Let’s first define the word ‘Infrastructure’. Infrastructure includes bridges, electricity distribution, cell phone towers, communication satellites, sewer, water, roads, airports, naval ports, and other structures used within a country to allow people to live and work productively. In the U.S., surprisingly, most of this infrastructure is owned by private investors. In 2013, the American Society of Civil Engineers (ASCE) gave America a D+ on its infrastructure report card. The ASCE claimed that the U.S. needs to spend $3.6 Trillion by the year 2020 to get our infrastructure up to par with other developed nations. Local, state and federal government spent $367 Billion on infrastructure improvements in 2012. In this same year, the private sector spent close to $2 Trillion in infrastructure improvements. If government raised its spending in accordance with ASCE’s recommendations, it would need to increase spending on infrastructure to $515 Billion a year for the next five years.
Infrastructure improvements are not just necessary for us all to live well, and work well, they provide needed jobs. At first blush our unemployment picture looks fine at a low 5.1%. However, when you consider the amount of people employed out of our entire population, the numbers look much worse. Prior to the economic crash in 2007, our employment ratio had reached a high of 63.4%. After the economic crash from 2007 to 2009, our employment ratio bottomed at 58.3%. At the end of our supposed economic recovery, the employment ratio is at an anemic 59.4%. This means that an estimated 12,800,000 people have left the workforce since 2007. These folks are not being counted in unemployment statistics. These workers could have left for a variety of reasons. Some are simply retiring at their prescribed retirement age and collecting social security. Others have decided to retire early with sufficient savings to last them until they are old enough to collect social security. Others have opted to simply stop working until better employment opportunities become available. Finally, there is the group of unemployed who find it easier to collect entitlement benefits as opposed to working for low wages. To give you some insight into our entitlement problem, food stamp recipients have grown from 17 million recipients in 2000 to 46.5 million recipients in 2014. Many of those on food stamps are the working poor who are not unemployed; but are arguably underemployed.
There are some in the Modern Money Theory movement who advocate that we can easily justify increased federal debt to fund infrastructure improvement projects because such projects genuinely improve our economy and assets in our country. While I agree with the Modern Money Theory advocates in principle, I disagree that our federal government is the best entity to invest in needed infrastructure improvement programs. Everyone has heard of the ‘bridge to nowhere’; a pork-barrel bridge project in Alaska that was supposed to be funded with federal money. The project receives so much bad press, that politicians finally defeated this measure and allowed Alaska to spend the funds on higher priority projects in their state. State representatives lobby without abandon to get federal infrastructure funds spent in their own states in an effort to win votes. This dynamic creates a severe case of crony capitalism and needs to be avoided. Most successful infrastructure projects are completed by local and state governments; or by the private sector. The main reason these projects are successful is because local communities have a much better direct feedback to the viability of such projects.
There is another problem that the federal government does need to address in its infrastructure funding. In 1956, a Highway Trust Fund was established to fund all interstate highway infrastructure improvements needed. The source of revenue for this fund is a fixed price tax per gallon of gasoline($0.18 /gal) and/or diesel fuel ($0.24/gal). From 2008 to 2010, congress has had to transfer a total of $35 Billion to the Highway Trust Fund to keep it from going insolvent. This means that the current gas tax is simply too low to keep up with the cost of maintaining our highway infrastructure. In order to keep pace with existing highway infrastructure projects, the gasoline tax would need to be raised by 47%. However, I propose the tax should be raised by 55% to cover much of the deferred maintenance in our interstate system.
Where do our presidential candidates stand on infrastructure improvement?
Donald Trump has mentioned that infrastructure improvements is one of his top priorities. He has often commented on how nice other countries’ airports look and how rundown the U.S. airports look. He has also commented that he would be the best candidate to improve infrastructure because of his experience in building construction. While, I have to give Trump a lot of credit for keeping this issue forefront in his campaign, I really wish he would say how he plans to improve our nation’s infrastructure.
Hillary Clinton has advocated creation of a restricted fund for infrastructure improvements and plans to increase funding for such improvements in an effort to create good paying union jobs. I have to applaud Secretary Clinton for creating a restricted fund. I believe this is important. However, we currently have a restricted fund in the Highway Trust Fund that is currently not being respected. Secretary Clinton has been reluctant to raise gasoline taxes in previous congressional debates on the subject. Instead, she is touting a class-envy tactic of somehow squeezing more taxes out of the rich. That may work for some folks, but it is disingenuous to me.
Bernie Sanders has proposed to spend an additional $1 Trillion over the next 5-years to improve infrastructure. This amount is almost exactly the amount requested by the ASCE infrastructure need report. He doesn’t say where he would get this money… so I have to assume it is in the form of new taxes somewhere; or increased debt. I am grateful Senator Sanders is at least addressing this on his web site. Most candidates are not.
Jeb Bush has not been very specific about infrastructure need or solutions. However, he did lobby to defeat a measure in Florida to construct high-speed light rail track to major metropolitan areas. After a 53% vote to require high-speed light rail in Florida, Jeb Bush lobbied to repeal this amendment winning a 64% majority. I am not sure if the light rail was a good or bad idea for Florida. This should be a question posed to Jeb Bush on the campaign trail so that he can rationalize his decision.
Carly Fiorina has not published a specific stance on infrastructure issues. However, she has claimed that the 2009 stimulus spending was a waste of tax-payers money. I have to agree with Mrs. Fiorina on the waste. Out of the $816.3 Billion spent in 2009, approximately $60 Billion (7%) was spent on ‘shovel ready’ infrastructure improvement projects. The rest of these funds went to expanded entitlement programs, tax credits and state general funds. Mrs. Fiorina has also stated that she is against increased gasoline taxes to fund any infrastructure improvements. This may be attractive to anti-tax republicans, but it seems like it is not wise to advocate no additional investment when the Highway Trust Fund is running a $10 Billion/year deficit and it is not keeping up with all of the highway maintenance required.
As I wrote this post, I was disappointed to find little information on most politicians who want to be elected as president in 2016. On the Democratic side of the aisle, Hillary and Bernie are advocating placating the unions with infrastructure improvement projects; and republicans seem to be touting an anti-tax message. With the exception of Donald Trump who says he wants to make infrastructure a priority, but will not be specific on his approach.
In my view there are four key elements of a successful infrastructure improvement policy:
1) Increase the federal highway gasoline tax by 55% to keep the Highway Trust Fund solvent.
2) Eliminate federal government grant programs, earmarks and pork-barrel spending to states and local governments to allow local communities to decide for themselves on the viability and priority of infrastructure projects.
3) Seriously investigate privatization of mass-transit systems. I believe private transportation companies can much better assess the financial viability of such projects.
4) Create restricted funds to finance infrastructure improvement projects that link revenues and tolls to the users of such projects.
A few 2016 presidential candidates have address one or two of these bullets, but no candidate has truly addressed the U.S. infrastructure issues that are vital to our country’s future success.