Infrastructure Spending

A follow-up on infrastructure. This is from the CBO Director's blog. The main point seems to be that yes, we need more infrastructure investment, and there are ways the federal government can help, but it's mostly a state and local level problem:

Testimony on infrastructure spending, CBO Director's Blog: I am testifying this morning [May 8] before a joint hearing of the House Committee on the Budget and the Committee on Transportation and Infrastructure.

The testimony defines “infrastructure” as including transportation, utilities, and some other public facilities. The United States currently invests more than $400 billion per year in infrastructure defined this way, and about $60 billion of that amount—mostly for highways and other transportation networks—is financed by the federal government each year.

The testimony makes the following key points, among others:

• Growing delays in air travel and surface transportation, bottlenecks in transmitting electricity, and inadequate school facilities all suggest that some targeted additional infrastructure spending could be economically justifiable.
• Federal spending on infrastructure is dominated by transportation. Although capital spending on transportation infrastructure already exceeds $100 billion annually, studies from the Federal Highway Administration, the Federal Aviation Administration, and elsewhere suggest that it would cost roughly $20 billion more per year to keep transportation services at current levels. Those studies also suggest that substantially more than $20 billion in additional capital spending per year on transportation — and perhaps as much as $80 billion per year or so — would be justified on economic grounds if well targeted (because such spending would generate benefits whose value would exceed its cost).
• In some other types of infrastructure outside transportation, such as systems for wasterwater and drinking water, additional spending is needed to maintain current services or allow modest improvements.
• Although the economic rationale for some additional infrastructure spending is strong, the economic returns on specific projects vary widely. Carefully ranking and funding projects to implement those with the highest net benefits would yield a disproportionate share of the total possible benefits at a fraction of the total spending that is potentially economically justifiable. A related point is that the aggregate estimates do not justify increases of those amounts in infrastructure spending unless such spending is carefully targeted to economically efficient projects. Otherwise, the spending would not generate the same benefits as the estimates suggest—and indeed it could produce costs that exceed the benefits.
• The estimates of infrastructure spending that are needed to maintain current performance or that could generate larger economic benefits than costs, furthermore, can be substantially affected by how existing infrastructure is priced.
  • The estimates for highways, for example, assume no expansion in the use of congestion pricing—that is, tolls that are higher during peak times and lower during off-peak times.
  • The Federal Highway Administration, though, estimates that widespread implementation of congestion pricing would reduce the investment needed to maintain the highway system by $20 billion annually.
• Studies suggesting the need for or benefits of additional infrastructure spending do not provide policy guidance about how such spending should be financed. The “benefits principle” suggests that federal taxpayers are often the least efficient source of financial support for an infrastructure investment — after the direct beneficiaries of the investment and local or state taxpayers. Even when federal support for a given type of infrastructure is justified in principle, implementation problems might make it undesirable in practice. The GAO, for example, found that states offset roughly half of the increases in federal highway grants between 1982 and 2002 by reducing their own spending, and that the rate of substitution increased during the 1980s.
• Although many advocates of additional federal infrastructure spending seem interested in complex and sometimes opaque structures through which to channel such federal support, the fundamental question is how much support the federal government will provide and the efficiency with which such support is provided. On the latter point, the federal government could substantially increase the efficiency with which it subsidizes debt financing of state and local spending. ...
• The federal government can also encourage the use of “asset management” to maximize the benefit from existing and future infrastructure. Asset management relies on monitoring the condition of equipment and the performance of systems and analyzing the discounted costs of different investment and maintenance strategies.
  • As one example, the federal government reduce total investment and operating costs by changing the way it acquires, manages, and disposes of property — a topic explored in a box in the testimony.
• The testimony also discusses capital budgeting, a topic that is the subject of a separate report being published by CBO today. A short summary is available here.

Comments

[Lafayette]

Why crude oil price rises are salutary

I may have a jaundiced eye, but the report focuses on highways, highways and highways. All states want highways and bridges, some that go nowhere. Why? Because they generate jobs to build highways for Americans who love of spending a quarter of their lives behind a wheel driving somewhere. (Not to mention who much we delight in bitching about the high price of gas.)

Duhhhhhhhhhhhh.

Infrastructure needs an overarching philosophy. It is (or should be) energy-centric, meaning, its objective should be getting America to depend less on fossil fuels to maintain its standard of living. And, that clearly brings us back to ... highways.

It is stupid to physically transport people into and out of suburbs just to meet collectively at a workplace where they effectively interact physically (meaning chit-chat around the coffee machine). Because, evidently, once back in their cubicle/office, their work can just as easily be done at home off a DSL telecoms link carrying both voice and data.

So the workplace has more social significance than actual work requirement. Nowadays, most of us can effectively work just about anywhere, the physical interaction taking place by means of a Webcam.

Moreover, if one needed an office environment, offices could be built anywhere to house people doing what they do (writing, phoning, data-mining, meeting, browsing) off a PC connected in a high-speed link to the ether (i.e., to one another). Such Rental Offices could be managed in such a fashion that work is disconnected from paper (by imaging) -- meaning that an "office" need not be a permanent place.

Disconnecting work from a physical workplace would save a great deal in transportation costs (both time- and energy-wise).

Also, infrastructure being energy-centric, an infrastructure development strategy also applies to the residence. For this reason, new residential building standards need formulation that would promote lowering the number of BTU's necessary to support a household derived from fossil fueled electricity generation. This means not only better insulation but in situ (in place) energy usage schemes, either aerothermal, hydrothermal, geothermal or solar. (At one meter below the surface, the temperature of the earth is constant -- in most North America and Europe -- at around 18°C.)

Finally, why anyone should be compelled to use a dial-up line in America today is ridiculous. WiMax or hardwire DSL should be available to all households.

The availability of new energy sources (windmill, advanced solar, fuel cell) is the Next big Thing requiring investment -- and the best way to promote these sources is to require existing electricity grids to purchase surplus power from the newly installed sources at a premium price.

It is difficult to get anyone to think that the rise of the price of crude is salutary. And, yet it is, if it unhooks us definitively from fossil fuels as a source of energy.