Locals Fill Infrastructure Void Left by the Feds
States and cities are improving rail lines, airports and electrical grids.
Bloomberg, May 7, 2018
I have been discussing the sorry state of American infrastructure for years. My personal experience is that the U.S.’s infrastructure is bad, New York State’s is worse and New York City’s is the worst. The contrast with my European experiences made it seem even more pathetic. The rails and roads there are just so much better than in the U.S. Belgium and Germany’s highways are spectacular, while the Eurorail system is fast, comprehensive and more reliable than anything in the U.S.
My expectations rose when the Trump administration and the U.S. Chamber of Commerce separately proposed plans for a national infrastructure program. The Chamber’s plans for increased maintenance paid for via a rise in the gas tax and the White House’s $1.5 trillion proposalboth remain an unfunded fantasy. I don’t often agree with the U.S. Chamber of Commerce, but its view is correct: nations that invest in a robust and modern infrastructure have a competitive advantage.
At the risk of offering further anecdotal evidence, there are signs that the states and the private sector are filling the void left by the federal government. Credit the booming economy and the willingness for more risk-taking as the Great Recession fades into history.
As an example, consider the following:
State gasoline taxes: Some states have been taking matters into their own hands, raising local gasoline taxes. Meanwhile, the Federal Highway Trust Fund is starved for maintenance funds, as the federal fuel tax is frozen in time at 1993 levels of 18.4 cents a gallon (24.4 cents for diesel). According to the U.S. Energy Information Administration (EIA), the states average 28.31 cents and 29.33 cents in taxes for gasoline and diesel, respectively. 1 Some states seem to be going backward; petitions exist in places like California to eliminate state gasoline taxes.
This is a plus, but with a major caveat because gasoline taxes are looking like a short-term fix. America’s fleet of cars is being electrified, and more cars in the future will either pay reduced fuel taxes or none at all — even though they inflict the same wear and tear on roads that gas-powered cars do. Whether all-electric or hybrid cars reach critical mass in 2025 or 2030 is almost irrelevant — the next decade is likely to bring less fuel consumption by cars and trucks.
Hudson Yards: This huge office-residential development on Manhattan’s west side has led to several infrastructure related improvements. The city is playing a central role in making the U.S.’s biggest private real estate projectviable by extending subway service to the area.
The funding is innovative — a $3 billion bond offering that will be repaid in part from increased tax assessments on local land values. New York City also set up an infrastructure corporation to supplement what the private sector is doing: in addition to the extended subway line, it is creating 14 acres of open space and parks and roads along the entire project’s Hudson River waterfront.
LaGuardia Airport: In 2014, Joe Biden stated “I must be in some third-world country” in reference to LaGuardia Airport, New York City’s smaller regional rival to JFK International Airport. That seemed to accelerateredesign and development plans as well as funding. The renovation program, which might cost a public-private partnership as much as $8 billion, is making significant progress. The projected completion date is 2021.
Some projects like Amazon.com Inc.’s second headquarters, wherever it might eventually be located, and Alphabet Inc.’s (Google) expanding footprint in New York City may well prove to be spurs to additional infrastructure investment. In Queens, New York, the Sunnyside Yards is still in the planning stages, although the project includes plans for new rail service and parks.
Novelist Kurt Vonnegut in “Hocus Pocus” wrote that “Another flaw in human character is that everybody wants to build and nobody wants to do maintenance.” The states and private sector are putting his sentiment to the test.