Roads, bridges and the nation’s other infrastructure steadily growing older and weaker. Given low interest rates and elevated unemployment, this is an ideal moment to invest in fixing them.
Our structures are aging as fast as we are. From 2000 to 2010, the median human age in the United States rose by almost two years, from 35.3 to 37.2, and the average age of nonresidential corporate fixed assets increased by about the same amount. Fixed assets as a whole aged from an average of 20.7 years to 22.1.
Does age matter? Unfortunately, with infrastructure it does.
A December 2010 report from the Department of Homeland Security underscores the threat. “Age,” it says, “often acts together with and may reinforce the effect of other factors such as design, maintenance, and operation in increasing the vulnerability of infrastructure.”
Consider the situation in New York State, where about 10 percent of the roughly 22,000 bridges were built before 1930. More than 10 percent of these old bridges have a superstructure rating of poor or worse, compared with less than 5 percent of the bridges built during the past four decades.
As my former colleague Larry Summers has written, “No one who travels from the United States abroad can doubt that we have an enormous infrastructure deficit. Surely even leaving aside any possible stimulus benefits, current economic conditions make this the ideal time for renewing the nation’s infrastructure.”
So what to do?
The 2009 stimulus bill helped a bit: It allocated about $100 billion to infrastructure investment (estimates vary slightly depending on the definition of “infrastructure”). But that was only about 12 percent of the total bill, and it was insufficient to address the growing problem.
Four steps are needed now.
• First, we need to couple immediate federal spending on public assets with substantial, credible deficit-reduction measures that are scheduled to take effect later on. Such a “barbell” approach to fiscal policy would require that Republicans acknowledge the value of additional stimulus while the unemployment rate is high, and that Democrats see how Medicare, Medicaid and Social Security could be preserved and strengthened through certain cost-saving measures over time. The upfront piece should include an ambitious $250 billion infrastructure program (including federal, state and local spending) over the next two years.
• Second, we should bring back Build America Bonds. The traditional approach to state and local infrastructure financing allows the interest on the bonds to be excluded from federal taxation. That approach has been shown to provide undue benefit to purchasers in the top marginal-tax bracket. Build America Bonds, in contrast, provide a direct subsidy to the borrowers, and thereby deliver more of the federal subsidy to the state and local governments.
More than 2,000 Build America Bonds were issued in 2009 and 2010, and the Treasury Department has estimated that state and local governments have saved $20 billion in present value as a result. It’s time to bring the program back.
• Third, federal policymakers should see how innovative programs such as the Chicago Infrastructure Trust work in practice. If Chicago can point the way for other cities to attract new forms of financing, it will have done a great service.
• Finally, federal, state and local governments alike should expand the use of pricing to get the most out of existing roads, bridges and the like and to finance improvements. User fees for transportation, for example, should be expanded, as was recently recommended by Jack Basso, a former chief operating officer of the American Association of State Highway and Transportation Officials, and Tyler Duvall, a former assistant secretary at the Transportation Department. This approach, they noted in a paper for the Hamilton Project, has been successful in other countries but has been used much less in the U.S. A road-pricing system could raise as much as $55 billion a year to finance new investments or deficit reduction, the U.S. Transportation Department has estimated. It would also cut congestion and carbon emissions.
In the absence of such steps, our infrastructure will only become less safe and less productive. Although we may not be able to do much about our own aging, there’s plenty we could do to keep public infrastructure young.
Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup, and a former director of the Office of Management and Budget in the Obama administration.