A good article at Strong Towns highlights a structural problem with how the US does Federal infrastructure funding:
We can get money from Washington to build new infrastructure, but it is really difficult — if not impossible — to get money from Washington to maintain existing infrastructure.
The article explores the problem in the context of Minnesota bridges, noting that Federal funding is going forward for a bridge expected to serve 16,000 cars a day while Minnesota is unable to fund maintenance for existing bridges carrying 2.4m cars a day.
One solution has been for the Federal funder to demand evidence of a maintenance funding commitment by the state/province, but such guarantees would need to be eternal, and eternal commitments are very hard to enforce.
Canadian and Australian readers who dream of a bigger central government role in infrastructure funding, this caution is for you! Think hard about what you want to federalize. If you're going to demand federal funding for infrastructure, you might want to demand life cycle maintenance funding instead of just building things that states and provinces can't afford to maintain. Think, too, about this.
Hmm. There are all types of federal funding categories that can be used for replacing structurally deficient bridges: interstate maintenance, NHS, STP, etc. Most states and such actually spend more on preservation activities than they do on expansion.
I won’t claim to speak for all Canadians, but I do know that the position put forward by organizations such as the Canadian Urban Transit Association is for “tax room” or “tax points” to be allocated to the municipalities as part of a federal-provincial agreement. A couple of percentage points of Canada’s value-added tax, the GST, is often mentioned. This would explicitly avoid the problem of one-off infrastructure spending by providing an ongoing and fairly predictable source of revenue for both capital and maintenance.
I think this stems from a common misunderstanding of the purpose of Federal money. Let’s say that each of 50 states would like to build a bridge, and each can afford to pay/save 1/50th of the cost of a bridge every year. If they pool together, they can build one bridge every year for fifty years. If they all have to wait till they have enough money, they build fifty bridges in the fiftieth year. Clubbing together makes sense – most states win, and even the worst-off guy is no worse of than he would’ve been.
But maintainence – or operating funding – doesn’t work like this. There’s no advantage to clubbing together, because in the final case, everyone is going to be paying the maintainence of their bridge every year. In the fifty ‘build’ years, the lucky ‘early’ states do pay more – but they also already have the bridge they wanted, whilst the unlucky ‘late’ states have no bridge at all.
Now, obviously the ability to take on debt makes it all more complicated. In principle the states could take on debt and build fifty bridges in year one, then debt-interest-payments and maintenance would become the same catagory, and everyone would be on the hook for them.
Returning to the issue of maintanance it may make sense for the Federal government to provide money to the states when the Federal government can borrow cheaply and the states cannot – but it’s hard to see why per capita one state should be favoured over another irrespective of maintanance considerations. After all, the lucky ‘early’ state already has its bridge, and you’re going to give them even more money rather than focussing on the unlucky ‘late’ state.
More generally, of course, this is fungible – if one state prefers a bridge and another a local light rail system, that’s obviously fine. But this principle can be extended – it should also be fine if one state wants to buy a few buses, and take the rest as a lump-sum that it can use to endow a trust fund, that can raise interest which then pays for ongoing operating expenses of those buses. Or maybe a state prefers to use the lump sum to fund a tax cut, on the basis that it can always raise state taxes and get the money back if its needed for some operational requirement.
In short, the Federal government is the wrong level of government to be handling operating expenses. Although it may be appropriate for it to lend or give money to states, if the government can borrow (or otherwise raise) money more cheaply than the states.
Sigh – after all that – this is equally obviously different if you’re building a national system like HSR, or the interstate, or air-traffic control.
@David in Ottawa:
Municipalities already have an “ongoing and fairly predictable source of revenue for both capital and maintenance”. It’s called the property tax. In fact, it’s *very* predictable, because property tax income doesn’t fall when people earn less/spend less.
The problem is that people whinge far more about having $1000-2000/year in property tax than having ten times that figure in income tax.
@Tom West: the answer is fairly simple – property taxes are perceived as doing more “damage” to your budget because they are not tied to income (if you are unemployed, you don’t pay) nor to spending (if you don’t shop, you don’t pay).
There is also the controversial issue of lagged assessments and all that surrounds them, whereas other forms of taxation are pretty much straightforward.
The controversies of whether a company car you can take on weekends constitutes income and how much are far lower than the controversies of how should property be valued, how fair or unfair is to tax retirees on fixed income far more because their properties have gone up in value etc.
This is related to the whole operations question–Uncle Sam generally won’t provide money for operations (bus drivers and fuel for transit agencies) and maintenance of capital can be considered an ongoing operating cost. (As are other operating expenses associated with highways, such as DMVs, traffic enforcement, and the like).
Some of the reasons for not spending federal money on these are valid; but much of it is politics. Politicians like ribbon-cuttings, there are far fewer photo-ops to be found with maintenance. Large projects are often contracted out to private contractors with lobbyists on the payroll, whereas many smaller maintenance tasks are performed in-house by government. And there seems to have long been a great fear in Washington that if money is used to subsidize ops; rather than purchase actual improvements, it will simply be used to fund pay raises for the workers involved.
@Aaron M Renn, a study done last summer by Smart Growth America found that 57% of federal highway funding was spent on expansion. That obviously doesn’t account for non-Federal funding, but since federal funding is a large source of funds, it suggests that an outsized amount is being spent on expansion.
@Alex: without a demonstration in the form of financial reports done by a third-party, I will not trust that number at all. Last time I checked, Smart Growth America considered even improvements like highway management systems with no physical increase in capacity as “expansion” programs, and it considered expenses on highway corridors in things like new noise abatement barriers and even transit in the highway ROW as “expansion” under the guise that it clears more capacity for cars.
Highly biased criteria.
@EngineerScotty, I think it’s time to put the “Politicians like ribbon-cuttings” meme to a deserved end.
If pre-construction celebrations were the motivating factor behind politicians backing a major infrastructure investment, we could pass a law that would ban ribbon cuttings and that would nip the bad infrastructure problem in the bud.
Only, it wouldn’t. In the U.S., and especially with the FTA, it’s the “circus seal” culture where local priorities are oriented around the funding made available to a project.
As a Canadian I have always been shocked at how the states can allow infrastructure to be run into the ground without doing much in the way of maintenance while they wait for for a federal capital replacement grant. People in Toronto complain when 2 miles of the 401, the major expressway across Toronto, are reduced in lanes every summer for maintenance. Since the average life of a road in our climate is 25 years then 2 miles out of fifty need to be replaced every year, the same goes for bridges. I would rather suffer the slight inconvenience every year than lose the entire road for up to two years while it is rebuilt from the base up. Preventative maintenance if the lesser of two evils.
It should be noted that FTA formula funds can be used to fund preventive maintenance. In fact, there are billions of dollars through Section 5307 funding that can go toward maintaining what exists. This not only helps transit agencies access the funding expeditiously, it is good policy.
In Australia, Federal government road funding of the National Highways and the key urban linkages cover both Capex and Opex, usually 50/50 with the States for the urban links and full funding of Capex/Opex for the National Highways.
With transit, that’s a different story, both historically and structurally. Most of the Federal Government intervention in Australia’s urban transit has been to ‘bring forward’ projects the States would have built anyway. The States, as the ones who’ve historically had the responsibility to operate and maintain urban transit have gladly taken the money and added the marginal maintenance costs into the budget.
I liked what JMH said above, and add that if larger scale governments can help with funding for projects that would require bonds to do locally, then twice as much transportation work can be done – because over half the money won’t need to be wasted on debt payments. Twice as much work out of the same dollars – that adds up fast.
Where the discussion sometimes breaks down is over the difference between preventative maintenance and major reconstruction – which can sometimes be far more expensive than the original project, in part because reconstruction needs to be done under traffic. Older rail systems suffer from this problem, and now much of the interstate system is closing in on the need for major work that will, again, require bonding or federal assistance to complete. I think this is an area the federal government needs to be involved in too.
The point I wanted to add is that, at least in my state, every new transportation dollar needs to go before the voters. EngineerScotty notes that elected officials like ribbon-cuttings – perhaps so, but they are even more convinced that voters will gag on raising transportation funds if they won’t see some new project completed as a result. So from my view, the trend towards requiring public votes on all taxes is taking a heavy toll on government’s ability to fund essential preservation and reconstruction projects. Since federal formula funds can be spent more flexibly, this suggests another reason for federal involvement in major preservation and reconstruction funding, perhaps matched by local roadway tolls.
“readers who dream of a bigger central government role in infrastructure funding, this caution is for you!”
Perhaps you should learn about Finland, where infrastructure is budgeted and controlled by the govt. We don’t have the kind of massive problems that US has about maintaining the infrastructure. The only problems that have risen have been caused by privatization of govt businesses (such as the govt railways). Never had problems when it was a public service, now that it has been privatized it has been in the news every year due to problems during the winter.
Small government is not a solution for everything. Apparently people in the Americas only think that your bad experiences with the government can be generalized to all governments. Look at the nordic countries and learn from them for a different *working* model.