In 2019, the U.S. federal government spent $96 billion to build and update infrastructure, of which $67 billion was transferred to states. In 2017, the most recent data we have, state and local infrastructure spending totaled $162 billion, excluding federal transfers.
At the same time, there has been a shift toward increased spending on operations and away from spending on new capital projects. Slightly more than six out of every 10 dollars go to keep infrastructure systems functioning, with the rest going to upgrades.
Now the pandemic has pushed U.S. infrastructure finance into shaky territory by opening big holes in state and local budgets. Increased healthcare and unemployment costs, combined with revenue shortfalls in income and sales tax, will put new pressure on local and state governments—and require creative solutions to fix what all agree is an underfunded U.S. infrastructure.
Just look at what is happening in some states, where in addition to the tax revenue squeeze, billions are being spent to contend with the coronavirus crisis in relief funds and unemployment claims.
In Arizona, a state legislative budget committee projected a shortfall between $600 million and $1.16 billion for fiscal year 2021. In New York, the state comptroller foresees a shortfall in tax revenue between $4 billion and $7 billion. In Pennsylvania, the Independent Fiscal Office projects that under the most optimistic scenario, state revenue will fall short of the original projections by $2.7 billion. And don’t forget the pandemic will also play havoc with infrastructure-specific revenue sources, such as gas taxes, road and bridge tolls, transit fares and aviation landing fees and concession revenue.
The COVID-19 challenge comes against the backdrop of a growing infrastructure gap (the American Society of Civil Engineers Report Card sees a $2 trillion gap over 10 years in the $4.6 trillion required to achieve a state of good repair) and an aging labor force that represents a significant portion of all workers nationally.
Federal Support Unlikely
While federal budget support focused on addressing broader state issues is essential, it is unlikely that support for the states will fully address infrastructure.
Currently, about 13% of state and local direct expenditures go toward infrastructure, with highways and roads at 6% and sanitation and sewage at 5%. Far greater portions of the public purse are spent on education (31%), public welfare (22%) and health and hospitals (10%). Law enforcement and corrections total 6% of the budget.
So what are the possible realities and alternatives for the nation’s infrastructure?
It is possible that targeted and untargeted federal grants will fill the local budget holes or make them more manageable in the short and medium term. Most likely, infrastructure will face continued fierce competition from other state and local expenditure categories.
As a result, our whole way of prioritizing, delivering and funding infrastructure must be re-examined. Deciding what gets funded will have to become more transparent in a resource-constrained environment. Our basis of design must shift to an increased focus on life-cycle factors.
If not, in the future, 100% of our available funding will be consumed ensuring our existing infrastructure systems are functioning properly, and there will be no room in our budgets for improvement or expansion.
Increased development and deployment of performance-based standards will provide the necessary framework for innovation and enhanced resilience for a future event of scale.
Finally, our execution and funding approaches must fully engage the private sector and private capital.
COVID-19 has unlocked our current paradigm, one which saw our nation’s infrastructure continue to fall further and further behind the state of being in good repair. We must ensure that we reform that future around the new paradigm we require.
We have the talent, energy and economic strength to do so. Do we have the will and leadership that we need?
A former Fluor Corp. senior vice president and Parsons Brinckerhoff chairman, Robert Prieto is CEO of Strategic Program Management LLC, a consultant. His most recen tbook is Theory of Management of Large Complex Projects, and he can be reached at email@example.com.