The Approaching Infrastructure Train Wreck

Why under-investment in infrastructure is a $3 trillion problem for the United States.

Apr 14, 2014 at 1:42PM

The U.S. is the wealthiest country in the world. GDP is over $16 trillion, double China's GDP of $8 trillion and close to the combined GDP of all 28 EU countries .

Where would you expect quality of infrastructure in the U.S. to rank then? First? Fifth? Maybe tenth at the worst? Actually, quality of infrastructure in the U.S. came in at 19th in the 2013-14 Global Competitiveness Report by the World Economic Forum . While this ranking seems very low given the dominance of the U.S. in the global economy, it's actually a substantial improvement on the 2012-13 ranking of 25 .

Why should we be concerned about the quality of infrastructure?

Despite being home to Silicon Valley and the world's largest and most innovative companies, quality of infrastructure in the U.S. still ranks behind most of the advanced EU countries such as France and Germany, behind Canada, Oman. and Portugal, and level with Bahrain .

Well-functioning infrastructure is critical to having a well-functioning economy. Infrastructure impacts on every transaction each business and individual makes in an economy. As quality of infrastructure degrades, so does the efficiency of the economy. As an economy becomes less efficient, unemployment generally increases, wages stagnate, and investment decreases . In other words, it perpetuates some of the effects of a recession.

As an example, if goods are delayed because railway lines or airports are clogged, that represents a cost that businesses must either absorb or pass onto consumers. If a business absorbs that cost, it reduces how much money the business has to invest in technology, products, and people. If the business passes on the cost, it reduces how competitive that business is in the global market.

How much does the U.S. currently spend on infrastructure and is it enough?

In 2013 the U.S. spent $272 billion on public construction, a decrease of 14% from the $315 billion spent in 2009 .

While $272 billion in annual investment is undoubtedly a lot of money, the total cumulative investment required by 2020 to keep America's infrastructure in a state of good repair has been estimated at $3.6 trillion by the American Society of Civil Engineers (ASCE) in its 2013 Infrastructure Report Card . At current funding levels, that creates a funding gap of $1.6 trillion .

What impact does this funding gap actually have?

The most obvious examples of decaying infrastructure are ones we see every day. More potholes in roads, increased congestion on roads and rail, more breakages in our water and wastewater systems, more power outages.

This is all drag on the economy, and represents a higher cost to individuals and a higher cost to business. What these examples don't show, however, is the cumulative cost of this drag. At current levels of spending, the ASCE estimated that by 2020 the cumulative cost to the economy from decaying infrastructure will be $3.1 trillion in GDP and 3.5 million jobs . That translates to $3,100 less in annual disposable income for every household in America.

While it is easy to think of this funding gap as being something to address in the future, the reality is that decaying infrastructure already represents a significant issue. The following are just an example of some of the infrastructure issues that are already being felt:

  • The Federal Highway Administration estimates that 63,522 of the nation's 607,751 bridges, or 1 in 9, are structurally deficient. That equates to over 100 million square meters of structurally deficient bridging; 
  • More than 4,000 of the nation's 84,000 dams are classified as deficient; 
  • There are 240,000 water main breaks in the U.S. every year, which equates to more than 650 a day; 
  • 42% of America's major urban highways are congested, and 32% of major roads are in poor or mediocre condition. The additional cost of traveling on deficient roads due to increased repairs and operating costs is estimated at $324 per motorist per year. The cost of wasted fuel and time caused by congestion is estimated at $101 billion per year.

So what now?

Funding the nation's infrastructure is a challenge that must be faced, but it is also a challenge that can be met. Whether it is by increasing the amount of money allocated to infrastructure by the federal and state governments, or by increasing the number of market-based solutions such as private-public partnerships, there are opportunities to address the current funding shortfall. Having that discussion now will help ensure the quality of the nation's infrastructure goes back to being a leader in the world.

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