Battle lines are being drawn in Washington D.C. over infrastructure and the American Jobs Plan (AJP).  One of those lines is on the very definition of “infrastructure” with a plan that proposes investments in transportation, buildings and utilities, manufacturing, worker training, research and development, and in-home care. Another battle line is how to pay for it.
The proposal comes as 50 percent of U.S. adults have received at least one dose of a coronavirus vaccine, the job market shows signs of improving, and the broader economy is poised for a year of (record?) growth. It also comes at a time when the roads, bridges, electrical grid, and other infrastructure systems underpinning the $20 trillion U.S. economy are deteriorating and holding back economic performance.
Public sources fund over 70 percent of infrastructure in transportation, water, pollution and waste disposal, prisons, and schools. The AJP also includes investments in electric vehicles, clean energy, broadband access, and other areas. Some of these areas are typically funded by private sources. Private investments in energy and telecommunications, for example, equal total public spending in all other forms of physical infrastructure. The AJP sees an opportunity to boost these private investments with public funds to address climate change, technology access, worker training, research and development, supply chain resiliency, and other objectives.
Most of the AJP funds, however, target areas where public investment has declined significantly. Spending on transportation and water infrastructure, for example, declined from 3 percent of GDP in the 1960s to 1.5 percent by 2017.  This has lead to the deterioration of those systems. The most frequently cited report on physical infrastructure is the Infrastructure Report Card produced every four years by the American Society of Civil Engineers (ASCE).  The report evaluates the condition and funding of systems across 18 categories including transportation, energy, schools, public parks, drinking water, hazardous waste, and others.
According to the most recent ASCE report released last month, airports and roads—crucial to the movement of goods in domestic and global supply chains—got some of the worst ratings with significant gaps in funding needed to just maintain those systems. The electricity grid got a better grade—surprising given the vulnerabilities seen recently in Texas—and the nation’s ports and rail infrastructure lead the pack.
The first airport in the U.S. opened in 1909 in College Park, Maryland. More than a hundred years later, there are over 3,300 airports in the National Plan Integrated Airport System (NPIAS), approximately 390 of which are considered “primary airports” serving at least 10,000 passengers a year.  Before the COVID-19 pandemic, almost 1 billion passengers and over 12 million metric tonnes of freight and mail passed through U.S. airports each year on over 584,000 flights.  The number of passengers and amount freight has grown almost 25 percent over the last decade. Airport and flight capacity, however, has lagged contributing to the increase in the cost of flight delays. In just the 2 years before the pandemic, the amount of time passengers were delayed increased 30 percent to over 95.8 million minutes. 
According to the ASCE, terminal capacity is a primary constraint at many U.S. airports and it projects a funding gap of $111 billion over the coming decade (based on pre-pandemic passenger and freight growth).  The near-term outlook for aviation is uncertain—there are indications that air travel is beginning to pick back up—and the decline in air travel during pandemic relieved some of the pressure on airport capacity. It also reduced revenue, some of which would have been reinvested in capacity.
All primary airports are publicly owned and rely on a variety of sources for funding including grants by government entities, general obligation bonds, public-private partnerships, and airport revenue streams. The two primary federal sources of funding are the Passenger Facility Charge (PFC) and the Airport Improvement Program (AIP), which includes funds from taxes on aviation fuel and airline tickets. Funds from both the PFC and AIP have not increased for over 10 years leaving airports to find other sources of funding to build capacity. The new infrastructure plan in Washington includes $25 billion in federal funding for airports. This would close some of the funding gap for the coming decade, and help U.S. airports prepare for the return of air travel to pre-pandemic levels—which may take a decade according to some estimates. 
Roads and Bridges
The first federal highway program in the U.S. was the Federal Aid Road Act of 1916, and with the subsequent Federal Highway Act of 1921, started a “golden age” of road building in the U.S.  Before the 1920s, roads were primitive and primarily served as capillaries to rail arteries. The Interstate Highway System was established in 1956 with Eisenhower’s Federal Aid Highway Act.  The initial budget for the highway system was $116 billion (in 2019 dollars) over 12 years. It ultimately ended up costing over $530 billion and took 35 years to build the almost 47,000 miles of highway and 55,000 bridges in the Interstate System. In total, there are over 4 million miles of public roads and 617,000 bridges in the U.S. providing near nationwide, door-to-door coverage. Each month (pre-pandemic levels), vehicles travel almost 275 billion miles and move over 60 percent of freight by weight in the U.S. 
According to the ASCE, there is a backlog of $786 billion in funding needed for road and bridge repair, enhancement, and expansion.  These projects are often large and complex requiring funding from multiple sources. For example, the two-mile-long tunnel beneath downtown Seattle opened in 2019 after 10 years of construction—not including the almost 10 years of planning and design—at a cost of over $2 billion from federal, state, and local sources.  The tunnel replaced an elevated highway (the Alaskan Way Viaduct) which was damaged in a 2001 earthquake. Engineers believe the Viaduct would have collapsed had the earthquake lasted a few moments longer, and it is just one of many fragile roads and bridges in the U.S. Of the 617,000 bridges, 7.5 percent—which handle 178 million trips every day—are considered “structurally deficient” in need of urgent repair or replacement. That number is down from a high of 12.1 percent in 2009. A further 30 percent of U.S. bridges need some form of repair and preservation work. 
Despite there being over 4 million miles of roadway, every driver also knows that roads and highways in many areas are unable to handle the number of cars driving on them resulting in congestion. The most congested urban area in the U.S. is Boston, MA where drivers lose $2,205 per year in wasted fuel and time.  In 2019, Americans lost nearly $88 billion, or an average of $1,377 per driver, due to congestion. One solution to congestion is capacity, and the ASCE estimates that $120 billion is needed for road expansion. Every lane-mile of road, however, costs approximately $24,000 annually in operation and maintenance, and can lead to further sprawl and congestion. This means improved operations and other transit options are also needed to reduce congestion.
To address the condition and funding gap for roads and bridges, the current infrastructure plan in Washington includes $115 billion for the most economically significant large bridges in need of reconstruction, 10,000 smaller bridges in the worst condition, and 20,000 miles of highways, roads, and streets. It also includes $85 billion for public transit, $80 billion for passenger and freight railways (which can relieve pressure on roads), and $20 billion for road safety. In total, the AJP includes over $300 billion for surface transportation maintenance and enhancement—not including investments in electric vehicles and clean technology infrastructure—which would make a dent in the $1.2 trillion funding gap over the coming decade.
Stay tuned for more on the economics of infrastructure investments and the state of the electricity grid, railways, and ports!
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What I’m Reading
A Top U.S. Seller of Carbon Offsets Starts Investigating Its Own Projects by Ben Elgin in Bloomberg Green
CEO activism in America is risky business in The Economist
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The Vast Viral World: What We Know (and Don’t Know) by Lauren E. Oakes in Nautilus