Infrastructure is the glue that connects our nation’s businesses, communities, and people. It is foundational to our economy and how we live our lives.
On a more micro level, infrastructure serves as a basic building block in the site selection process as it differentiates land from a site. It actually took me years to figure that out – that land does not equate to a site.
As a site selection consultant, I am not so much interested in raw land, as it poses too many risks for too many reasons. But a site where infrastructure exists in full or in part or a site where infrastructure is planned for with accompanying documentation with timelines and cost estimates, well that may just suit the bill for a corporate client.
This is why there is the trend toward site certification, a service which I provide to economic development organizations. But enough on that. I am not here to sell you, at least not now. No, now I want to tell you a story.
What Agnes Taught Me
At the time, it was the costliest hurricane to hit the United States in recorded history. Hurricane Agnes was especially brutal on Pennsylvania, where floodwaters ravaged cities, towns and countryside.
The year was 1972 and I was 17 years old, that awkward stage on the cusp of becoming a man, but still very much a boy. I was living in Lebanon, Pa., and I can remember standing awestruck on the edge of fast-moving, churning brown floodwaters that had closed a highway on the outskirts of town. I walked through thigh-deep water in the downtown. It was quite the adventure.
But as a result of Agnes, I got my first job the following summer. It was a public works job, rebuilding curbs and sidewalks. I was now 18, and I got to wear a hard hat, work outside with my shirt off, and goggle at girls. I loved it.
By being armed with a shovel and part of a team, that job taught me things that I would carry with me later in life. I learned there was an honor to work, even unskilled manual labor, and a certain freedom offered by having some money in my back pocket.
My job was to rebuild needed infrastructure that had been destroyed by the storm. Even then as a largely unfocused teenager, I sensed that I was working for the public good.
Today, 40 years later, I see the need for the building and the rebuilding of infrastructure as an essential public good. I truly believe it is key to keeping the United States a competitive world power. We have to invest in ourselves.
Much Closer to Home
There is an old farmer’s saying that bears repeating: Good judgment comes from experience, and a lot of that comes from bad judgment.
It’s not London Bridge that is falling down. No, it’s much closer to home than that.
The collapse of the I-5 bridge over the Skagit River in Washington state, on the eve of the travel-heavy Memorial Day Weekend, was the latest sign of what’s ahead if we do not address our country’s deepening infrastructure deficit.
The 58-year-old bridge had been listed as “functionally obsolete” in the 2012 National Bridge Inventory, meaning that it was no longer “functionally adequate for its task.”
In its 2013 Report Card for America’s Infrastructure, the American Society of Civil Engineers estimated that one-quarter of the 607,380 bridges nationwide were functionally obsolete or structurally deficient in 2012. It means it’s just a matter of time before another bridge comes falling down.
In its report card, the Society of Civil Engineers delivered grades of C+ for the nation’s bridges and D for its roads, and estimated that $846 billion will be needed to bring surface transportation up to a B grade by 2020.
This should not be a big surprise to anyone. Shelves of legislative reports and independent studies have confirmed that the highway infrastructure gap is becoming more serious by the year, and that state and federal gas tax revenues have not been able to keep up with the need to operate, maintain, repair and rebuild our roads.
Failure is Not an Option
Well, let me restate that, failure should not be an option. Just two days before the Skagit River collapse, Tony Puntin, the Society of Civil Engineers’ president-elect nominee, calculated the costs that will incur the U.S. by 2020 if we do not act and close the infrastructure gap.
These are jaw-dropping numbers, folks: $3.1 trillion in gross domestic product; $1.1 trillion in trade; $3,100 per year in personal disposable income per household due to rolling blackouts, lost travel time and higher vehicle maintenance costs; and 3.5 million jobs.
Highway congestion costs American commuters $121 billion in lost time and 2.9 billion gallons of wasted fuel in 2011, according to a recent study by the Texas A&M Transportation Institute. That translates to $818 per U.S. commuter. Of that total, about $27 billion worth was wasted time and diesel fuel from trucks moving goods on the system.
The truth is that congested, aging, or inadequate infrastructure represents a major barrier to growth.
President Obama has called for spending $50 billion to pay for bridge and road construction, as well as setting up a national infrastructure bank. It’s an idea that’s gained little traction so far in Congress.
Rep. Janice Hahn (D-Calif.), a member of the House Transportation and Infrastructure Committee and a supporter of a national infrastructure bank, wants Congress to hold a hearing on bridge safety.
“At a time where our economy is still recovering and the unemployment rate in the communities that I represent is higher than the national average, infrastructure investment means much needed, good paying construction jobs,” she said in a prepared statement last month before the bridge collapse.
I think the Congresswoman is right. Not only do we need to address real problems of deteriorating infrastructure, but we can put people back to work in the process. In short, we need to be serious about job creation and building the country back up. We can do this. We have done this before.
A Closer Look at Unemployment
The economy appears to be improving somewhat as the unemployment rate has fallen to a four-year low of 7.5 percent, down from 10 percent in October 2009.
But keep in mind that much of the decrease is because many people have given up looking for work. The government counts people as unemployed only if they are actively searching for a job.
There are about 6.7 million people have stopped looking for work since late 2007, says Heidi Shierholz, an economist with the Economic Policy Institute. These are not people who are collecting unemployment insurance. Rather, they have — at least, temporarily— exited the workforce. In March, the jobs report showed that 496,000 had essentially dropped out.
In addition to the discouraged who have quit looking, there still are nearly 8 million people in the U.S. who want a better job (the underemployed), while more than 11.5 million remain unemployed.
We can put millions back to work only if we act. The US Department of Transportation estimates that each $1 billion of transportation investment creates and supports over 47,000 jobs.
Out with the Old and in with the New
The problem is the old model of relying on some combination of tax increases, additional debt, and help from Washington has fallen victim to fiscal and political challenges. We are living in the days of austerity and sequestration, so any plan to increase infrastructure spending immediately becomes a political football.
As a result of these political issues, spending on infrastructure as a percentage of GDP has continued to drop since 2008. For their part, voters are dubious about funding infrastructure spending through tax hikes. That is the simple reality.
“Europe currently invests 5 percent of GDP on transportation infrastructure, while China is investing 9 percent. In the U.S., we’re stuck at 2.4 percent and begrudging every dollar. It won’t be long before the economic consequences from this investment gap start piling up,” wrote Jonathan Tisch, co-chairman of Loews Corp.
Borrowing from Silicon Valley, one idea is the civic crowdfunding. The basic premise is simple: using sites that look much like Kickstarter, individual investors would pool their money together to build important new infrastructure projects, and in return, would receive some kind of perks in recognition for their civic virtue.
Tisch proposes public-private partnerships as an answer. He cites a study indicating $250 billion in private capital is available for infrastructure investments and that 50 pension funds with $38 billion in available funds have expressed interest in investing in infrastructure. That is a fraction of the estimated $3.6 trillion required to fix America’s massive infrastructure, but it is a start.
Of course, it wouldn’t hurt if we had a president who actually pushed hard for change instead of just talking about change. It would be most helpful if we had a Congress that could deliver a bipartisan infrastructure investment bill, in which ideology would take a back seat to pragmatic solutions.
However this gets done, either old model, new model or a combination of the two, we must lean forward to replace the smell of decay with the smell of construction. The nation’s surface transportation systems, wastewater treatment facilities, waterways, and airports are all in need of repair and updates.
The National Surface Transportation Policy and Revenue Study Commission concluded in 2009: “We need to invest at least $225 billion annually from all sources for the next 50 years to upgrade our existing system to a state of good repair and create a more advanced surface transportation system to sustain and ensure strong economic growth for our families. We are spending less than 40 percent of this amount today.”
When it comes to infrastructure, it’s no longer a case of we’ll cross that bridge when we come to it. That bridge might not be there.
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas —http://www.barberadvisors.com He can be reached at 972-767-9518 or at dbarber@barberadvisors.com
If you work for a company seeking site selection consulting or an economic development organization in need of counsel, ask for our separate brochures (pdfs) outlining how we can help. All requests for information will be considered confidential.
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I agree with Dean that “Infrastructure is the glue that connects our nation’s businesses, communities, and people. It is foundational to our economy and how we live our lives.”
Yet, the public sometimes feels that infrastructure projects are a detriment to their existence. Unbridled real estate development might mean that a roadway expansion leads to unchecked new development that fills up the improved road with traffic, thereby negating promised congestion relief. Transit advocates might talk about how much more convenient a neighborhood will become once a new transit line is established. But after paying taxes to fund a new transit line, a truly well-designed and well-executed transit line could foster real estate speculation that makes neighborhood land so expensive that the original residents can no longer afford to live there.
One thing we could do to turn this situation around would be to recapture and recycle publicly-created land values for public purposes. Doing this would allow roads and transit to become financially self-sufficient, at least to a greater degree than at present. This can be accomplished by transforming the property tax into a public services access fee. This would be accomplished by reducing the tax rate on building values and increasing the tax rate on land values.
The lower tax rate on building values would make buildings cheaper to construct, improve and maintain. Although the typical property tax is only 1% or 2% of value, it is paid each and every year that an improvement adds value to a property. Thus it has the economic impact of a one-time sales tax of between 10% and 20% on construction labor and materials. Therefore, reducing the tax rate on building values could substantially improve the affordability of buildings for both residents and businesses.
Surprisingly, a higher tax rate on land values would help keep land prices affordable as well. Unlike building taxes that reduce the number of buildings and increase their price, the land tax is not a cost of production. A tax on land is a cost of ownership. The supply of land is fixed. The higher cost of ownership merely reduces the expected benefits of land ownership, thereby reducing speculative demand for land and reducing its price.
The tax on land values taxes publicly-created values. It also creates economic incentives to develop high-value land. Typically, high-value sites are infill parcels near existing urban infrastructure amenities (like transit). Motivating more development of urban infill sites should reduce the amount of urban sprawl on greenfield sites. Helping cities develop in a more compact manner will help reduce per-capita infrastructure requirements, thereby facilitating a more affordable program of infrastructure maintenance and improvement into the future.
Lower taxes on buildings combined with higher taxes on land values provides a no-cost approach for allowing the public to benefit more fully from infrastructure investments while freeing private investments from unncecessary tax burdens. More affordable space, more employment, and a more sustainable infrastructure system would be our reward.