America’s infrastructure: back on track or off the rails?

Infrastructure in America lately has been more about political roadblocks than crumbling roadways, but last Tuesday when a largely bipartisan effort to advance Biden’s infrastructure bill successfully garnered Senate approval, new airports and high-speed rail started to seem less like science fiction.

America, the world’s wealthiest country, has a ten-year infrastructure investment gap of $2.59 trillion according to the American Society of Civil Engineers. The US was given a C-minus in its 2021 report card, which measures everything from innovation to existing physical condition. With the reality of a water-main break happening somewhere in the US every two minutes, the report card urges investment to avoid costs of $10 trillion in GDP and more than 3 million jobs by 2039.

If America is to retain its competitiveness and create a buttress against the increasing threats of extreme weather and other modern pressures, government must work to find common ground and pass the infrastructure bill.

President Biden has campaigned on his ability to bridge party lines and that skill appears to have successfully won the support of 19 Republicans, including Senate minority leader Mitch McConnell, along with all Senate Democrats. While still the biggest infrastructure legislation passed in over a decade, the bill’s $1T price tag is significantly less than the original $2.3 trillion plan.

What does $1 trillion buy America?

The largest allocation is for projects like roads and bridges ($110 billion) followed by upgrades for the power grid ($73 billion). The bill also includes passenger and freight rail ($66 billion), broadband access ($65 billion), clean drinking water ($55 billion), public transportation systems ($39 billion), airports ($20 billion) and air traffic control ($5 billion), ports and waterways ($17 billion), electric vehicle charging and procurement ($15 billion).

What got cut?

Republicans insisted on focusing solely on ‘hard’ assets rather than other ‘soft’ infrastructure such as social services. Unfortunately, billions earmarked for climate-related initiatives like research and development and clean energy tax credits were also grounded. Notably absent is funding for affordable housing and energy efficiency building retrofits.

Who pays?

Not taxpayers. At least not yet. Supporters insist the bill will not result in tax increases but instead will pair funds already allocated for infrastructure with alternative sources such as unused COVID-19 aide ($200 billion), postponed Medicare rebates ($50 billion), unused federal funds given to states for unemployment insurance ($50 billion) and the proceeds from increased tax compliance for cryptocurrency transactions ($28 billion).

Questions loom however as to whether these sources will fully cover costs. A review by the Congressional Budget Office revealed the bill will increase deficits by $256 billion over the next ten years, however this claim was contested by the approving Senators and White House spokespeople.

There is also little detail around the role of private finance. While not a panacea, private capital could be considered to help fund revenue-generating projects, and investors are hungry for US-sponsored deals. With $2 trillion of private capital on the sidelines, public-private partnerships could address some of the financing challenges and help expedite project delivery.

What’s next?

The Senate has also passed a $3.5 trillion budget reconciliation plan that now, along with the infrastructure bill, must go to the House for approval, which will take time. The infrastructure bill could still become derailed during House approval as more fiscally conservative Democrats have expressed concern over the size of the $3.5 trillion proposal, which includes spending to support education, citizen pathways for qualified immigrants, investments in public housing and clean energy.

More fiscally liberal Democrats have threatened to vote against the infrastructure bill if there are substantial cuts to the budget plan.

In the era of government divergence and partisanship, congress must band together to advance the modernization of American infrastructure, create quality jobs and advance climate priorities.

There is debate in macroeconomic theory as to the reach of infrastructure investment as a means of sustained GDP growth. Critics often point to the opportunity cost of allocating funding to infrastructure away from other key priorities, however comparing the infrastructure bill to other recent stimulus measures would be unfair.

Returns on infrastructure investment are realized over longer time periods than other emergency stimulus measures and the goal is not only to boost the overall productivity of society, but to ensure that the built environment is resilient, sustainable and improves quality of life for all citizens.