Infrastructure has been defined as the “connective tissue” that supports America’s economy. It comprises roads, ports, bridges, railways, transit systems, water and sewer systems, telecommunications and the energy grid. Without this infrastructure system in place, the US economy cannot grow and, and without improvement, will not be able to support the tremendous growth and demand expected in the future. Critical infrastructure is regarded as a fundamental building block of economic recovery for two (2) reasons: First, investment infrastructure or government spending in general, is a fundamental principal of Keynesian Economics for economic recovery. The theory relies on principals of money multiplication to utilize government spending in order to increase economic output and jump start the economy. Secondly, infrastructure investment provides a long term benefit of supporting the foundation for future economic growth.
The Ahlers & Cressman Blog has been tracking infrastructure stories over the past three (3) years (See posts March 12, 2008, January 14, 2009, February 4, 2010, February 23, 2010, December 16, 2010 and January 5, 2011). Some recent events concerning Infrastructure developments have appeared in news sources:
1. First Reserve Corp, a Private Investment Firm Establishes a $1.2 Billion Infrastructure Fund.
One way to stimulate infrastructure investment is through private sources. Entities and individuals who invest in this fund can take advantage of the significant returns expected from investment in civil infrastructure. First Reserve Corp. Energy Infrastructure Fund has raised $1.2 billion for civil projects such as pipeline, utility and renewable energy projects. The Fund is looking to capitalize on “population growth, a replacement cycle for existing infrastructure, and a policy shift towards cleaner sources of energy.” The Infrastructure Fund aims to deliver annual returns in the mid-teens, which is lower than traditional project equity funds that often promise annual returns of in excess of 20%. Infrastructure funds, however, take less risk and typically make investments that allow them to pay regular dividends to their investors over the life of the fund.
2. National Infrastructure Bank Bill on the Horizon?
Another idea that has been advanced is to create an infrastructure bank similar to the Washington Public Works Trust Fund from which public entities could borrow funds to invest in infrastructure projects. Massachusetts Democratic Senator John Carey has indicated that he hopes that the National Infrastructure Bank Bill that he sponsored will pass the Senate this year after gaining support from various leaders. This legislation promotes infrastructure investment through an independent bank that would cost $10 billion and be able to leverage private investment.
3. Is US Provincialism an obstacle to Chinese Investment?
One theory advanced as to how to cure the US’s infrastructure woes is to borrow heavily from China, particularly now since interest rates are at a historic low. The “dividend” realized from the infrastructure investment, that is the productivity savings would more than pay for the money borrowed. Some pundits warn that the US will likely miss out on trillions of dollars of investment by China, and the jobs it would create because of political obstacles put up by the US. Researchers assert that China might invest as much as $2 trillion abroad in the next few years. An infusion that could revitalize the US economy, stimulate employment and rebuild our crumbling infrastructure. Regrettably, political interference could send that capital to competitors instead of to the US, according to a study by the Asia Society and the Woodrow Wilson Center for International Scholars. Apparently the Chinese government perceives our political message to be that we are not “China friendly.”
The American Society of Civil Engineers (ASCE) in its “Report Card for America’s Infrastructure” gave our crumbling infrastructure a failing grade (D-). The ASCE has advanced a number of suggestions as to how to best improve the infrastructure in the US: stating: “Americans owe their economic prosperity, public safety, and high quality of life to the infrastructure that serves them everyday.” The ASCE suggests five solutions to raise the grade and return the nation to prosperity by maintaining and improving the infrastructure that it great.
– Increase federal leadership in infrastructure. Federal leadership has diminished in terms of infrastructure investments, and the condition of the nation’s infrastructure is consequently suffered. Most infrastructure investment decision are made without the benefit of national vision. Without a strong national vision, infrastructure will continue to deteriorate.
– Promote sustainability and resilience. Infrastructure systems must be designed to protect the natural environment and withstand both natural and manmade hazards using sustainable practices to ensure that future generations can use and enjoy the beneficial resources enjoyed by our generation.
– Develop federal regional and state infrastructure plans. Infrastructure plans should be synchronized with regional land use planning and related regulations and incentives to promote non-structural, as well as structural solutions, to mitigate the growing demand for increased infrastructure capacity.
– Address life cycle costs and ongoing maintenance. Owners of infrastructure should be required to perform ongoing evaluations and maintenance to keep the system functioning at a safe and satisfactory level. Life cycle cost analysis, ongoing maintenance, and planned renewal will result in more sustainable and resilient infrastructure systems and ensure they can meet the needs of future users.
– Increase and improve infrastructure investment from all stakeholders. Development and authorization of innovative financing programs that not only make resources readily available but also encourage the most effective and efficient use of those resources should be implemented. Federal investment must be used to complement, encourage and leverage investment from the state and local government levels, as well as the private sector. In addition, users of infrastructure must be willing to pay the appropriate price for the use of the infrastructure.