Infrastructure in the United States is in dire need funding and repair. That’s well known, but the scale of the project facing whoever decides to take it on is truly astronomical.
According to Bank of America Merrill Lynch’s Global Economist Ethan Harris and US economist Lisa Berlin, the US needs infrastructure investment totalling $3.3 trillion between this year and 2025.
Infrastructure investment spending has collapsed
Infrastructure investment spending has dropped to the lowest share of GDP in the post-war period. Last year, government investment in fixed assets totalled $613 billion, which works out at 3.4% of GDP. 60% of this spending was at the state and local level with the 40% remaining at the federal level.
$613 billion of investment in infrastructure assets in one year may seem like a huge amount, and if the government continues to invest at this level, federal and state infrastructure spending is on track to amount to $5.5 trillion between now and 2025. This would mean the country is easily on track to hit its target of $3.3 trillion of spending as noted above.
However, these figures are highly optimistic. In fact, most of the money spent last year was used to replace depreciated assets. Netting out depreciation, government investment was only about $91 billion, equivalent to 0.5% of GDP. Further analysis by Ethan Harris and team reveals that of the $91 billion spent on infrastructure last year after netting out depreciation, state spending totalled $101 billion and federal spending was -$10 billion. In other words, despite a growing economy and population, the stock of federal fixed assets is shrinking.
Action is required
Clearly, this is a massive problem, and if there is no action to increase infrastructure investment soon at the federal level, it will become almost impossible for future governments to fill the infrastructure spending gap.
A lack of spending has translated into an increasing average age government fixed assets.
Since 2009 the average age of government capital has increased from 21.8 years to 23.7 years. Structures are the main driver with the average age rising from 24.7 years to 26.7 years over the same period.
The American Society of Civil Engineers (ASCE) gave the US’s infrastructure a “GPA” of “D+” in 2013. In the same report, the ASCE came up with the $3.3 trillion estimated investment requirement figure. Unfortunately, the Society also calculated that over this period lawmakers are planning to invest just $1.8 trillion. The area with the greatest need of investment Is surface transportation, with an estimated average investment gap of $1.1 trillion.
Lawmakers seem to be happy to put off infrastructure spending for the foreseeable future, despite the fact that interest rates are at their lowest levels in history. Bank of America’s analysts point out that efforts to cut a country’s budget deficit by reducing public investment does not lower public debt in the long-run, it merely postpones the inevitable. And if you need proof of this all you need to do is look at New York’s crumbling infrastructure where years of neglect and lack of maintenance have only driven up the ultimate cost to all stakeholders.
According to the ASCE, there are currently 100 bridges in New York state closed because of severe deficiencies. There are a further 400 High Hazard dam structures. The estimated cost to motorists of rough roads and congestion is $6.3 billion across the state per year. $694 per driver in NYC, $504 in Albany, and $477 for Syracuse.