The Economic Benefits of Infrastructure Investment, Part I: Making the Case

It is abundantly clear that our nation is not making adequate investments in infrastructure. As noted previously by another writer here, the American Society of Civil Engineers’ 2013 Report Card for America’s Infrastructure gave U.S. infrastructure a cumulative grade of D+. The ASCE estimates that an investment of $3.6 trillion is needed by 2020 to fund maintenance and improvements to essential infrastructure. Based on current trends, the estimated funding gap for that period in time is more than $1.6 trillion. Even if the ASCE’s estimate is high, a conservative approach would still find planned investments lacking.

Federal, state, and local governments are cash strapped and reluctant to fund infrastructure projects through higher taxes, fees, or greater debt. However, studies have shown that every dollar invested in infrastructure provides an economic boost of at least two dollars. Moody’s Analytics estimates that the infrastructure investment multiplier is greater dollar for dollar than tax cuts. More to this point, The Economist cited a University of Massachusetts-Amherst study that stated, “$1 billion spent on infrastructure creates 18,000 jobs, almost 30% more than if the same amount were used to cut personal income taxes.”

Making the case for infrastructure investment is challenging

With current investment in infrastructure clearly lagging behind need coupled with the positive economic impact of infrastructure investment, why is it so difficult to make the case? The most apparent reason is that with the exception of transportation, much of our infrastructure is out of sight and mind until something breaks. When a bridge collapses or a water main breaks and floods a street, people tend to notice. But the reality many local governments and treatment plant operators know is that much of our nation’s infrastructure was built during the grant rich 1970s and 80s, and maintenance based on the criticality of that infrastructure has been severely underfunded. Given lack of maintenance investments, that built infrastructure is nearing the end of its useful life, which means that even though it may be out of sight, it is likely due for repair or replacement.

A second reason is that public investment in public infrastructure does not account for the asset that is created. When a business takes on debt to build something, the value of the asset is accounted for on the balance sheet. The same is not always true for government. An article in Forbes summed it up this way, “Issuing debt to invest in infrastructure should not be scored as an increase in the deficit the same way as government spending on social programs is scored.”

It is also true that the economic benefit of an infrastructure investment may not be realized for many years. Additional sewage treatment capacity or a new road are not likely to provide an immediate stimulus to economic activity, but when new businesses spring up around a new roadway, or when a community can support growth through extra utility capacity, these infrastructure benefits are realized. For example, the City of Ellsworth is one of Maine’s fastest growing cities. The City’s wastewater treatment facility, built in 1978, was operating at its maximum licensed capacity of .85 MGD. Its outdated technology and equipment required repair and replacement. During wet weather events, inflow and infiltration in the collection system caused overflows to the Union River and adversely impacted the environment. The City could have chosen to renovate their existing plant, but this would have been shortsighted. Instead, the City secured $20 million of funding through a combination of Community Development Block Grants, Rural Development grants and loans, State of Maine grants and loans, and federal earmarks to design and build a new 1.65 MGD state-of-the-art facility, which will support future growth for many years to come.

Lastly, but an important piece of the conversation, is the difficultly in determining the value of natural infrastructure (like a forest preserve or trails) and green infrastructure (such as rain gardens and permeable pavement), or even some built infrastructure that contributes to community well-being (such as sidewalks and parks). Recent studies have shown that there are significant indirect and direct economic benefits to these assets in communities, and as residents and governments become more aware of the economic gains that can be realized, they will support more infrastructure development.

In the coming weeks, this blog will explore how infrastructure, from parks and trails (Part II), to water and wastewater treatment facilities (Part III) create economic benefits.


Barry Sheff

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