How to Shape U.S. Infrastructure Policy

Infrastructure in the United States has been under close scrutiny in recent years due to its inadequacy and poor performance. There is wide-ranging agreement that our nation needs a serious, multi-faceted, and cohesive plan to build and update the existing infrastructure, from deciding the objectives of the investment through the delivery and maintenance of those selected projects. After the recent passage of the Tax Cuts and Jobs Act of 2017 – the first major overhaul of the U.S. tax code in 30 years – various key players in the Administration, including the President, have indicated that infrastructure investment will be the next big item on the 2018 agenda. In fact, an “Infrastructure Initiative” was one of the topics highlighted in the President’s 2018 Budget.

Financing is a crucial part of any infrastructure plan. Historically, the majority of U.S. infrastructure has been financed by federal, state, and local governments. However, nationwide, tightening budgets and growing deficits have put greater pressure on distributing scarce financial resources to answer economic needs and demands. Debt held by the public stood at 77 percent of GDP at the end of 2016 and is projected to grow to 87 percent in 2025. Anemic economic growth, flatlined productivity, and a rapidly aging population all suggest that there is no easy way out from under this increasing debt unless we reconsider how we finance and fund the various demands on our national budget. The same is true for the financial situation of our state and local economies.

A fact sheet prepared by the Office of Management and Budget raises questions about the role of the Federal Government in infrastructure investment, especially the funding of infrastructure projects: “…the Adminis- tration’s goal is to seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained. Providing more Federal funding, on its own, is not the solution to our infrastructure challenges. Rather, we will work to fix underlying incentives, procedures, and policies to spur better infrastructure decisions and outcomes, across a range of sectors.”

Motivated by increased noise around the issue and the Administration’s goal to reform the overall system of infrastructure, this paper first looks at the reasons for infrastructure investment and then sets the stage for steps that are crucial for successful infrastructure projects, especially ways to use existing funds more effectively and to increase participation by the private sector. The paper concludes with alternative methods for financing and funding the country’s much needed infrastructure.