January 25, 2017

Expert Voices 2017: America’s Urban Infrastructure

By: Penn IUR
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In his inauguration speech, President Trump characterized America's infrastructure as having “fallen into disrepair and decay” and promised to “build new roads, and highways, and bridges, and airports, and tunnels, and railways.” Similarly, over the course of the presidential campaign, Trump vowed to develop "the next generation" of American infrastructure and "send new skyscrapers soaring." 

We asked more than a dozen urban experts: In your view, what should the United States do about urban infrastructure?

Their answers point to the importance and complexity of infrastructure’s place in urban development and policy. Our experts discuss everything from financing and re-prioritizing infrastructure investments to infrastructure’s role in distressed areas. They consider the 21st century definition of infrastructure and what it means for infrastructure investments to be inclusive, environmentally sound and evidence-based. Together, these reflections show the magnitude of infrastructure’s potential role in the coming years, both in terms of its promise and its challenges.

Eugenie Birch and Susan Wachter, Co-Directors, Penn Institute for Urban Research

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Infrastructure and Distressed Areas | Timothy J. Bartik

Infrastructure Investment Must Benefit All | Angela Glover Blackwell

Transportation in Inclusive Economic Development | Paul C. Brophy

Invest in the Public Realm | Peter Hendee Brown

Infrastructure Spending to Greatness? | Gilles Duranton

Financing Urban Infrastructure | Erick Guerra

Re-prioritizing Federal Infrastructure Investments | John D. Landis

Water and the Nation’s Infrastructure | Howard Neukrug

Utilizing Environmental Intelligence in Infrastructure Planning | Jeremy Nowak

Consider Infrastructure’s Optimal Use | Megan Ryerson

Multi-tasking Infrastructures | Saskia Sassen

Infrastructure: Make It Green | Frederick Steiner

Pursuing Evidence-based Infrastructure Objectives |Sarah Rosen Wartell

Historical Patterns of Infrastructure Funding | Dick Voith,

Financing America’s Infrastructure Needs | Robert Yaro

Improved Infrastructure Must Include Affordable Housing | Mark Zandi

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Infrastructure and Distressed Areas

Timothy J. Bartik, Senior Economist, W.E. Upjohn Institute, Penn IUR Fellow

What should we do about infrastructure, given the economy today? Many currently unfunded infrastructure projects would pass a benefit-cost test. But for the overall macro-economy, we have low enough unemployment that further fiscal stimulus that is untargeted risks inflationary pressures.

However, despite low national unemployment, some geographic areas suffer from economic distress, with too low employment-to-population ratios. Redistributing labor demand to these labor surplus areas would yield significant economic benefits. Increasing employment-to-population ratios in these areas would significantly raise earnings, while minimizing national inflation.

A federal infrastructure policy targeted at economically-distressed areas is one good way to boost these areas’ labor demand. This targeted infrastructure policy should include two components.

The first component is to help finance local infrastructure in distressed areas that passes a benefit-cost test. These distressed areas are the most likely to have fiscal problems inhibiting such projects.

The second component is investing in federal infrastructure to relocate significant portions of federal activities to distressed areas. With modern communications, there is less rationale for the large federal concentration in the DC area. Some relocation would help distressed areas, while reducing DC’s congestion.    

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Infrastructure Investment Must Benefit All

Angela Glover Blackwell, CEO, PolicyLink, Penn IUR Fellow

A massive federal investment in infrastructure could offer an incredible opportunity to transform the most disinvested neighborhoods in America into safe, strong, equitable communities while adding to metropolitan prosperity. It’s no mystery how to achieve this. Target investments to fix roads, bridges, water systems and other basic resources where they have been allowed to deteriorate most scandalously: low-income inner-city communities. Build public transit that connects all residents to opportunity throughout the region. And make sure the infrastructure investments create jobs — good ones — that are available to people in these communities.

This must be the message to President Trump as he gives shape to his campaign pledge to rebuild infrastructure.

On its face, the 10-year trillion-dollar promise should have me celebrating. My organization, PolicyLink, has advocated for years for smart, targeted infrastructure investments as essential to spur sustainable, inclusive growth. But Trump’s approach alarms me. The private sector seems destined to play a big role. Will the infrastructure initiative amount to a giveaway to business, one that only exacerbates inequality? Or will the public benefit and share the economic gains?

Building and maintaining infrastructure is a public function. If the private sector is to be involved, it must be held accountable and make a strong commitment to affordability, accessibility and preserving the lifeline programs that pave the way to opportunity for all.  Business did not build America’s infrastructure or create the market for it. Letting the private sector in on infrastructure deals is a gift that comes with a readymade market for the bridges, roads, and transit that business now gets to build. Contracting must be fair, inclusive and make real opportunities available to entrepreneurs who have traditionally been locked out, including women and people of color. And in the end, the investments should produce the crucial resources that allow all people to participate, prosper, and reach their full potential.

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Transportation in Inclusive Economic Development

Paul C. Brophy, Principal, Brophy & Reilly LLC, Penn IUR Fellow

I recently heard Rahm Emanuel, mayor of Chicago, summarize the key elements of inclusive economic development as talent, training and transportation.  Not a bad summary.  That last element—transportation—can be a plus or minus for inclusive economic development. 

If deployed wisely, investments in transportation can help connect workers and jobs via improved transit and transit-oriented job locations, which recognizes the growing need and desire for knowledge-based workers and service workers to be located in areas of density.

If deployed in more traditional ways, transportation investments—particularly in more highways—can further exacerbate sprawl, making it even more difficult for workers to fight their way through traffic to get to jobs.

Cities face the challenge of getting the balance between roads and transit right—that’s a planning issue. There is also a second need, which is to balance new infrastructure investments with reinvestment in older infrastructure. Smart infrastructure investment is not only building new, but seeing to it that older infrastructure is rebuilt.  This, of course, means rebuilding unsafe bridges; but it also should mean rebuilding the mass transit systems in the nation.  Subway and other rail systems in Boston, New York, Philadelphia, Washington, DC and elsewhere are in need of very substantial reinvestment and these systems are the lifelines for the connections needed between workers and job centers.  

I am heartened by the Trump administration's emphasis on improving infrastructure and I am hopeful that the boldness of its planned initiatives will include the improvement of existing mass transit systems.

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Invest in the Public Realm

Peter Hendee Brown, Urban Development Consultant, Lecturer, Humphrey School of Public Affairs, University of Minnesota, Penn IUR Scholar

The flight to the city is on, and to enhance both productivity and quality of life in our cities, we must invest in our urban public realm.  Many of the 75 million members of the millennial generation are abandoning their suburban upbringings and demanding a new urban lifestyle, complete with new real estate product types for living, working, and playing, all with an emphasis on shared social spaces – inside and out.  Many of their parents – the 74 million baby boomers – are demanding similar things.  Together, these two cohorts represent nearly half of our population and they will reshape our cities in powerful ways.

Cities will need to reinvest in older parks, plazas and streets, but they will also need to provide new public spaces in developing areas that never had them - waterfronts, industrial sites, rail yards, and acres of surface parking.  As important will be the re-envisioning of the public right-of-way – the street – as a place that accommodates not just cars but multiple transportation modes including cars, buses, rail, and bicycles, all integrated into a pedestrian-friendly and green environment.  The greening of city streets will become critical for the creation of lush and livable places while also producing social, economic, and environmental benefits.

Perhaps most important, the work of improving our public realm will require commitment to multi-disciplinary collaboration and broad and genuine stakeholder engagement processes at an entirely new level.  Complicated public realm projects will require a form of project team leadership that looks more like representative democracy than a single design visionary.  Facilitating this process – and successfully building this new public realm - will require uniquely skilled and open-minded planners and designers who can help us envision a better way to live together in our cities.  

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Infrastructure Spending to Greatness?

Gilles Duranton, Chair, Real Estate Department, Wharton School, Penn IUR Faculty Fellow

We all want better infrastructure: bridges that do not collapse, water that does not poison, and electricity that does not disappear when we need it most, like during snowstorms and heat waves. But does that really justify a surge in infrastructure spending?

Perhaps not, at least not given how infrastructure decisions are currently made.

First, infrastructure spending is no silver bullet for prosperity. Japan and France are infrastructure world leaders, but their growth performance over the last twenty years has been underwhelming. Among the infrastructure newcomers, one can mention Korea and Spain. They equipped themselves with great infrastructure but that came after a period of fast growth, not the opposite. With an unemployment rate above 20 percent, Spain is hardly a symbol of economic health, and a case can be made that Spain’s economic problems result from an earlier infrastructure and house-building binge. Of course, infrastructure is not only about prosperity. Quality of life also matters. After moving from Toronto to Philadelphia, I did miss the stylish, elegant, and airy lines of Toronto Pearson airport. But I certainly did not miss the $25 improvement fee which I had to pay every time I wanted to catch a plane. The cost-benefit analysis of infrastructure projects can be tricky. Infrastructure improvements, and the quality-of-life benefits that come with them, are not universally worth the cost.

Second, could we even spend that much more money on infrastructure? Recent history gives us reasons to be skeptical. Despite the best efforts of its architects, the American Recovery and Reinvestment Act of 2009 (ARRA – also known as the “Obama stimulus”) could only spend slightly more than $100 billion on infrastructure over several years. To focus on road transportation, the $27 billion that the stimulus plan spent on roads and bridges represent less than half the 2014 budget of the Federal Highway Administration. There are simply not many projects that are “shovel-ready”. Those that are have typically failed any meaningful cost-benefit analysis and were denied funding. How many more “bridges to nowhere” are we willing to build?

What should be done then?  For transportation at least, unless we also change the institutions that fund and manage our road infrastructure, it is hard to imagine a bright future. Funding for federal highways is geared towards building and building more. We need to move away from this. This was a clear necessity in 1956 but this era is long gone. In most places, the priority should be the maintenance and modernization of legacy infrastructure, not the paving of new highways. Eliminating potholes is not glamorous but often makes economic sense. Even with if we establish the right priorities, this will be a long-term effort. There are simply not that many idle workers that could get started on this at short notice.

We also need transparency in funding. At the moment, states pay for federal roads through the gas tax. All contributions end up in a common pot and this is a free-for-all in Congress among states to try to recover as much as possible of their contributions through new projects. As a result, new transportation infrastructure is too often built where it is politically expedient, not where it is economically needed. To reduce that problem, a possibility is more centralization and more rational decision-making, French or Korean style.  Alternatively, and perhaps more in tune with the institutions of this country, we could eliminate Congress from the funding formula altogether and let states decide directly on both the gas tax and how its revenue should be spent. Will this happen? It is hard to be optimistic on this. I am not holding my breath.

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Financing Urban Infrastructure

Erick Guerra, Assistant Professor, City and Regional Planning, University of Pennsylvania, Penn IUR Faculty Fellow

The federal government should reduce its role in financing urban transportation infrastructure. This assertion does not fit particularly well with contemporary narratives of crumbling national infrastructure or transportation bills as models of bipartisan cooperation. However, the interstate highway system—the original motivation and justification for the federal government’s current role in transportation finance—was completed 25 years ago. More importantly, the centralized finance system creates a disconnect between the providers and consumers of transportation infrastructure and is at the heart of a number of our current transportation problems.

First and least controversially, centralized finance leads to too many bad projects—most infamously bridges to nowhere and historic streetcars that provide worse service than buses. It is hard to imagine the 8,000 residents of Ketchikan, Alaska, choosing to raise the half billion dollars needed for their proposed airport bridge that made headlines as a sign of wasteful spending during the 2008 election campaign. For every outrageous investment, however, there are scores of bad projects that should not have been built but receive little scrutiny.

Second, centralized financing encourages capital investment over maintenance and operations. The results are apparent in Pennsylvania’s more than 4,000 structurally deficient bridges or the rapid deterioration of the Washington, DC, metro as more track and rail cars reach the end of their initial service life. Despite an official fix-it-first national policy, we continue to build new roads, bridges, and transit lines in cities and regions that already cannot maintain existing infrastructure.

Third and most controversially, we have probably built too much infrastructure. During the heyday of interstate construction, the federal government provided a 9 to 1 match for highway projects. At that rate, local and state governments had a strong incentive to build as much roadway as possible whether or not it made much economic sense. In many cities, parking and roadway consume more land than all other land uses combined. This not only costs a lot of money, but it contributes to wasteful land consumption, environmental degradation, and poor public health through high traffic fatality rates, local pollution, and decreased physical activity.

Reducing the role of the federal government in urban infrastructure investment—even at the margin—is no small task. An entire system has been built around it. Rural highway engineers and urban pedestrian safety advocates may have little else in common, but both depend on federal transportation dollars and worry about losing them. If we want better accessibility, less pollution, lower costs, and fewer bridges to nowhere, however, raising and spending more transportation dollars at the geography where they are consumed would tend to move us in the right direction.

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Re-prioritizing Federal Infrastructure Investments

John D. Landis, Crossways Professor of City Planning and Department Chair, University of Pennsylvania, Penn IUR Faculty Fellow

With Congress preparing to consider a big infrastructure spending bill—President Trump has talked about something in the realm of $1 trillion over multiple infrastructure systems—they should also be thinking about providing guidance as to how the money should be spent.  Beginning with the Erie Canal, and up until the 1950s, federal and state infrastructure spending was principally directed to projects designed to promote commerce and economic development.  With the passage of the Interstate Highway Act in 1956, an additional goal of providing access to the country’s rapidly expanding suburbs was added. (Subsequent freeway construction only served to accelerate that expansion.) Over time, this goal morphed into providing universal access, and the number of highways and bridges to nowhere proliferated, as did the number of low-ridership light-rail lines. 

As it thinks about principles for guiding the next generation of infrastructure investments, Congress should consider keeping its original economic development criteria, but abandoning those based on any pre-set spatial allocation or coverage principles. (The vast majority of the U.S. population is already well-served by transportation and environmental infrastructure systems.)  In their place, Congress might add two new sets of criteria.  The first would prioritize those infrastructure investments that result in reductions in greenhouse gas emissions (especially carbon dioxide); and help communities prepare for the adverse impacts of climate change, most notably drought and sea level rise. Notwithstanding the Trump Administration’s avowed disinterest in combating climate change, there is no reason to make the situation worse; and the ways in which New York City has restructured its infrastructure planning efforts to better secure itself from events like Superstorm Sandy can serve as a national model.  

A second set of criteria would prioritize multi-system infrastructure projects that contribute to better place-making.  While teaching at UC Berkeley in the early 2000s, I served on a committee that advised the Metropolitan Transportation Commission (the Bay Area’s Metropolitan Planning Organization, or MPO) how to distribute a small pot of money under its “Transportation for Livable Communities” program.  The TLC program as it was known, awarded small-but-essential grants to a variety of combined transportation and land use projects designed to enhance neighborhood and community quality.  The structure of the TLC program encouraged local transportation and infrastructure planners to think and plan across urban systems rather than remain in their funding-determined silos, and resulted in huge improvements in community livability (as well as increases in property values) for not much money.  Too often, big allocations of federal dollars are accompanied by a one-size-fits all style of planning and decision-making.  Sometimes, funding systems that promote innovative, bottom-up and cross-disciplinary thinking are a better bet.

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Water and the Nation’s Infrastructure

Howard Neukrug, Former Commissioner, Philadelphia Water Department, Penn IUR Fellow

The lead-in to your question is very telling in that President Trump does not mention the $2 trillion infrastructure needs of our urban water systems. And to be fair, few mentions of water infrastructure arise with any of our national political leaders.   It is said that either crisis or leadership is needed to achieve national action.  But for the water sector, it seems not even Flint, nor flood, nor the western drought has led to either.

But the water industry is not standing still.  We are actively seeking solutions to the long-term sustainability and resilience of our great water cities.  Rising tides, water scarcity, floods, legacy and emerging contaminants, extreme storms, the threat of terrorism, nonstationarity and piping systems built in the 19th century combined with 20th century technologies have left us with little choice but to actively renew our thinking about the relation of water to our cities, our budgets and our future.

For example, the industry is moving forward with full resource recovery of society’s wastewater through the recapture of nutrients, heat and kinetic energy, and the reuse of the water itself.  Perhaps most notably, we are converting carbon to methane gas and using it make our energy-intensive processes “net positive energy facilities.”

In drinking water, we are creating new technologies from smart meters to in-line water quality sensors to new and less expensive means to make ocean water potable and palatable.  We are coordinating urban infrastructure renewal with other urban street needs to create green and complete streets that support cars, bikes, pedestrians and modern water and stormwater networks.

We are also changing the way we value our rainwater.  Rather than wasting it down the drain, we are capturing it for reuse, infiltration, evapotranspiration and “daylighting streams”.  We are establishing decentralized, “soft” or “green” infrastructure systems within our urban communities by planting tree systems, bioswales, green roofs, and more. And we are doing so in a manner that supports environmental justice, social equity and adaptation and mitigation of climate change.

It is a great period of innovation and sustainable design in the water industry.  It would be great if we could invest in the funding to turn these visions into reality and protect our cities and our waters for centuries to come.

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Utilizing Environmental Intelligence in Infrastructure Planning

Jeremy Nowak, President, J Nowak and Associates, LLC, Penn IUR Fellow

Trump’s infrastructure strategy was first promoted in a pre-election paper written by Peter Navarro, a business professor from University of California-Irvine, and Wilbur Ross, a private equity billionaire Trump subsequently nominated for Commerce Secretary. The paper spells out the general direction of Trump's infrastructure strategy and proposes a tax credit of 82% for the equity portion of an infrastructure project taken on by a private investor. 

The plan only works for projects that generate fees or tolls and hence limits the variety of infrastructure investments. Secondly, depending on how the regulations for the credits are written it may not distinguish between projects that cannot go forward without the tax credit versus those for which the credit simply increases returns and diminishes risk.

Hopefully the plan will undergo legislative change. No matter how the infrastructure plan is structured, cities and states that profit will do so because they are well prepared. Being prepared means compiling an inventory of projects and utilizing environmental intelligence.

The first priority of any inventory are projects to protect public safety; bridges and water infrastructure are critical. A second priority involves projects that are transformational to the local economy. Such investments in Philadelphia might include re-claiming environmentally damaged industrial land along the Delaware; linking Center City and the university and research complex in west Philadelphia by traversing the rail yards, or upgrading and expanding mass transit.

There is a revolution in design, technology, and civil engineering focused on sustainable infrastructure: how projects are sited and designed; the use of green building materials; built-in systems to reduce and recycle energy; and high-tech sensor technologies that manage everything from traffic flows to the absorption of storm water.

To undertake a major infrastructure investment program without recognizing the opportunity to vastly improve environmental health would be silly. Put aside Trump issues regarding climate change. At local and state levels environmental strategies are simply smarter ways to build that will reduce operating costs over the life of the projects. The constituency for this kind of stewardship cuts across political party, social geography, and social class.

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Consider Infrastructure’s Optimal Use

Megan Ryerson, Assistant Professor, City and Regional Planning, University of Pennsylvania,  Penn IUR Faculty Fellow

Cities either have too much infrastructure and scramble to fill it by offering businesses incentives and subsidies, or they have too little, resulting in inflated access costs and constrained growth.

Consider, for example, the case of Chicago’s O'Hare International Airport and Cleveland’s Hopkins International Airport. Chicago’s airport is among the busiest airports in the U.S. and serves as the hub for two major U.S. airlines (United Airlines and American Airlines). Cleveland served as a hub for United Airlines until the early 2010s; it was during this time, in the aftermath of major airline mergers, that newly merged airlines reduced their hub operations to reduce costs. Because of de-hubbing, Chicago airport is busier than ever before while Cleveland’s runways and terminal remain greatly underutilized. As Chicago welcomes their eighth runway, Cleveland is rushing to provide millions of dollars in incentives to airlines to encourage any new airline service.

We could, instead, meet demand not with infrastructure but with policy – a policy managing demand, rather than building new capacity. A policy of no infrastructure growth at Chicago airport may force airlines to consider moving some of their hub operations to airports with capacity such as Cleveland; incentives at Cleveland may only further hasten such a move. Chicago can manage delays while operating a prosperous airport; Cleveland can grow and create sustainable service and the economic development that comes along with it.

Before we race to build, we should take a hard look at our existing infrastructure. From both a national and local perspective we need to consider how we can put our existing infrastructure to its best— and optimal— use.

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Multi-tasking Infrastructures

Saskia Sassen, Robert S. Lynd Professor of Sociology, Columbia University, Penn IUR Scholar

Infrastructure is generally a positively marked term… though by now we know that much infrastructure has been disastrous for the environment and for urban habitats torn down to make room for highways and such. In the case of Trump’s plans for infrastructure in the U.S., it is now clear that he is leaving the decision as to what infrastructure will be built to private companies that expect profits.

This will not get us very far.

How do we redefine infrastructure given all the knowledge we now have about environmental destruction and its risks?

What is infrastructure? We take the term as self-evident: tunnels, roads, water systems, train tracks, and such. In my research I have found it useful to expand the meaning of the infrastructural by recognizing that infrastructure is necessary but indeterminate: thus train tracks can be used to carry food for poor children, bombs for tyrannical military, and so on.  

This definition has led me to expand the domain of the infrastructural. For instance, I argue that much of today’s built environment should be seen as infrastructural, which means it is indeterminate and hence can be used in multiple ways. It could mean that no building can simply be there to house something: every surface of that building should be working with the biosphere. For example, there are bacteria that can be ‘painted’ on concrete, where they deposit a calcium that seals off the surface and hence stops green house gases. With time, an added outcome is the purifying of the air immediately around these surfaces. This is one of a growing list of options that we are discovering thanks to biologists, materials science experts, and more.

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Infrastructure: Make It Green

Frederick Steiner, Dean and Paley Professor, University of Pennsylvania School of Design, Penn IUR Faculty Fellow

If President Trump follows through on his campaign pledge to invest in the country’s infrastructure, I urge him to make it green.

In the U.S., as abroad, metropolitan regions are growing and many cities are located in places that are increasingly vulnerable to climate change. The poor, the elderly, the young, and the disabled are especially at risk in urban regions due to the dangers of flooding, hurricanes, wildfires, and earthquakes. The planning and design of safe places for people to live is a fundamental task.

Beyond protecting people from natural disasters, landscape architects, urban designers, and planners can enhance the ecosystem services produced in urban areas. Ecosystem services include those natural processes that (1) provide, such as the production of food and water; (2) regulate, such as the control of the climate and disease; (3) support, such as nutrient cycles and crop production; and (4) contribute to culture, such as spiritual and recreational benefits. Green infrastructure is one strategy to enhance and expand ecosystem services; it can also reduce and mitigate the human consequences of natural disasters.

Green infrastructure is one step toward the more ambitious project of reconceiving urban regions as ecosystems. Cities, with their density, already provide many environmental benefits, such as the efficient use of energy and water. Urban places are already ecosystems as they are comprised of flows, networks, corridors, matrices, patterns, nodes, habitats, communities, and a rich variety of interactions. The challenge is to make cities fairer, more sustainable, more resilient, and more productive ecosystems; to create regenerative cities, in which sources of energy and materials are restored, renewed, and revitalized.

The ecosystem services concept contributes to our knowledge about landscapes but the question becomes, how do we apply that knowledge wisely? Strategies, such as green infrastructure, represent possible actions.

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Pursuing Evidence-based Infrastructure Objectives

Sarah Rosen Wartell, President, Urban Institute, Penn IUR Fellow

If our nation makes a long-overdue commitment to investing in its infrastructure, I hope that we pursue two evidence-based objectives as part of that goal.  First, we must be intentional about building infrastructure that connects people to opportunity in order to produce higher economic and human capital returns from our infrastructure investments.  For too long, we built roads, waterways, and other infrastructure that divided us, creating physical barriers between low-income families and people of color and the most opportunity-rich places.  But evidence increasingly suggests that transportation and planning designed to connect people to education and jobs, healthy foods and outdoor amenities, for example, will expand opportunity and increase economic, as well as physical, mobility and wellbeing. 

Second, we should consider affordable housing a part of the infrastructure of healthy communities.  Affordable housing supply lags far behind rising demand for rental housing.  In many places, homeownership is on the decline for all age groups under 75, even as rents grow further out of reach – a crisis disproportionately affecting African Americans and Hispanics, but with broader economic consequences as well.  A Gallup study recently published in partnership with the U.S. Council on Competitiveness found that rising spending for housing (along with healthcare and education), without a concomitant increase in quality, reduced U.S. productivity and provided a drag on economic growth.  Here too evidence increasingly suggests that affordable housing is a platform upon which better health, educational, and economic outcomes are achieved; but when a huge proportion of income goes to pay for substandard housing far from opportunity, we lose human and economic potential -- the true cost of inaction.  A national infrastructure strategy can help more Americans live, learn, and work together in opportunity-rich communities.      

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Historical Patterns of Infrastructure Funding

Richard Voith, President and Principal, Econsult Solutions, Penn IUR Fellow

In an economy with infrastructure assets as vast as those of the United States, there will always examples of crumbling bridges, the proverbial bridge to nowhere, over-investment in one mode of transportation versus another, and examples of inefficient production. Although it is challenging to measure the overall contribution of infrastructure investment to private production in the economy, insight about the adequacy and appropriateness of our infrastructure investment can be gleaned by looking at the historical patterns of infrastructure funding.

The first question to consider in assessing whether sufficient investment is being made is simply whether it will offset the rate of physical depreciation and economic obsolescence. Although the interstate system is largely complete, it needs to be effectively replaced every 40 years; the same is true for other highway systems. There are well-documented reports of aging and deficient highway bridges and striking examples of aging passenger rail infrastructure such as substandard tunnels into Manhattan. Even the Washington Metro, once the standard bearer for modern U.S. transit has aged into a deteriorating system with serious safety concerns. The U.S. once spent enough to build all of these facilities. How does spending compare today?

In 1959, not long after the start of construction of the interstate system, federal gas taxes were 4 cents per gallon. In real terms, that is 33 cents today. The federal gasoline tax has increased to 18.4 cents today, only 55 percent of its rate in 1959. In reality, the federal funds available for transportation infrastructure are considerably lower than the total revenue generated by the current 18.4-cent tax. The last increase (in 1995) of 4.3 cents was not allocated to the highway trust fund as all prior federal gas tax revenues were. So the actual funds for transportation are based on a 14.1-cent tax, which is only 43 percent of the 1959 tax rate.

The shrinkage of funds available for federal investment in transportation is actually much worse than first appears. Highway needs are related to miles traveled, but the fuel efficiency of automobiles has increased significantly, from about 12.5 miles per gallon in 1970 to 25 miles per gallon in 2016. This increase in efficiency effectively reduced funding available by half again, since half as much gas is needed per mile traveled, and thus the tax per vehicle-mile traveled is half what it was in 1970. Given the trends in gasoline excise tax rates and fuel economy, there has been a dramatic shift away from government infrastructure investment for vehicle miles traveled.

States have stepped in to fund highways and transit but have not filled the gap created by the reduction in real federal funding. In 1959, state gasoline taxes averaged about 6 cents per gallon. The 1959 rate is roughly 49 cents per gallon, nearly identical to the American Petroleum Institute’s estimate of average state gas taxes in effect at the start of 2017. Note, however, that because average miles per gallon have roughly doubled, even at the state level, there has been a significant decline in investment per vehicle mile traveled.

And while states have made considerable investments in transportation, many transportation needs (and benefits) span multiple states. Transportation has tremendous positive network externalities and it is the smooth multimodal availability of transportation that contributes to mobility and productivity. The glaring inability of the U.S. to modernize cross-Hudson rail crossings is one consequence of the difficulties of coordinating state investments.

Increasingly, and especially in the realm of transit, metropolitan areas have taken the lead in addressing transportation infrastructure investment. Metropolitan areas including Los Angeles, Denver and Dallas have funded and built entire new rail transit systems in the last twenty years. These projects are typically funded through referenda-supported local taxation. Interestingly, the success rates of local transportation funding referenda typically exceed 60 percent and communities sometimes pass more than one referendum.

While metropolitan areas have increasingly been funding transportation, and this has been applauded by many who believe that local governments may be better suited to guide transportation investment, relying only on local funding of transportation will almost certainly result in an under supply of infrastructure. Transportation investments confer benefits that extend beyond local areas, and these benefits contribute to the overall productivity and welfare of the nation. The interstate highway system, the system of airports, and yes, even Amtrak and major local transit systems, confer these benefits. Overall, the very large decline in real transportation infrastructure investment on a dollars per mile of vehicle travel and the smaller, yet significant decline at the state level, is consistent with many engineers’ judgments that investment is not keeping pace with the rate of depreciation of America’s crucial transportation assets.

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Financing America’s Infrastructure Needs

Robert Yaro, Professor of Practice, Dept. of City and Regional Planning, University of Pennsylvania, President Emeritus, Regional Plan Association, Penn IUR Fellow

During the Presidential campaign candidate Donald Trump promised to commit $1 trillion towards the nation's infrastructure needs. The American Society of Civil Engineers has estimated that America needs to invest $3.6 trillion to bring all of the nation's major infrastructure systems up to a state of good repair, so it must be recognized that Trump's commitment represents only a downpayment on these needs. And for this reason, this program should be highly targeted to:

  • Leverage additional state, local and private matching funds towards these needs;
  • Invest in critical projects of regional and national significance, for example urban segments of the interstate highway system;
  • Projects part of broader economic development strategies for cities and regions that have been bypassed by the nation's prosperity in recent decades; and
  • Create capacity for growth in fast growing cities and regions, for example by investing in new or expanded urban and regional rail systems.

A high priority will be reducing federal red tape and permitting delays that add 30% or more to the cost of infrastructure projects. Federal investments should be used to promote state and local adoption of tolls, fares and other user fees to match federal grants. And federal limits on the use of user fees, for example the Federal Aviation Administration's cap of $4.50 for airport passenger facilities charges, should be lifted. Similarly, Congressional restrictions on tolling interstate highways should be eliminated.

However, it should also be recognized that some priority investments cannot be financed with user fees, and will not be undertaken by the private sector alone. Private investors will not, for example, finance tens of billions in deferred maintenance needs on the Northeast Rail Corridor or the New York, Boston or DC subways. Further, lower-income cities, such as Flint, Michigan and similar places with archaic and unsafe water systems, will not have the ability to generate user fees or private or public matching funds needed to leverage federal investments.

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Improved Infrastructure Must Include Affordable Housing

Mark Zandi, Chief Economist, Moody’s Analytics, Penn IUR Fellow

President Trump has promised to substantially increase government support for public infrastructure. In his inaugural address he said: “We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation.” He should include affordable housing on that list.

The nation faces a severe housing shortage, particularly for affordable rental units. Since the Great Recession and housing crash, homebuilding has been depressed. Builders have been especially reluctant to build housing for lower-income households, focusing instead on more profitable luxury apartments and high-end single-family homes.

Moreover, the demand for affordable rental housing has been overwhelming. This reflects still depressed incomes post-recession, tight underwriting standards for loans to purchase a home, and the foreclosure crisis, which has only recently come to an end.

Vacancy rates, which are already at 30-year lows, are falling quickly and causing rents to rise rapidly. This is a significant financial hardship for lower income households, forcing many to live increasingly far away from their work, and given how hard it is to save for a downpayment, making the goal of homeownership increasingly unattainable.

Building more affordable homes will also provide a much-needed economic boost to communities that continue to struggle; creating good-paying construction, manufacturing, transportation, and professional service jobs. The economic multipliers on building affordable homes are larger than on most other types of infrastructure spending.

Also appealing is that much of affordable rental housing is already financed using low income housing tax credits. President Trump has focused on getting the private sector more involved as an attractive way to expand the nation’s infrastructure. No other form of infrastructure spending could be ramped up with private sector participation as quickly.

It is encouraging that the new President has focused on infrastructure as a way to boost economic development. There is no more effective way to do that than affordable rental housing.

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