars from the stimulus. Some major U.S. cities have no project funding allocated to them at all! In fact, only about half of that money was targeted to the 100 largest metropolitan areas, despite the fact they make up 78 percent of those states’ GDP.

There is also a problem of compartmentalization of policies on all levels.

In the real world, families know that issues like transportation and housing and education are inextricably linked. It is in the specialized, stove-piped universe of federal and state bureaucracy where these issues are broken apart and kept separate.

And efforts to link up these disparate areas run into countless roadblocks, such as headacheinducing differences in grant requirements and restrictions, and so we fail to seize opportunities to improve outcomes through integrated problem-solving.

Equally disturbing is a pervasive lack of fact-gathering and analysis across the various infrastructure programs.

Unfortunately, infrastructure policy and programs operate largely in a fact-free zone as we have dismantled our information systems, degraded our statistical agencies, and denigrated program evaluation and assessment of the hundreds and hundreds of billions in spending.

Folks, this is not rocket science. Measure what matters. Track what counts. Get what you pay for.

In sharp contrast to all this, our global competitors are beginning to provide the kind of leadership on infrastructure many are now calling on the U.S. government to demonstrate.

  • Countries like Canada, India, South Africa, and Italy have implemented specialized units throughout various governmental agencies to assist with the expanding opportunities for public-private partnerships.
  • France recently merged their Ministry of Transport with the Ministry of Ecology, Energy, and Sustainable Development. Australia has an overarching Department of Infrastructure. Japan links infrastructure, land development, and tourism in one agency.
  • Others such as Britain, Denmark, and Germany are establishing intricate webs of data, metrics, analytic tools and spatial planning techniques in order to make infrastructure investment decisions based on fact and measure their progress towards clear national priorities.

When it comes to U.S. infrastructure, we need to learn from our global competitors in order to get more strategic, integrated, and disciplined. Change needs to come.

So what are we going to do?

If we are going to achieve critical national objectives around economic competitiveness, environmental sustainability, and social equity in an era of fiscal constraints it will require a 21st century infrastructure vision.

Infrastructure will only be effective if states have a strong, and deliberate federal partner. But to do so, Washington will have to change the way it does business. Speed is going to be important but it is more important to get it done right.

In the short term – the immediate term – we need to make sure that the stimulus bill and economic recovery package telegraph new ways of doing business.

First and foremost, we need to make sure that the strong transparency and accountability provisions don’t end once the recovery money is gone.

The White House’s guidance to its infrastructure agencies directs them to develop plans to spend the recovery funds in ways that demonstrate federal leadership in sustainability, energy efficiency, and reducing environmental impact.

Folks, this is a major step forward and represents what may be considered an unnatural act between unconsenting adults – but it is a welcome change in how Washington thinks about infrastructure.

But we still need to go further and apply this level of accountability as a matter of course to the myriad federal agencies that construct, operate, maintain, and use infrastructure. We must answer the question: are we investing in the right things?

In the name of budget reform, we should aim for a through examination of the fiscal year 2011 budget in order to cull out the $80 billion in federal infrastructure spending each year (apart from the recovery package) and set priorities. It is impossible to improve coordination without knowing precisely what we are spending.

But the federal government also needs new partnerships to promote environmental sustainability and strengthen metropolitan economies.

Transportation, housing, energy, and land-use should be joined up through a new set of federally-funded Sustainability Challenge Contracts. Such a challenge would seek to assist states and metropolitan areas in one of their hardest tasks: transcending the stovepiping of disparate programs that remains a serious cause of undesirable development outcomes. States and metropolitan areas need to work over a sustained period with the goal of massively transforming the design and workings of the built environment.

The objective is to link up local planning objectives such as employment growth, development of low-income housing, and alternative transportation choices and accessibility, with national objectives of promoting energy independence and environmental sustainability.

Fortunately, congressional leaders like Senator Dodd as chairman of the Banking Committee and Representative Olver of the transportation and housing appropriations subcommittee also understand the need for such integrated thinking and are starting to act on it.

Lastly, we need to make sure the commotion around the economic recovery package does not spoil the push for reform when it comes to the reauthorization of the nation’s surface transportation law.

As you all know, the $286 billion transportation program—which almost seems like chump change now—expires at the end of this summer.

To echo a common theme articulated by last year’s national transportation policy and revenue commission – as well as several others – we need a new beginning.

The federal government should concentrate on three critical areas: preserving and maintaining the interstate system; developing a comprehensive plan for getting people between our major metropolitan areas; and developing a plan to move freight across the nation using rails, roads, and ports. These are areas that require national engagement because they are just too big for states and metros to handle on their own.

Then for the rest of the program, the federal government should get out of the way and allow states and metropolitan areas to choose the best mix of projects for their particular needs, goals, and objectives – and should hold them accountable for doing so.

Fortunately, just a few days ago President Obama signaled his support for the efficiency gains from metropolitan planning, for joining up energy and transportation policy, and for what he called “long-term reforms in how transportation dollars flow.”

Clearly we have a golden opportunity to get infrastructure policy right for America. But it will require us to move beyond parochial grabs for more money and reject project log rolling. Instead the conversation around infrastructure needs to focus on the best way to move us out of our economic malaise and truly build America’s future.

Let me end where I began. Today’s fiscally-constrained environment demands an integrated approach to infrastructure policy.

We know that the stakes are too high—for economic stimulus and fiscal responsibility—to allow spending that does not result in real gains in productivity, inclusion, and environmental sustainability, the foundations for short- and long-term prosperity.

I firmly believe that America can act … with vision … with imagination … and with confidence.

I firmly believe that our nation can master the possibilities of the 21st century.

Thank you very much.

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