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In last month’s article, I discussed the big and expensive problem of America’s infrastructure. Now, I
would like to make the argument that,
despite the cost of repairing or replacing
our infrastructure, it is a good investment
for the country.
The infrastructure problems are
increasing business costs and it will only
get worse. Whether it is missing a delivery promise because of a freeway jam,
losing water pressure in a food plant, loss
of electricity during a blackout, or being
fined by a government agency, infrastructure problems will continue to increase
business costs and make business less
competitive. They will also increase consumer costs through user fees and service bills.
Our current strategy seems to be to use
our limited resources to react when the
bridge falls, the water main explodes, or
the sewer overflow dumps raw sewage
into the city’s river — and then depend on
our emergency forces to get us out of the
jam with around-the-clock TV coverage.
But, dealing with these kinds of problems
during an emergency is the most expensive solution and most often there is no
budget and the local government has to
rely on deficit spending.
Besides reducing reactive spending,
another very good reason to consider
a comprehensive plan to deal with the
infrastructure problems is that it would
create a lot of jobs in both construction
and manufacturing.
What Does the Government
Propose?
After several budget proposals by the
Obama administration that never got
traction, the American Jobs Act was
submitted in Sept 2011. After two years
of political wrangling by both parties,
the bill was finally passed by Congress
in March 2013 at a total cost of $450 billion. Unfortunately this wasn’t really an
infrastructure, transportation, or jobs bill.
The need for infrastructure spending was
trumped by politics and only $60 billion
(or 13%) of the bill went to infrastructure
problems. The other $390 billion was
appropriated for unemployment benefits
(13%), payroll tax reductions (54%), and
aid to state and local government (19%).
The majority of the $60 billion for infrastructure was dedicated to loans and
grants and for the development of an
infrastructure bank. Only $27 billion of the
appropriation was dedicated to transportation infrastructure. And, if you take out
the monies for high speed rail, Amtrak,
and airport improvement, the budget is
further reduced to $19 billion.
By my calculations, any effort to really
solve the immediate problems of repairing or replacing the highways, bridges,
water systems, sewers, and electrical grid
would require a 20 year comprehensive
plan costing around $200 to $300 billion
per year. The $19 billion per year appropriated in the Jobs Act won’t even cover
the annual emergency fix costs.
The big problem of addressing all of
America’s infrastructure issues is that
it will take a large investment. We have
allowed the infrastructure systems to
crumble for decades, thus causing the
costs to repair or replace to grow logarithmically. Depending on how fast or
how thoroughly the job is done, we are
facing an investment of at least $1 to $2
trillion. With our current Federal deficit,
which has grown with every President
since Ronald Reagan, we don’t have
the money and any fix would be deficit
spending.
The Challenge of Austerity
When the economy went off the cliff
in January 2008, it was assumed that
if we cut back on our debts, the economy would begin growing its way out of
the Great Recession. Countries began
to cut their budgets, businesses laid off
workers, and consumers reduced both
their debts and consumption. As the
economy returned to low growth,
businesses did not hire, banks did
not loan, unemployment exceeded seven percent, and there was
a huge reduction in consumption
(which is 70 percent of our economy). In my opinion, the
austerity approach simply
prolonged the recession,
and money for infrastructure problems
was low on the list of
priorities.
In the near term,
As for those who want to stay the
course and avoid deficit spending, they
need to realize that responding to the
emergencies is deficit spending and will
simply add to our problem. Most of these
emergency fixes to our infrastructure can-
not be forecasted or budgeted, and the
costs will continue to rise.
Like it or not, we are in the middle of
an infrastructure collapse and we are
going to have to pay for it with either a
comprehensive plan or pay as we go.
5,500 citizens get sick every year because
of water contamination, 240,000 water
mains break every year, bridges are falling, the highway trust fund will run out of
money in 2014, and the electrical grid will
cause another blackout. We are standing
in the middle of the river screaming ”We
need to stop the water,” but don’t realize
that the dam has burst and the big wave
is coming at us.
Just as in the Great Depression, we
have found ourselves in the unenviable
place where the only answer is Federal
money. The good thing is that a compre-
hensive plan could create a lot of jobs,
reduce business costs, and make
the U.S. much more competitive to
compete in the global market. It is
time to face the realities and come
up with the money. Our position
is one of “pay me now, or pay me
later” — but we will pay.
Michael Collins is
the author of the Growth
Planning Handbook for
SMMs. You can find
him on the web at
www.mpcmgt.com.
America’s Infrastructure Problems – Part 2
Why We Should Invest