meeting the infrastructure imperative

8/3/2019 Meeting the Infrastructure Imperative

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Meeting the Infrastructure ImperativAn Aordable Plan to Put Americans Back to Work

Rebuilding Our Nations Inrastructure

Donna Cooper February 2012

www.americanprogress.o


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Meeting the InfrastructureImperativeAn Aordable Plan to Put Americans Back to Work

Rebuilding Our Nations Inrastructure

Donna Cooper February 2012

Our unity as a nation is sustained by ee communication o thought and by

easy transportation o people and goods. Te ceaseless ow o inormation

throughout the Republic is matched by individual and commercial movement

over a vast system o interconnected highways crisscrossing the country and

joining at our national borders with iendly neighbors to the north and south.

ogether, the united orces o our communication and transportation systems

are dynamic elements in the very name we bearUnited States. Without

them, we would be a mere alliance o many separate parts.

President Dwight D. Eisenhower, February 22, 1955


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Contents 1 Introduction and summary

13 The infrastructure investment landscape

16 Estimated direct grants: Approximately $82 billion in FY 2010

20 Loans and loan guarantees

26 Tax subsidies

30 Total federal infrastructure investment: Approximately $92 billion in 2010

33 The infrastructure funding gap

34 Transportation: Invest $81.5 billion41 Water: $2.7 billion

43 Dams and levees: $1 billion

45 Energy: $4 billion leverages $40 billion in investment

49 Our infrastructure funding proposal closing the gap

50 Meeting the infrastructure imperative

50 Mobilizing private investment for upfront capital

58 Expand current federal tax strategies that mobilizeprivate investment in energy infrastructure

65 Getting more out of every dollar invested

77 Conclusion

79 Appendix: Methodology

88 About the author and acknowledgements

89 Endnotes


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Introductionand summary

American amilies and communiies are

suering rom he consequences o anemi

economic growh and high unemploymen

Meanwhile, aging roads, bridges, waer

sysems, and oher key public asses areputing our public saey and naional

economic compeiiveness a risk. Te

challenges presen an obvious opporuni

or biparisan acion: Boos inrasrucure

invesmens ha build permanen public

asses, generae business or small- and

medium-sized companies, creae jobs, and

enhance our global compeiiveness.

Te need o repair our inrasrucure is

no in dispue. In a rare move, he U.S.

Chamber o Commerce and he AFL -CIO

issued a join saemen in January 2011

calling or Congress o ocus on upgrading

our naional inrasrucure: Wih he U.S

Chamber o Commerce and he AFL -CIO

sanding ogeher o suppor job creaion,

we hope ha Democras and Republicans

in Congress will also join ogeher o buildAmericas inrasrucure.1

Sadly, ha hasn happenedye.

ISTOCK PHOTO


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2 Center or American Progress | Meeting the Inrastructure Imperative

Among he ools a he governmens disposal o boos jobs, rebuilding our inra-

srucure is one o he opions wih he greaes impac. Aer Presiden Barack

Obama proposed he American Jobs Ac, Mark Zandi, chie economis a Moodys

Analyics, ound in 2011 ha new ederal spending or inrasrucure improve-

mens o highways and public schools would generae $1.44 o economic aciviy

or each $1 spen.2

In reviewing he economic impac o he American Recoveryand Reinvesmen Ac o 2009, he Congressional Budge Oce ound ha

inrasrucure invesmens and purchases by he ederal governmen or goods and

services had he larges jobs muliplier impac o all he simulus elemens.3

We need o do somehing similar beginning his year. Te plan presened in his

paper proposes a reasonable level o new ederal invesmen and how o pay or i,

enabling signican progress in bringing our inrasrucure up o par. In addiion,

his paper oulines a se o criical reorms o how he ederal governmen unds,

prioriizes, nances, and plans or inrasrucure improvemens. Tese reorms can

srech he impac o each dollar invesed.

ogeher hese policies will also simulae sizable new privae invesmen in public

inrasrucure projecs o help close he gap beween needs and he resources

available. In our plan he proposed new level o ederal invesmen is ully paid

or by reasonable increases in specic sources o revenues, including a ee on

impored oil, eliminaion o aniquaed and expensive oil ax breaks, and modes

increases o a limied number o inrasrucure user ees.

Aside rom he srong economic impac o elevaed spending on inrasruc-

ure, he need o do so is indispuable. Te sae o disrepair o every elemen o

ransporaion, drinking waer and wasewaer, and dams and levees sysems is

well documened, as his paper deails in he pages ahead. o a grea exen hese

basic public asses are decades pas heir useul lie or are currenly being used ar

beyond heir expeced or engineered capaciy. Meanwhile our energy inrasruc-

ure is woeully oudaed.

Beore summarizing our proposal, however, les rs examine whas holding

us back. In large par, he problem is a alse percepion ha he cos o repairing

Americas inrasrucure requires rillions o dollars in new ederal spending. In ac,our plan shows ha he mos pressing needs o inrasrucure can be addressed by

improving our use o curren unds, making reasonable changes in how users o

inrasrucure pay or i, and increasing ederal spending by roughly $48 billion a

year, according o his new analysis by he Cener or American Progress.4


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Introduction and summary | www.americanprogress.

Tis paper ses a spending arge o he oal level o invesmen needed by subca-

egory o inrasrucureroads, bridges, mass ransi, rail, pors, airpors, inland

waerways, drinking waer, wasewaer, and energyby comparing he deailed

and credible needs assessmens prepared by respeced echnical research insiues

and ederal agencies and comparing ha level o needed spending agains he

amoun o ederal unds appropriaed and unds leveraged by ederal invesmenor he major inrasrucure capial invesmen programs in 2010.

For he purpose o his ederal inrasrucure plan, we have no examined he need

or ederal invesmen in public school buildings. CAP poins ou in Spurring Job

Creaion in he Privae Secor ha ederal invesmen in school rehabiliaion

oers a wise use o ederal unds ha boh addresses a social good and simulaes

he privae secor.5

CAPs analysis in his repor nds ha in sum, ederal invesmens represened by

ederal appropriaion levels, alongside ederally mandaed maching unds romsae and local governmens, and he esimaed level o privae invesmen in capi-

al improvemens o our inrasrucure ha was atraced by ederal appropriaions

was approximaely $132.9 billion in 2010.6 For his paper, o ensure consisency

among all daa sources, we use FY 2010 as he base year or our analysis. (See

he Appendix on page 79 or a breakdown o he mehodology used o make our

calculaions in his paper.)

o mee our counrys inrasrucure capial repair and improvemen needs, CAP

analysis esimaes ha an addiional $129.2 billion a year in new capial inves-

men is warraned over he nex 10 years.7 Tis research also indicaes ha inves-

ing a his level or each o he nex 10 years will appropriaely address he backlog

in inrasrucure repairs and und needed capaciy improvemens.

Doing so would bring he oal level o inrasrucure invesmen up o $262.1

billion annually, which our research indicaes is he minimum required. Tis paper

describes how we arrived a his gure and i recommends a specic se o propos-

als o generae he unds o pay or his increased level o ederal spending and he

essenial policy changes needed o ensure ha our exising and new invesmens

are wisely spen.

I he policies we propose are adoped, CAPs analysis indicaes ha privae capial

invesmen in inrasrucure can be expeced o increase o roughly $60 billion

per year.8 Te balance o he new invesmen mus come rom he public secor.


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Our plan recommends ha curren ederal requiremens or sae maching unds

prescribed by he ederal ransporaion and waer inrasrucure programs accom-

pany new ederal invesmens.9 I his is he case, hen he ederal governmen

will need o increase is direc spending on inrasrucure by $48 billion a year,

which will rigger $11 billion in new sae maching invesmens. On op o direc

ederal expendiures, his plan proposes approximaely $10 billion in new ederalloan auhoriy annually. (Te cos o he credi subsidies o suppor hese loans is

included in he proposed $48 billion increase in ederal invesmen.)

Tis increase is ederal invesmen represens a 52 percen increase over he

approximaely $92 billion in FY 2010 ederal appropriaions or capial inrasruc-

ure invesmens disribued as grans, credi subsidies, and ax expendiures or

inrasrucure. Alhough srenuous eors mus be aken o balance he ederal

budge, we believe hey should be done in a manner ha permis his increase o

be achieved. Based on he 2010 budge, doing so would increase ederal spending

by less han 1.3 percen compared o he FY 2010 ederal budge.10 (see Figure 1)

Under our plan, he ederal governmen will shoulder less han

50 percen o he cos o his heighened invesmen, and we

propose specic new sources o revenues and shis in exising

inrasrucure spending o pay or he ederal share.

o pay or he ederal share, which we esimae should be $48

billion, we propose he ollowing hree new sources o revenue:

Impose an oil impor ee se as a $9.6 per-barrel ax

on impored oil, which can generae approximaely $36 billion

annually.11

End oil ax breaks by eliminaing he $4.1 billion in oil

producion ax subsidies.12

Updae he srucure o inrasrucure user ees, which

can generae $8 billion annually.13

Furher unding can come by modernizing how ederal unds

are made available or inrasrucure improvemens, herebyatracing more privae unds o nance projecsand reducing

he srain on ederal, sae, and local governmen reasuries or

criical projecs. Inrasrucure projecs oer privae invesors

FIGURE 1

How we pay for increasedinfrastructure spending

in billions

Sources of new investiment capital Amount

Federal sources

Oil import ee 36.1

Ending oil subsidies 4.1

Updated user ees 8

Sub-total sources o revenues or direct

ederal spending$48.20

Expanded ederal loan authority* 10

Total new ederal investment $58.20

Private investment 60

State match 11

Total revenue 129.2

*Cost o loan capacity actored into the amount o additional ederal revenuesneeded or inrastructure investments

Source: Center or American Progress calculations based on methodologydetailed in the appendix


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he opporuniy o make long-erm invesmens ha oer a predicable rae o

reurn. For insance, i hey nance he building o an airpor and lease he airpor

o a regional auhoriy, he erms o he lease will guaranee he invesor regular

paymens ha in urn cover heir cos o he loan, is ineres, and a rae o reurn or

pro o he invesors.

Privae invesors have parnered wih sae or local governmens o build roads,

expand highway sysems, and build or repair bridges. ypically in his case he

privae invesor pays he public eniy upron an esimaed marke value or he

ransporaion asse, and hen is required under an agreemen o cover he cos o

improving he asse. In addiion, hese agreemens permi he invesor o charge

olls or receive dedicaed ax paymens while also esablishing clear mainenance

requiremens. Invesors ener ino hese agreemens where he olls or dedicaed

axes are projeced o cover all coss and pros and are mos atracive o inves-

ors when he level o earnings has he poenial o exceed projecions. Federal

credi subsidies lower he overall projec coss, which in urn reduces he pressureon olls and/or dedicaed axes, which hen has he posiive resuls o making a

projec more poliically and nancially easible.

Privae invesmen in energy inrasrucure works very dierenly. In his secor,

invesors expec public unds o reduce he risk ha heir privae marke produc

canno cover is coss in he shor run. For insance, while a privae invesor may be

conden ha hey can recoup heir coss and earn a pro rom he consrucion

o a wind arm overime, i can ake several years beore a wind arm is generaing

enough revenue o cover operaing coss plus deb and pros. Public nancing

reduces overall projec coss and hereby shorens he lengh o ime ha a privae

invesor has o wai o begin o receive reasonable reurns on an invesmen.

In each o hese criical inrasrucure secors, increased ederal resources made

available in he orm o credi subsidies or ax expendiures can increase he level

o privae-secor invesmen.

Wih his sor o ederal suppor, privae invesors borrow unds o pay or needed

repairs or consrucion and ge paid back over ime. Our plan esimaes indicae

ha is reasonable o expec $60 billion a year in new privaely nanced improve-mens in inrasrucure annually i he righ ederal policies and economic condi-

ions make possible his level o invesmen.14


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Roy Kieniz, he ormer under secreary o ransporaion, poins

ou, Is imporan o noe ha mos ransporaion inrasruc-

ure projecs are no viable candidaes or privae invesmen

and hereore mus rely enirely on public unds backed by

ederal- or sae-imposed user ees or general ax revenues.15

Nick Debenedicus, CEO o Aqua America Inc., a New YorkSock Exchange-lised waer company wih 3 million cusom-

ers across 13 saes, makes a similar poin wih respec o waer

inrasrucure:

With respect to water and energy inastructure, the lions share o

investment is already privately nanced, but even in these sectors

there are inastructure gaps, such as combined sewer overows in

many o our older cities, where private investors are not willing to

invest because the payback is too risky or too ar o in the uture.16

By racheing up inrasrucure invesmen by $129.2 billion

per year, sizable job-creaion gains will be realized. In 2009 he

Universiy o Massachusets Poliical Economic Research Insiue

released an analysis o inrasrucure spending increases.17Te

sudy oers he mos recen secor-specic analysis o job creaion

hrough inrasrucure invesmen. As such i can help us esimae

wha he secor-by-secor increases in invesmens would have been

had his level o increased invesmen occurred in 2009.

Since he Universiy o Massachusets repor was released, he

Unied Saes has experienced encouraging job gains. Te econ-

omy has grown since he beginning o 2010, adding 2.55 million

jobs. Weve also seen posiive economic growh as measured by

he naions GDP, which as o he hird quarer o 2011 was $15.2 rillion com-

pared o $13.9 rillion a he sar o 2009.19 As he economy improves, he job

creaion and economic growh impac o inrasrucure invesmens can be o-

se in reduced levels o invesmen or consumpion elsewhere in he economy.

Sill, he Universiy o Massachusets sudy makes a persuasive case ha aer

accouning or oses in spending in oher secors, public invesmen in inra-srucure conribues o signican GDP growh and jobs gains.

In preparing his repor, CAP esimaed he level o increased invesmen inra-

srucure needed wihin each subsecor o inrasrucure based on ha analysis.

r r l l l l l r

r - r r r rl r l l

r I l r r

I r r r I r

0

500,000

1,000,000

Oth

er*

Air

port

sR

ail

Mas

sTran

sit

Energy

High

way

s

FIGURE 2

The employment power ofinfrastructure investments

An estimated 2.4 million jobs created with

$129.2 billion more inrastructure spending,

based on 2009 data

Source: Authors calculation that applies the CAP level o proposed

investment by sector to the job-creation estimates or direct, indirect,and induced jobs developed by the University o Massachusetts PoliticalEconomic Research Institute as published in the 2009 report,How Inrastructure Investments Support the U.S. Economy. 18


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We recommend ha he $129.2 billion be disribued among he

subsecors in inrasrucure as deailed in Figure 3.

Te American Recovery and Reinvesmen Ac included srong

Buy America provisions ha required, o he exen possible, ha

all maerials used or inrasrucure consrucion be manuacuredand purchased in America. Tese provisions helped ensure ha

Simulus inrasrucure invesmens made he greaes possible

impac on employmen and business perormance in he Unied

Saes. Te impressive number o jobs ha can be generaed by

increased levels inrasrucure spending are more likely o be

achieved i similar Buy America provisions are buil ino each ed-

eral saue ha allocaes unds or surace ransporaion, aviaion,

waer and energy capial improvemens.

Reforms are as essential as new funds

Improving how he governmen approaches planning or, paying

or, and nancing inrasrucure can increase he impac o every

dollar spen and resul in higher levels o privae invesmen. Given

ha so much o his plan relies on more privae-secor invesmen,

he reorms necessary o atrac his level o invesmen are essen-

ial o achieving our goal. I he reorms we propose are adoped,

CAP projecs ha nearly $60 billion per year in privae invesmens

could maerialize.20

We esimae ha mos o he new privae-secor invesmen will be direced in

he energy secor. Wih careully calibraed ederal incenives including loans,

loan guaranees, grans, and ax credis, we esimae ha as much as $40 billion in

new annual privae invesmen will enable he build-ou o he smar grid as well as

expanded renewable energy generaion and disribuion capaciy o desired levels.21

Te balance o he privae invesmen is likely o occur in he ransporaion

secor.22

In his secor, new privae invesmen will mos likely occur hrough heormaion o new eniies where he public secor and privae secor join orces o

underake large-scale inrasrucure improvemens nanced wih privae capi-

al and where he projecs generae revenues ha can pay back privae invesors

while he privae invesor and he governmen share he risk o he projec being

FIGURE 3

Our infrastructure funding gap

The amount o investment needed annu

to bridge the gap between what the Un

States spends now and what it needs to

on inrastructure

Sector

Level of new

investment

(in billions of doll

Highways 47.0

Mass transit 15.7

Rail 9.3

Ports 1.0

Airports 7.0

Inland waterways 0.2

Freight 1.4

Water 2.7

Energy generation 44.0

Dams and levees 1.0

Total 129.2

Source: The author calculated the estimate o the necessary incederal spending by comparing the cur rent level o ederal appron inrastructure and the unds leveraged by these ederal apprto rigorous independent or ederal agency research detailing thneeded investment. See Appendix or the description o the meogy and sources used or this calculation.


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nancially viable. Te mos likely candidaes or his approach o nancing are

airpors, pors, inland waerways, new olled roads, some exising roads ha migh

be olled, and olled bridges.

o reach he desired level o upron privae invesmen, he public mus have a

deeper undersanding and rus ha he governmen and privae parners joinlyshare he risk and responsibiliy or a high-qualiy inrasrucure. Tese models

will need o rely on creaive parnership srucures ha oer privae invesors he

opporuniy o earn a rae o reurn beyond ineres on heir invesmen. Likewise,

parnership agreemens need o ensure ha he axpayers are assured ha high

expecaions o perormance mus be me and are enorceable, users are no

exploied o cover coss and pros, risk is appropriaely shared among all paries,

and workers are no shorchanged in an eor o maximize pros.

In addiion, increased privae nancing opporuniies ocused on ransporaion

will also require he ederal governmen o more rapidly and readily approve oll-ing on roads in he ederal highway sysem so ha invesors can rely on predicable

revenues or repaymen and earnings. I also will require he creaion o a naional

inermediary such as an Inrasrucure Bank ha can experly and expediiously

package high-prioriy and mulisae inrasrucure nancing projecs ogeher

wih privae invesors. Increased ederal guidance can promoe models ha pro-

ec wages, collecive bargaining righs, and he axpayers and users who are a risk

i privae parners ail o manage he projec responsibly.

In addiion, i is no pruden o nance every inrasrucure projec. When using

deb o srech ou he cos o improvemens over ime, he cos o a projec is

increased signicanly o boh accoun or he ineres on he deb and, where

necessary, a reurn on invesmen or privae invesors. As a resul, nancing o

inrasrucure should be a mehod employed o help complee meriorious and

expensive projecs ha would be oo burdensome o pay or upron.

Increasing he degree o which inrasrucure improvemens are paid wih eiher

public or privae invesmen or deb will permi us o complee more projecs in he

shor erm. I also means ha projecs mus have sucien direc user ee collecions

and public sources o revenue o pay back invesors o he deb, ineres, and a raeo reurn or pro. Oher public improvemens can be and should be paid or wih

ederal and maching local governmen grans. Here, oo, ederal reorms are needed

o srech he impac o curren and uure public invesmens in inrasrucure.


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Firs we mus adop ormulas or disribuing ederal inrasrucure unds ha

guaranee ha all unds are allocaed based on objecive measures o need.

Curren ederal unding ormulas mee ar oo many poliical goals insead o

he rue purpose o he appropriaions. For insance, he curren ormulas ha

disribue ederal Highway rus Fund grans o saes disribue nearly 10

imes he amoun o unding per capia o Alaska when compared o Caliornia.Meanwhile Caliornia has more han 52 imes as many people as Alaska has; i is

home o he naions larges por, which means is inrasrucure has o suppor

he naions larges highway reigh rac; and Caliornia has 13 imes he num-

ber o miles o roadways as Alaska has.23

Similarly, ederal, sae, and local inrasrucure planning needs o rely on san-

dardized cos-bene analysis ools so scarce public unds are invesed in projecs

wih he greaes public reurn. Te illogical ormula-based disribuion o ederal

unds is oen replicaed a he sae and local levels where unds are spread around

so ha mos localiies ge a small bi o unding raher han making an objecivedecision on how bes o spend he unds o mee he mos compelling need or

repair, congesion miigaion, or raveling eciency.

A more raional approach o deermining where and how inrasrucure unds are

spen should be mached wih a solid unding sysem ha provides a predicable

ow o revenues. Te curren on-again, o-again spigo o inrasrucure und-

ing undermines eciency and conribues o he erosion o our asses. Congress

mus enac a muliyear se o unding bills or all elemens o our inrasrucure

wih reliable and ongoing sources o money or invesmen o remedy his serious

deec in our naional inrasrucure spending programs.

o successully bring our inrasrucure up o par wih levels o invesmen, we

propose more han jus increasing he level o annual unding available or inves-

men. We mus also change how we allocae unds, hold adminisraors accoun-

able, and engage privae-secor parners. A a minimum we mus:

Updae our user ee and ax code o index inrasrucure-dedicaed axes and

excise ees o inaion and ensure a predicable ow o revenues o suppor a

consisen and more robus level o ederal inrasrucure invesmen.

Enac ederal inrasrucure allocaion ormulas based on objecive measures

o coss, need, and benesand require saes and localiies o do he same.


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Curren ormulas or he ransporaion unds, or insance, do no adequaely

ake ino accoun need or improvemens needed o address congesion in spie

o he ac ha congesion is a leading cause o accidens and rising coss or

commuers and goods movemen.

Use ederal policy ools o atrac more privae invesmen in inrasrucure proj-ecs so ha new large-scale improvemens can be privaely nanced and paid or

by users.

Creae a Naional Inrasrucure Bank o opimize he level o privae invesmen

in inrasrucure, and ensure necessary large-scale and mulisae inrasrucure

projecs are underaken.

Creae a naional inrasrucure planning council o inegrae ederal agency

inrasrucure planning across secors and improve how we plan, procure, and

manage he consrucion and repair o our public asses.

Improve our ederal and sae inrasrucure planning by employing a compre-

hensive, mulisecor approach based on objecive merics ha allocae unds o

projecs ha mee criical public saey, congesion, delays o goods movemen,

polluion, and oher capaciy challenges.

Explore opions o bring waer inrasrucure improvemens under one roo and

in an agency ha can give prioriy ocus o improvemens needed o our waer

reamen, dams, levees, pors, and inland waerway sysems.

Increase he degree o which we are making progress repairing exising

inrasrucure.

Tese reorms can resul in a beter use o public unds and as a resul can moder-

ae he level o increased invesmen needed in he uure.

Tis plan is a riple win or America. I will creae jobs, increase he proabiliy

o he small- and medium-sized companies ha provide he consrucion maeri-

als or hese projecs, and leave o he nex generaion a ull complemen o sae,modern, and ecien public asses.

In he pages ha ollow, his paper describes our counrys inrasrucure spend-

ing needs by inrasrucure caegory, deails where he new invesmens should


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Introduction and summary | www.americanprogress.o

be ocused, and proposes a sraegy o raise he

necessary revenue. We ake a comprehensive

approach in addressing he inrasrucure repair

and capaciy needs o our ransporaion sysem,

energy sysem, drinking and wasewaer rea-

men and disribuion, as well as dams and levees.Tis blueprin is grounded in a rigorous review o

our needs, a pracical approach o raising ederal

unds, and he adopion o a se o commonsense

reorms ha will improve he impac o all public

inrasrucure spending. (see Figure 4)

While he level o new spending is subsanial, i will have a signican impac on

employmen and demand, and we propose o pay or he increased level o public

invesmen wih axes and ees ha are aligned wih our policy goals. Te bal-

ance o his repor describes he level o new invesmen needed by subsecor oinrasrucure, a limied se o axes and ees ha ully ose he increased level o

ederal expendiure, and reorms o increase he impac o each dollar invesed.

FIGURE 4

Our national infrastructure financing gap

Estimated current level o ederal, and ederally leveraged

investment in 2010

Current Federal and Federally-leveraged investment $133 billio

Estimated amount o needed investment $262 billio

Estimated annual gap $129 billio

Source: Authors calculation based on data rom numerous sources including the Oce oManagement and Budget, U.S. Department o Transportation, Army Corps o Engineers, EnviProtection Agency, U.S. Treasury, see Appendix or sources and methodology.


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Te sae o our inrasrucure is no simpl

oldis precarious. Consider ha:

Nearly one in our bridges in America

is srucurally decien or uncionallyobsolee.24 In 2007, or example, he I-35W

Bridge in Minneapolis collapsed, killing

13 people and injuring 145. While ha

bridge collapsed due o a design aw, i w

also in need o signican repairs and as a

resul was lised on he naions invenory

o srucurally decien bridges. Any one

o Americas nearly 70,000 bridges ha ar

srucurally decien and in need o repai

could become he nex I-35W Bridge.

Four housand U.S. dams need repair.

Nearly hal are near communiies, put

ens o housands o ciizens a risk o a

dam breach.25 As we learned he hard w

aer Hurricane Karina hi, weak dams

and levees endanger ciizens; more ha

1,400 deahs occurred in Louisiana alo

in ha ood.26

The infrastructure

investmentlandscape


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Inadequae reigh rail inrasrucure orces pas-

senger vehicles o share congesed roads wih

39,000 rucks rom he Los Angeles por on a

daily basis and accoun or 14 percen o he

highway rac and increase polluion. In he

New York Ciy meropolian area, por conainerrac resuls in 13,000 rucks ooding highways

in and around New York Ciy on a daily basis.

Tis growing ruck rac is making already con-

gesed roadways more impassable.27

Srains on he elecrical grid conribue o

blackous, which undermine businesses and pu

ciizens a risk. Tere were 156 ouages o 100

megawats or more beween 2000 and 2004,

increasing o 264 beween 2005 and 2009, helas years or which complee daa are available.28

Te ederal governmen budge auhoriy or 2010

was $3.48 rillion. In ha year, we devoed a rela-

ively small amoun o ederal appropriaions oward

mainaining and improving our criical public inra-

srucure asses. In ac, oal ederal inrasrucure

appropriaions or direc grans, loans, and ax incen-

ives were $92 billion in 2010, a mere 2.6 percen o

all ederal expendiures.29

Moreover, overall U.S. invesmen in ransporaion

and waer inrasrucure in 2010 was 6.2 percen less

in real dollars (aer accouning or inaion) han he

ederal governmen spen or inrasrucure in 2000.30

Tis decline is impeding our economic compei-

iveness. Te Unied Saes now ranks 24h on key

global indicaors or inrasrucure qualiy among142 naions, according o he World Economic

Forums Global Compeiiveness Repor or

FY 2011-12, down rom No. 8 in FY 2005-06.31

Regarding overall compeiiveness, he FY 2011-12

FIGURE 5

Quality ofrailroad infrastructure

20 United States

Countries that rank aheadof the U.S.:Switzerland, Japan, Hong Kong,

France, Germany, Netherlands,

Singapore, Korea, Spain, Finland,

Denmark, Taiwan-China,

Belgium, Austria, Canada,

Luxembourg, Sweden, Malaysia,

United Kingdom

Quality ofroads

20 United States

Countries that rank aheadof the U.S.:France, Singapore, Switzerland,

Oman, Portugal, Denmark, United

Arab Emirates, Austria, Hong Kong,

Germany, Spain, Luxembourg,

Saudi Arabia, Canada, Finland,

Japan, Korea, Malaysia, Cyprus

Quality ofport infrastructure

23 United States

Countries that rank ahead of

the U.S.:Singapore, Netherlands, Hong

Kong, Belgium, Panama, UAE,

Finland, Iceland, Denmark, Ger-

many, Sweden, Bahrain, Spain,

Canada, Malaysia, Malta, United

Kingdom, Estonia, Barbados,

France, Norway, Namibia

Quality ofoverall infrastructure

24 United States

Countries that rank ahead

of the U.S.:Switzerland, Singapore, France,

Hong Kong, Denmark, Finland,

Iceland, Austria, UAE, Germany,

Sweden, Portugal, Japan, Neth-

erlands, Canada, Luxembourg,

Belgium, Korea, Bahrain, Oman,

Barbados, Spain, Malaysia

Quality of airtransportationinfrastructure

31 United States


of the U.S.:Singapore, Hong Kong, Switzer-

land, UAE, Netherlands, Germany,

France, Denmark, Norway,

Barbados, Sweden, New Zealand,

Iceland, Belgium, Panama,

Finland, South Arica, Bahrain,Malta, Malaysia, Spain, Canada,

Czach Republic, United Kingdom,

Austria, Puetro Rico, Qatar, Korea,

Australia, Luxembourg

Quality ofelectric supply

32 United States


of the U.S.:Denmark, Switzerland, Iceland,

Singapore, Finland, Austrie,

Hong Kong, Netherlands, United

Kingdom, Belgium, Germany,

Sweden, France, Canada, Qatar,

Norway, Japan, Czech Republic,Ireland, UAE, Luxembourg, Oman,

Korea, Saudi Arabia, Taiwan-

China, Barbados, Slovak Republic,

Portugal, Bahrain, Cyprus, Slovenia

Source: Its The Global Competitiveness Index Report 2-11-2012,World Economic Forum Charts 2.01-2.05 and 2.07


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The inrastructure investment landscape | www.americanprogress.o

repor nds ha he Unied Saes coninues he decline ha began hree yearsago, alling one more posiion o 5h place.32 (see Figure 5)

Te American Sociey o Civil Engineers says ha o repair our exising inrasruc-

ure so ha i mees inernaional sandards or saey and eciency, an addiional

$2.2 rillion mus be invesed in repairs over he nex ve years.33 Teir sobering

Repor Card or American Inrasrucure, however, doesn say where hese ril-

lions o dollars will come rom.

Tis repor akes a slighly dieren approach. We calculae our naional inra-

srucure nancing gap by accouning only or needs ha are boh criical and

cos eecive. We hen dene wha porion o he overall gap should be paid or

wih ederal resources. We also ouline how increased ederal invesmens can be

srucured o leverage privae and oher public invesmen o ully close he und-

ing gap. Tis secion breaks ou each major inrasrucure caegory and explains

how he ederal governmen currenly suppors invesmens hrough grans, credi

programs, or ax incenives.

Alhough he ederal governmen is a large invesor in inrasrucure, he privae

secor is by ar he bigges invesor in public inrasrucure, covering he bulko he capial coss o our energy supply and disribuion inrasrucure, reigh

rail sysems, and pors, and making serious invesmens in our airpors and

waer sysems. CAP ound ha ederal spending on public inrasrucure capial

invesmens in FY 2010 was approximaely $92 billion. (see Figure 6)

FIGURE 6

Federal government infrastructure spending

Breakdown o estimated ederal investment in inrastructure o approximately $92 billion in Fiscal Year 2010

Estimated

grants

Estimated credit

subsidies

Estimated tax

subsidiesTotal

Transportation $77.70 $0.12 $0.46 $78.28

Water $3.50 $0.57 $0.27 $4.24

Dams and levees $100 $1.01

Energy $2.56 $6.00 $8.56

Total $82.20 $3.25 $6.73 $92.18

Source, Authors calculation based on the sum o appropriations made or major grants programs available or inrastructure under the aegis o the U.S. Departments oTransportation, Deense (Army Corps), Energy and Environmental Protection. The 2010 appropriations or these grant programs were derived rom agency budget documents.For the appropriations estimates or the appropriations or ederal loan programs, the cost is derived rom the OMB 2011 re-estimates or 2010 loan program costs. In the caseo the cost o the tax subsidies, the 2010 level o projected tax expenditure cost was derived rom data rom the U.S. Treasury and The Bond Buyer. In addition, the tax subsidiesor energy inrastructure are included as calculated by the U.S. Energy Inormation Agency.The specic sources and methodology or at all o these numbers can be Appendix.


22/104


Wihin he Deparmen o ransporaion, more han 100 dieren programs

share he responsibiliy or ransporaion invesmens.34 An addiional ve

ederal agencies are responsible or oversigh o signican inrasrucure improve-

mens and sysems, including he Deparmens o Energy, Deense, reasury, and

Agriculure, alongside he Environmenal Proecion Agency. Tese agencies have

hree inrasrucure unding and nancing ools a heir disposal:

Direc grans Loans and loan guaranees ax expendiures

Les examine each o hem in urn.

Estimated direct grants: Approximately $82 billion in FY 2010

Mos ederal inrasrucure invesmens are made as direc grans. In sum, CAPs

analysis nds ha approximaely $82 billion in ederal inrasrucure grans ow

o saes according o a variey o ormulas ha vary in ecacy. (see Char 1 on

page 20) Congress wisely ended he pracice o loading up ederal ransporaion

auhorizaion bills wih earmarks in 2010. As a resul, mos o he ederal inrasruc-

ure unds are allocaed o saes based on ormulas or are disribued as compeiive

grans. In some cases, gran ormulas do a good job o direcing unds o where hey

are mos needed. Bu mos are eiher oudaed or inappropriae or ensuring wise

expendiures o ederal unds.

For insance, a signican porion o ederal ransporaion unds are allocaed

wih litle regard o he need o reduce oil consumpion, which could be achieved

by increasing he share o unds spen on rail and ransi capaciy. Similarly, ederal

ransporaion ormulas are devoid o congesion measures even hough reducing

congesion can increase produciviy and lower he coss o ravel while having he

added bene o driving down carbon emissions.

Worse ye, $9.6 billion o he ederal grans or road, bridge, and highway projecs

in 2010 were disribued o saes based on an arcane ormula called he EquiyBonus Program, which disribues unds on acors largely unrelaed o he need

or repair or increased capaciy.35 And approximaely $400 million was disribued


23/104


in he orm o a minimum guaranee ha ensures each sae receives a small por-

ion o he eigh larges ederal highway gran programs.36 As a resul, 28 percen

o ederal grans in highways and roads were disribued wihou regard o relaive

need or projeced coss o repairs or capaciy improvemens. Waer inrasrucure

programs suer hese same ineciencies requiring grans o be allocaed o saes

simply o ensure hey receive he 1 percen minimum required by ederal waerrevolving loan und capializaion grans o saes.

Similarly, grans disribued or inland waerways, pors, and airpors also suer

rom allocaion ormulas and processes ha resul in spending scarce resources on

small, underused aciliies in order o mee poliical goals raher han invesing in

heavily used aciliies where each dollar invesed can have a much more signican

impac. Te ederal Essenial Air Service Gran program is rie wih examples

o small airpors, oen less han a 90-minue drive rom a major hub, receiv-

ing ederal unds in spie o low passenger demand or he airpor services. Te

Lake Cumberland Airpor in Kenucky, locaed only 45 minues rom Nashville,received a $3 million Airpor Improvemen gran or improvemens in spie o

he ac ha he newly buil airpor sa mosly allow or hree years because no

commercial airline carrier would serve he airpor.37 While he Federal Aviaion

Adminisraion Reauhorizaion Bill passed on February 6, 2012, implemens

some reorms o his program, deeper reorms can ensure scarce ederal resources

mee our mos urgen airpor improvemen needs.38

Te ollowing char summarizes he roughly $82 billion in ederal inrasrucure

grans. Mos o hese grans ypically recur based on long-erm auhorizaion bills.

Ye $11.1 billion in he grans available in FY 2010 were one-ime grans or high-

speed rail ($10.5 billion) and approximaely $560 million or a variey o rans-

poraion projecs enabled under appropriaions or he IGER compeiive gran

program or capial projecs. (see Figure 7 on he nex page)


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FIGURE 7

Major grants for infrastructure improvements in Fiscal Year 2010

$82 billion in grant capacity

Type Federal agencyEstimated cost to

agency in 2010Type offunding

Basis ofallocation

Federally imposed user feerevenue source

Highways,roads

Department oTransportation

$32.46 billion

$150 million in

TIGER grants

Grant to states orcapital, operating

and maintenance

Formula based on actorsthat include miles o roads,

miles traveled and gas

taxes collected

18.4 cent gas/24.4 cent diesel and tire and $12 billion in general und revenu

Bridges

Department o

Transportation

$5.6 billion

Many TIGER road

grants also supported

bridge repairs

Grant to states or

capital, operating

and maintenance

Distributed to states based

on the relative cost to

repair bridges classied

as structurally decient or

unctionally obsolete

18.4 cent gas/24.4 cent diesel and tire

and $12 billion in general und revenu

Mass transit

Department o

Transportation

$10.3 billion

$131 million in

TIGER grants

Grant to states or

capital, operating

and maintenance

Formula

33% population 33% miles o roads 33% value o user ee

paid by commercial

vehicles

18.4 cent Gas/24.4 cent diesel and tire

and $12 billion in general und revenu

Passenger rail

Department o

Transportation

$1.6 billion

($738 million is or

capital grants)

$134 million in

light rail and other

passenger rail grants

Capital grant to

Amtrak

Statute directed grant

N/A

High-speed

rail

Department o

Transportation

$10.5 billion

Grants National competition N/A

Ports

Department o

Transportation

and Army Corps

o Engineers

$953 million

$81 million in

TIGER Grants

Capital and

operation/

maintenance

Projects Selected by

Army Corps

0.125% tax on value o imports dedica

the Harbor Maintenance Trust Fund


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Type Federal agencyEstimated cost to

agency in 2010

Type of

funding

Basis of

allocation

Federally imposed user fee

revenue source

Airports

Department oTransportation

$15.5 billion

$10 million in

TIGER Grants

Capital andmaintenance

Combination o ormulagrants to airports and

competiive grants

$4.8 billion rom the general und, $2.6 billin Passenger Facility Fees and $10 billion ra

via - 7.5% ticket tax (exempt rural airports)

$3.60 ight segment tax

(exempt in rural airports)

6.25% on cargo bills

19.3 cents aviation gasoline (primarily

private planes and small crats)

21.8 cents on aviation jet uel (primarily

commercial airliners)

$16.10 international arrival tax

7.5% requent yer award tax

7.5% ticket tack on rural airports, passen

acility ees capped at o $4.50

Rail Freight

Department o

Transportation

$220 million in grants

or saety and grade

improvement

$264 million in

TIGER grants

Grants to states

as part o set

aside in ederal

Highway Saety

Apportionment

Formula 33% population 33% miles o roads 33% value o user ee

paid by commercial

vehicles

N/A

Inland

Waterways

Army Corps

o Engineers

$796 million Army Corps

selections

projects based on

recommendations

o Users Board

Agency scoring and

approval by Congress

20 cent diesel uel tax or Barges dedicate

to the Inland Waterways Trust Fund

Drinking

Water

Environmental

Protection

Agency

$1.4 billion (DWSRF)

Annual grants to

state revolving loan

und entities

Formula allocation

N/A

Waste Water

Environmental

Protection

Agency

$2.1 billion (CWSRF)

Annual grants to

state revolving loan

und entities

Formula allocation

N/A

Dams and

Levees

Army Corps

o Engineers

$1.01 billion.

Agency scoring and

approval by Congress

N/A

Source:Authors calculations based on available public documents rom the Department o Transportation, the Environmental Protection Agency, Joint Committee on Taxation o the U.S. Congress, and personnications rom staf at the ederal agencies. All source data or this chart can be ound o this chart in the Methodology Appendix. TIGER grant unds are shown in italics because in some cases a TIGER grant adthe inrastructure needs in more than one sector. For example a bridge project might have also improved port access. As such the gures are shown or illustrative purposes. The total TIGER grant capital apprin 2010 was $560 million and that is the gure used to generate the nal estimate o ederal appropriations or inrastructure grants in 2010.


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Loans and loan guarantees

Approximately $3.3 billion in federal funding enables at least $145 billion

in federal infrastructure loans

Federal loans and loan guaranees play a small bu increasingly signican role in

U.S. inrasrucure improvemens. CAPs review o he plehora o ederal loan and

loan guaranee programs concluded ha in 2010 nine major ederal governmen

lending programs had approximaely $124 billion in credi capaciy or core public

inrasrucure projecs. For ederal budgeing purposes, he cos o hese programsis called he credi subsidy, which is deermined by he Oce o Managemen and

Budge or each program aer accouning or expeced principal disbursemen,

ISTOCK PHOTO


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loan repaymens, deauls, and ineres or ees colleced. Based on our analysis,

his maximum capaciy would cos he governmen an esimaed $3.25 billion.39

O ha oal capaciy, CAPs analysis ound ha roughly $44 billion in loans and

guaranees were acually disbursed in 2010, wih an esimaed oal credi subsidy

cos o $1.8 billion.40

Mos ederal loan programs require ha borrowers or inrasrucure projecs also nd

oher invesors or demonsrae oher available invesmen capial when applying or a

ederal loan or loan guaranee. Based on he loan maching requiremens esablished

by Congress, a leas $20 billion in privae, sae, local, or public auhoriy capial could

be drawn ino U.S. inrasrucure projecs i he ull ederal loan and loan-guaranee

program were apped. We describe hose programs in his secion. (see Figure 8)

Tese loans and loan guaranees go oward an array o inrasrucure projecs,

which we examine briey in urn.

FIGURE 8

Infrastructure Federal loan capacity anf costs in Fiscal Year 2010

$3.25 billion in ederal credit subsidies leverages $144 billion in other investment

Estimated sum of

maximum credit

subsidy amount 2010

Estimated sum of

authorized principal

amount 2010

Estimated sum of

minimum private

leverage

Sum of actual

obligations in 2010

Sum of estim

actual cre

subsidy in 2

Energy $2,560,000,000 $80,477,097,922 $18,436,933,961 $37,891,038,000 $1,263,503,7

Highway $122,000,000 $1,062,917,501 $2,158,044,623 $1,031,413,000 $119,964,5

Other transportation N/A $18,367,000 N/A $18,367,000 $341,280

Railroad N/A $35,000,000,000 N/A $700,000,000 $29,000

Water $568,730,000 $7,545,840,520 $0 $5,296,000,000 $392,892,3

Total $3,250,730,000 $124,104,222,943 $20,594,978,584 $44,936,818,000 $1,776,730,

Sources: * The sum o the maximum credit subsidy is an estimate o the total cost o government at ull lending capacity or each program, based on authors analysis o OMB data, program authorities, and appropriations (see Appendix or a more detailed summary o this calculation).

** The sum o the authorized principal is an estimate o the total amount the agencies are authorized to lend, based on authors analysis o program rules, authorities, and appropriations (seeXX or a more detailed summary o this calculation).

*** The sum o the minimum private leverage is the value that a private or non-ederal public project sponsor must invest rom non-ederal sources to qualiy or receipt o the ederal loan, bauthors analysis o program rules, authorities, and appropriations (see Appendix or a more detailed summary o this calculation). The matching requirements vary by ederal loan program.

**** The sum o actual obligations and estimated actual credit subsidy are based on authors analysis o data in the Federal Credit Supplement o the 2011 budget (Tables 1 and 2), available awww.gpoaccess.gov/usbudget/y11/cr_supp.html.


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Transportation loans and loan guarantees

Tere are wo major loan and loan guaranee programs wihin he Deparmen

o ransporaion aimed a boosing inrasrucure improvemens. In oal hese

loan programs were auhorized a slighly more han $36 billion in 2010, o which

$1.7 billion was disbursed in 2010.41

Chie among hese loan programs are heransporaion Inrasrucure Financing and Innovaion Ac and he Railroad

Improvemen and Financing Ac loan programs.

Loans and loan guarantees for innovative surface transportation projects

Te 1998 ransporaion Inrasrucure Financing and Innovaion Ac, or IFIA,

auhorized ederal credi programs o suppor publicly unded ransporaion

inrasrucure. Trough he IFIA program, inrasrucure projecs ha cos a

leas $50 million are compeiively seleced or ederally subsidized loans and

loan guaranees o sae and local governmens, public and privae ransporaion

auhoriies such as urnpikes and airpors, and privae sponsors o new projecs.Tese loans are backed by an annual appropriaion o credi assisance or lines o

credi and loans issued. IFIA loans are capped a 33 percen o overall projec

coss and oer low-ineres, long-erm loans wih a wo-year grace period beore

principal and ineres paymens begin.

Te cos o he U.S. reasury or hese loans and loan guaranees are esimaed o

be 10 percen o he overall value o he ederal loan or guaranee or accouning

purposes, guring in he cos o an ineres subsidy and he risk o possible losses

on he loans and loan guaranees. Te IFIA programs $122 million FY 2010

appropriaion enables he Deparmen o ransporaion o lend or guaranee

slighly more han $1 billion per year oward public, privae, and public-privae

parnership inrasrucure projecs.

Over he pas 12 years, he IFIA program has enered ino 25 loan agreemens

oaling $8.7 billion. In some cases, he public and privae sponsors o projecs

ound enough capial o exceed he programs maching requiremens. As a resul,

or well less han $10 billion, IFIA loans enabled $33 billion in public and pri-

vae capial improvemens o public highways, airpors, mass ransi sysems, and

large inermodal ceners.42

Te ederal governmen has been making loans and loan guaranees or ranspora-

ion inrasrucure projecs or nearly a decade wih negligible deauls. Te excep-

ion ha proves he rule: One o he earlies IFIA loans made in 2003 was a $172


29/104


million loan o a privae company o nance he expansion and olling o a nine-mile

srech o he Souh Bay Expressway in Caliornia. Te loan wen ino deaul in

2010. While he company was able o cover operaing expenses, oll revenues could

no generae enough unds o pay back invesors. Te ederal governmen was ideni-

ed as a primary credior, as were he large bank invesors who backed he projec.

Te bankrupcy cours resrucuring o he deb reduced he IFIA loan repaymeno $99 million in deb and $6 million in equiy ownership o he company.43

Te upsho: Deb and equiy paymens o repay his one ailed invesmen are reli-

able under he resrucured nancial srucure. Te balance o he unds owed o

he Deparmen o ransporaion will be generaed by earnings on oll revenues

above he cour-approved operaing expenses (including deb and equiy pay-

mens o crediors). Tiry-wo cens on each dollar o hese earnings beyond

hose needed or operaions will be made o he ederal governmen o mee he

obligaion o he $73 million in unsecured deb. Over he lie o he projec, he

ederal governmen expecs o be repaid a leas 90 percen o he ederal loansprincipal and ineres charges.44 Tis loan represens he only IFIA projec o

dae where ederal unds were a risk o no being repaid.

Railroads

Te 1998 Railroad Improvemen and Financing Ac auhorizes 35-year ederal

loans or loan guaranees o privaely operaed reigh rail companies under essen-

ially he same lending guidelines as he IFIA program. Tis enables repaymen

requiremens o more closely align wih he cash ow and earnings associaed wih

large-scale inrasrucure projecs.

Unlike he IFIA program, however, hese railroad loans are no accompanied by

a ederal credi subsidy.45 Tis means ha hese loans are issued wih an ineres

rae se a he sum o he U.S. reasury lending rae plus he governmens cos or

program adminisraion and he esimaed cos o he risk o loan deaul. Tis in

urn means ha reigh companies borrowing rom he ederal governmen receive

a very small nancial bene rom his loan program.

Te program was auhorized in 1998, and as par o he muliyear surace rans-

poraion auhorizaion ac, he ransporaion Equiy Ac or he 21s Cenury,he programs iniial lending auhoriy was se a $3.5 billion. Wih he passage

o he Sae, Accounable, Flexible, Ecien ransporaion Equiy Ac: A Legacy or

Users, or SAFEEA-LU, he programs lending capaciy was se a $35 billion in

loan auhoriy. Since hen a oal o $1.6 billion in loans has been awarded. Te


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larges single loan, $562 million, was made o Amrak in June 2010 o nance he

purchase o 70 new railcars.46

Energy loans and loan guarantees

Te Deparmen o Energy had he auhoriy o make $47 billion in loans and loan

guaranees in 2010 under Secion 1703 o he Energy Independence Ac o 2005

and Secion 1705 o he Energy Policy Ac o 2007.

Te older program, 1703, has unds specically argeed or renewable energy,

nuclear power, and advanced vehicle manuacuring. Tis program provides

guaranees or up o 80 percen o he value o he projecs coss. Te program

is permited o make $18.5 billion in loan guaranees or nuclear energy projecs

wih no credi subsidy provided by he ederal governmen.

In addiion, his program had $10 billion in loan guaranee auhoriy or renew-

able energy projecs. Since 2005 he Secion 1703 loan program has made our

loan commimens: wo loans wih a combined value o $10.3 billion or wo

nuclear projecs, and $317 million in wo loans o companies invesing in energy-

eciency echnologies.47 O he $25 billion in Secion 1705 loans, approximaely

$14.7 billion was len o 26 projecs building alernaive energy inrasrucure

and resources or elecriciy generaion, and $8.3 billion was len o ve advanced

echnology vehicle manuacuring projecs. (see Figure 8)

Te rack record o he 1705 program shows ha i mobilized subsanial privae

invesmen in he clean energy generaion secor, approximaely $16 billion o

privae capial maching $25 billion in ederal loan suppor. Ta means in oal

he program mobilized as much as $41 billion in new clean energy invesmens.48

Te Secion 1705 energy loan program recenly suered wo loan deauls. In 2009

he agency made a $536 million loan o Solyndra, Inc., o build a solar manuacur-

ing aciliy in Caliornia. In addiion o he ederal invesmen, he company also

atraced $961 million in privae invesmen.49Te company recenly led or bank-

rupcy and unorunaely he ederal governmen subordinaed is credi posiion oha o oher crediors when loan agreemens were renegoiaed in an eor o keep

he company aoa and atrac addiional privae invesmen. Te cours will decide

i and how much he ederal governmen will be paid back rom he companys asses

once i emerges rom bankrupcy cour or is asses are sold a aucion.


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Beacon Power Corp., also a recipien o a Secion 1705 loan, declared bankrupcy

in November 2011.50 Te Energy Deparmens loan commimen was $43 mil-

lion, alhough he company had apped only $39 million o is ull loan award. In

his loan he governmen is in a primary posiion and so is likely o recoup mos

i no all o he loan since he company coninues o generae income rom he

uiliy, which has asses valued a $72 million and deb o $47 million. Tereore asrong porion i no all o he $39 million ederal loan is likely o be repaid.

Tese projecs represen 2 o he 28 projecs o deaul on a oal o $575 million

o he $25 billion invesed by he Deparmen o Energy in alernaive-energy-

generaion projecs under Secion 1705 o he Recovery Ac.

Te energy and ransporaion loan deauls demonsrae ha ederal loan pro-

grams mus coninually improve due diligence sandards o ensure scarce ederal

invesmen is direced o only he mos viable projecs. Tey also demonsrae

he need o careully consruc loan erms and legal proecions so ha axpayersinvesmens are repaid in he rare case ha a privae projec suppored wih public

unds declares bankrupcy.

In addiion o he DOE programs, he Deparmen o Agriculure adminisers

a series o loan programs. CAPs analysis ound hree o he loan programs were

signicanly ocused on inrasrucure invesmens:

Te Rural Business/Cooperaive Services Renewable Energy Loan Guaranee

Program Te Rural Uiliies Services Rural Elecricaion and elephone Program

Elecric Hardship and FFB Loans Te Rural Uiliy Services, Waer and Wase Disposal Loans and Loan Guaranees

Tese hree programs were auhorized o oer up o $7 billion in 2010 in loans o

rural energy cooperaives and oher energy inrasrucure a a cos o $60 million. 51

CAPs analysis ound nearly all he loan capaciy available in 2010 was uilized.

Tese loans are par o he longsanding ederal invesmen in rural elecriciy

access and capaciy and hey do no leverage privae-secor mach bu hey arerepaid by uiliy raepayers overime. Our analysis o he level o new invesmen

needed assumes hese loans coninue o address he capaciy needs in mos rural

secions o our counry.

The energy and

transportation

loan deaults

demonstrate

that ederal

loan programs

must continuall

improve due

diligence standa

to ensure scarce

ederal investme

is directed to on

the most viable

projects.


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Clean water loans

Alhough public invesmen in waer inrasrucure is overwhelmingly in he

orm o deb nancing, he ederal governmen makes grans o saes so hey can

operae revolving loan unds or waer improvemens. As such, rom he ederal

perspecive, waer inrasrucure unding is primarily dependen on grans and areincluded in CAPs grans analysis.

A sizable amoun o direc ederal lending or waer and sewer sysems, however,

is adminisered by he Deparmen o Agriculure, which had he auhoriy o

ener ino $7.5 billion in loan agreemens or rural waer projecs, a a cos o

under $570 million, in scal year 2010. Approximaely $5 billion in hese loans

were disbursed in 2010.52Tese waer loans are inended o address irrigaion and

agriculure-relaed uses or waer and as such are no included in our projecions

or he gap in he level o public drinking and wasewaer invesmen.

Tax subs idies

Te ederal governmen uses wo ax code ools o incenivize inrasrucure

invesmen. One ool is he subsidy o inrasrucure nance made possible by

exemping rom ederal axes he ineres earnings rom bonds issued by sae and

local governmens or his purpose. Sae and local governmens issue hese ax-

exemp bonds o nance capial improvemens o roads, ransi, public works, and

schools. Te ax-ree sream o income atracs privae invesors because hey are

willing o accep lower reurns han i he bonds were axable.

In 2009 and 2010 he governmen made available anoher class o subsidized

bonds. Te earnings on hese bonds, known as Build America Bonds, were ax-

able, bu he ederal governmen lowered he cos o inrasrucure projecs or

sae and local governmens by paying par o an issuers ineres cos, which

means ha he ederal subsidy was given direcly o he sae or local governmen

raher han he invesors.

Te second ax ool is he ax credis made available o companies who generae ordisribue clean energy. Te ax code includes wo ax credis or his purpose: he

producion ax credi and he invesmen ax credi.


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Briey, les sar by examining each o hese ypes o ax-ree inrasrucure

nancings in urn.

Tax-exempt bonds

Tis repor esimaes ha o $275 billion in ax-exemp deb issued by sae and

local governmens in 2010, $37 billion in new money issuances were argeed or

core public inrasrucure projecs.53 Tis gure excludes deb issued or hospials,

schools, and governmen buildings; renancing o previously issued ax-exemp

inrasrucure deb; or inrasrucure deb ha may have been issued via general

obligaion bonds, or which deailed daa are no available.54

Tis repor esimaes ha he 2010 ax exempion or he $37 billion or bonds or

new inrasrucure projecs will cos he U.S. reasury an esimaed $5.9 billion

in ne presen value, based on daa available rom he Oce o Managemen andBudge and Te Bond Buyer.55 Tis cos calculaion diers somewha rom he

mehod used by OMB, which or budgeing purposes accouns or he cos o

oregone revenue in each year unil he subsidized bond is paid o. As such, using

OMBs daa, we esimae he 2010 cos o hese paricular bond issuances o be

$354 million. (see Figure 9)

FIGURE 9

Tax subsidies for infrastructure investmentsEstimates o various tax expenditures in 2010 or inrastructure spending (billions)

Infrastructure

sector

Estimated total

issuances of new

tax exempt bonds

for infrastructure,

2010

Estimated total

issuances of new

Build America

Bonds for

infrastructure,

2010

Estimated

total new tax-

exempt and BAB

bonds for new

infrastructure,

2010

Estimated net

present value cost

to Treasury for

tax-exempt bonds

for infrastructure,

2010

Estimated net

present value

cost to Treasury

for Build America

bonds for

infrastructure, 2010

Estimated net

present value

cost of all bonds

issued for

infrastructure,

2010

Estimate

2010 budg

of all new

issued in

for infrast

Water $9.6 $18.0 $27.7 $1.5 $2.8 $4.4 $0.2

Transportation $21.2 $25.2 $46.4 $3.4 $4.0 $7.3 $0.4

Energy $6.5 $12.2 $18.7 $1.0 $1.9 $3.0 $0.1

Total $37.4 $55.5 $92.9 $5.9 $8.8 $14.7 $0.9

Source: Authors calculation based on data available rom the Oce o Management and Budget and data catalogued by the Bond Buyer or bond issuances in 2010. The sources and methodology used to arthese gures can be ound in the Appendix.


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Build America Bonds

In 2009 Congress creaed he Build America Bonds program, a axable alernaive

o ax-exemp bonds. Build America Bonds were axable sae- and-local govern-

men bonds ha had he same invesmen resricions as ax-exemp bonds bu

could only be used or new projecs. And hey diered rom ax-exemp bonds

because he ederal governmen paid a subsidy equal o 35 percen o he iner-es o he issuer. By making direc subsidy paymens o sae and local issuers, he

ederal governmen was able o ensure he enire subsidy accrued o issuers, raher

han parially o high-income bondholders.

Te recen Cener or American Progress repor Bring Back BABs: A Proposal

o Srenghen he Municipal Bond Marke wih Build America Bondspoins

ou hese bonds were a more ecien way o subsidizing sae and local inra-

srucure nance.56And because hese bonds were axable, hey expanded he

marke or municipal bonds o radiional axable bond invesors and inerna-

ional invesors. Tis ype o long-erm and naionally atracive bond increasedhe demand or municipal securiies and helped drive down borrowing coss or

sae and local governmens, providing much-needed suppor o long-overdue

inrasrucure invesmen.

In 2010, o he esimaed $117 billion in Build America Bonds issued, his repor

esimaes ha $55.5 billion was or core inrasrucure projecs and he remainder

or oher public-purpose projecs such as improvemens o, or new, governmen

aciliies, hospials, higher educaion, or school consrucion.57 Te lieime cos

o his subsidy or hese bonds issued in 2010 or core inrasrucure projecs was

approximaely $8.8 billion.

Te esimaed ne presen value o coss o he reasury or roughly $93 billion

in combined Build America Bonds and ax-exemp bonds oaed or new inra-

srucure projecs in 2010 was nearly $15 billion.58 Te coss are booked by he

reasury each year over he lie o he loan. Te cos o he ederal cos or hese

bonds in 2010 was slighly less han $1 billion, a $920 million.59

Clean Renewable Energy Bonds

Clean Renewable Energy Bonds were creaed by he Energy Independence andSecuriy Ac o 2007. Tese bonds provide invesors wih a 70 percen ax credi

or dividends paid rom bonds issued or wind, biomass, solar, geohermal, cerain

hydro plans, and oher qualied energy generaion projecs. Solar, wind, and


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hydropower generaion aciliies accouned or 90 percen o he $2.2 billion in

Clean Renewable Energy Bonds issued in 2009. In 2010 he cos o he reasury

o paying he ax credi o invesors is esimaed o be $80 million.60

Tax credits

Te ax code also includes ax credis aimed a boosing energy inrasrucure

invesmen$16 billion worh in 2010 alone. Te mos robus o he ax credis

aimed a elecriciy generaion are he energy producion ax credi, which in 2010

cos he reasury $1.5 billion in oregone revenue, and he invesmen ax credi,

which cos $130 million.61

Te mos powerul o he wo credis, he producion ax credi, was calculaed a

a rae o 2.2 cens per kilowat-hour o promoe invesmen in large-scale energy

producion. Tis credi was primarily used by wind energy producers bu is alsoavailable or solar, geohermal, biomass, and oher new energy sysems. Te

invesmen ax credi is generally equal o 30 percen o he value o he inves-

men in new generaion aciliies ha rely on solar, geohermal, wind, and com-

bined hea and power sysems. Te credi is capped a lower levels or invesmens

in micro-urbine and uel cell energy producion aciliies. Energy producers can

ake advanage o only one ax credi a a ime.

As par o he American Recovery and Reinvesmen Ac, eniies claiming he

energy producion or invesmen ax credis could accep a gran o up o 30 percen

o he value o he credi insead o he ax credi, under Secion 1603 o he ax

credi. Te value o hese grans claimed in 2010 was $4.2 billion.62Te legislaion

ha permited hese ax credi grans makes hem available only o energy produc-

ion or generaion projecs ha were under consrucion as o December 31, 2011.

U.S. reasury repors indicae ha, on average, each ederal gran in lieu o one

ax dollar was mached wih wo dollars o privae invesmen. For he purpose

o his analysis, he sum o ax credis and grans in lieu o ax credis are consid-

ered ax subsidies. In 2010 hese ax subsidies are esimaed o have been $5.83

billion.63

When acoring in he esimaed ax subsidies available or bonds haCAP esimaes were issued or energy purposes in 2010, he ull value o ax ben-

es esimaed o suppor energy inrasrucure invesmens in 2020 is esimaed

o be approximaely $6 billion.


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Total federal infrastructure investment:

Approximately $92 billion in 2010

Te ederal invesmen in inrasrucure is he sum oal o appropriaions o

grans, he ederal credi subsidies o loans, and esimaed los revenues rom ax

expendiures inended o simulae inrasrucure invesmen. Across all ederalprograms and vehicles, he governmen invesed jus more han $92 billion in

inrasrucure improvemens in 2010.

Sadly, his gure alls woeully shor o wha we need o spend o ensure our naional

economic compeiiveness and o pu millions o Americans back o work. In he

nex secion well examine jus how big an inrasrucure-unding gap we ace.


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38/104STOCK PHOTO


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In spie o approximaely $92 billion in

ederal invesmen, every componen

o our public inrasrucure suers rom

a signican backlog o repairs, and in

nearly every secor he capaciy o ourinrasrucure is insucien o mee curre

and projeced demand. We recognize

ha on op o he ederal expendiures,

saes and localiies are also invesing in

inrasrucure repairs and improvemens.

And in some cases hey are eaming up

wih privae parners o ap capial and

experise o suppor projecs nanced wi

privae invesmen, publicly suppored

and privae loans, or axable or nonaxable

bond insrumens.

The infrastructurefunding gap


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In he previous secion, we presened he deails on he amoun o ederal unds,

loans, grans, and ax subsidies appropriaed or inrasrucure invesmens in FY

2010 and how much privae capial was pledged as par o loan commimen pack-

ages, and we presened he value o bonds issued or inrasrucure. Unorunaely

publicly available daa do no permi a reliable accouning o he allocaion o ha

invesmen o FY 2010. Moreover, available daa are no robus enough o resolvehe double couning o invesmens ha would occur i he value o loans was

simply added wih he value o bonds.

For hese reasons, is no possible o accuraely sae he value o privae unds

spen on inrasrucure projecs in 2010. For he purposes o his analysis, hen,

we do no assume any signican changes will occur in he levels o privae inves-

men, excep where we propose specic reorms o rigger higher

levels o invesmen. In hose cases, he elevaed level o privae

invesmen is acored ino our analysis.

Our plan adops an ambiiousye achievablelevel o public and

privae invesmen in each key elemen o our inrasrucure, o $129

billion a year or he nex 10 years.

Transportation: Invest $81.5 billion

An addiional $81.5 billion in invesmen is needed o mee our

mos urgen immediae and long-erm ransporaion inrasruc-

ure needs. Some o his invesmen can be me wih privae-secor

invesmens in nanced projecs. Heres how we arrived a he

invesmen level proposed or each major componen.

Highways, roads, and bridges: $47 billion

Highway, road, and bridge improvemens are unded by he

Federal Highway rus Fund, which disribued $41 bil lion in FY

2010 or he purpose o mainaining and improving highways,roads, and bridges. SAFEEA-LU, he ederal enabling saue or

hese surace ransporaion grans, requires ha saes provide a

20 percen mach o ederal spending. In FY 2010, saes mached

FIGURE 10

Our infrastructure funding gap

The amount o investment needed annually

to bridge the gap between what the United

States spends now and what it needs to spend

on inrastructure

Sector

Level of new

investment

(in billions of dollars)

Highways 47.0

Mass transit 15.7

Rail 9.3

Ports 1.0

Airports 7.0

Inland waterways 0.2

Freight 1.4

Water 2.7

Energy generation 44.0

Dams and levees 1.0

Total 129.2

Source: The author calculated the estimate o the necessary increase in

ederal spending by comparing the current level o ederal appropriationson inrastructure and the unds leveraged by these ederal appropriationsto rigorous independent or ederal agency research detailing the level oneeded investment. See Appendix or the description o the methodol-ogy and sources used or this calculation.


41/104

The inrastructure unding gap | www.americanprogress.o

he ederal unds a a higher rae and spen $27 billion on roads in heir ederal

highway sysem bringing he oal o combined sae and ederal unds or road

and bridge improvemens on he naional highway sysem o $63.7 billion.

(Saes spen considerably more han $27 billion in 2010 on road consrucion

and improvemens on roads no considered par o he ederal highway sysem

and in many cases are spending more han he required mach o improve ed-eral unds or roads in he ederal highway sysems.)

o improve saey and provide or needed capaciy expansion, oal public inves-

men in he naional highway sysem needed o reach $104 billion, according o

our analysis o a 2008 sudy rom he Federal Highway Adminisraion.64Adjused

or 2010 dollars, requires ha annual ederal spending, ogeher wih sae and

local unds, mus reach a leas $113 billion annually.65

Ta means ha approximaely $50 billion more mus be spen by he ederal

governmen, alongside curren levels o required sae maching unds, o bringour roads and bridges up o a sae o good repair. Given ha CAP is also propos-

ing increases in passenger rail and mass ransi, which can be expeced o modesly

reduce he need or increased road capaciy, we recommend an addiional $47

billion per year in combined sae, ederal, and local invesmen.

Tis level o increased invesmen is essenial o improve mobiliy and increase

public saey, bu i will no signicanly reduce congesion because our urban

populaion ceners are growing dramaically. As om Donahue, presiden and

CEO o he U.S. Chamber o Commerce, noed in esimony beore he Senae

Commitee on Environmen and Public Works:

Te 100 largest metropolitan regions in the U.S. account or just 12 percent o

the land, but contain 65 o the population, 69 percent o all jobs and 70 percent

o the nations GDP. Te largest 100 metropolitan areas also serve the majority

o our transportation activity, handling 72 percent o all oreign seaport tonnage,

79 percent o all U.S. air cargo tonnage, 92 percent o all air passenger boarding

and 95 percent o all public transit passenger miles.66

Tese naions larges 20 urban regions may grow by a leas 60 million peoplebeween now and 2040.67 Ta means we need o proceed wih a smar inrasruc-

ure improvemen plan o expand ransi, regional rail and commuer rail opions,

and saeguard he economic vialiy o hese business ceners.


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We propose a signican and sucien new level o invesmen in road and bridge

invesmens o ensure saer and more ecien ravel. Bu he mos sysemic way

o dramaically reduce congesion and address he ineviable growh in large

mega-regions is o ensure we expand he reach o compeiively priced ransi and

passenger rail opions, and sucien reigh rail capaciy.

Mass transit: $15.7 billion

o ensure our curren mass ransi sysems can operae in sae and ecien

working order, he Federal ransi Adminisraion esimaed in 2008 ha some-

where beween $16.7 billion and $27.2 billion per year in capial improvemens

are needed o improve he saey and eciency o he exising mass ransi

sysems.68Te low end o his range accouns or improvemens needed o main-

ain curren mass ransi lines. Adjusing hese esimaes o 2010 dollars indicaes

ha o mee hese needs, spending would need o grow o $18.2 billion annuallywhile he upper range includes he capial coss or economically jusied capaciy

expansion would require spending o rise o $29.6 billion. Te CAP plan adops

he upper bound esimae because ha level o invesmen has he poenial o

reduce congesion in large populaion ceners.

Like road improvemens, unds or capial improvemens o mass ransi are derived

rom he Federal Highway rus Fund and concurren sae and local maches. In

FY 2010 he sum o ederal, sae, and local capial invesmen in ransi was approxi-

maely $13.9 billion.69 Ta means ha he upper limi o economically jusied

invesmen would require $15.7 billion more han wha is currenly being spen.70

Passenger rail: $10 billion

Federal general und resources provided $736 million in capial unds or Amrak

in FY 2010. Tese unds are no sucien o mee he curren backlog o more

han $8.8 billion in capial improvemens needed on Amrak corridors, le alone

he coss o shiing any rail corridor in he naion o high-speed rail. Te rs

ederal oray ino unding high-speed rail made $12.5 billion in special high-speedrail grans available in 2009 and 2010 hrough he Recovery Ac.

Even his level o unding is insucien. Te cos o building rue high-speed rail

permiting speeds o 150 mph o 200 mph is complicaed because in addiion o

The most systemicway to dramatically

reduce congestion

and address

the inevitable

growth in large

mega-regions

is to ensure we

expand the reach

o competitively

priced transit

and passenger

rail options, and

sucient reight

rail capacity.


43/104


laying new rail, excavaing new unnels, elecriying rail lines, and expanding sa-

ions, new rail engines and cars have o be purchased. In he Norheas Corridor,

or insance, Amrak esimaes he cos o puting hese basic componens o high-

speed rail in place o be $117 billion over 25 years or slighly less han $5 billion

per year in capial coss.71

In addiion o he Norheas Corridor, in response o sae or regional ineres,

10 oher corridors are designaed as poenial high-speed rail corridors by he

Deparmen o ransporaion. Tis paper is no proposing high-speed rail und-

ing reach he level necessary o enable all o hese corridors o proceed as high-

speed rail corridors. Insead, we urge ha a rigorous, ederally direced planning

process commence o evaluae he coss, benes, and nancial easibiliy or addi-

ional corridors beyond he Norheas line beween Boson and Washingon, D.C.

Tis research is likely o conclude ha incremenal measures o increase speeds

approaching 110 mph o 150 mph on some o he corridors can be jusied,while oher corridors, such as he Norheas Corridor, as well as secions o he

Caliornia and Florida rail corridor, or he rail line beween Chicago and S. Louis

may warran he mos inensive level o capial improvemens o permi much

higher-speed ravel. Wihou reliable esimaes on he coss or rail corridors ha

should be high speed or higher speed, we sugges ha a a minimum an amoun

comparable o wha we know is necessary or he Norheas Corridor be available

or oher passenger rail corridor improvemens.

As such we sugges ha $10 billion annually can permi signican progress o be

made in improving rail speeds, which would ensure unding or he improvemens

o he Norheas Corridor wih he balance o unds available or meriorious

improvemens o oher rail corridors.

Airports: $7 billion

Trough he Federal Aviaion Adminisraions Airpor and Airway rus Fund,

he ederal governmen invesed $15.5 billion in airpor improvemens in FY

2010. rus revenues come rom a baske o ederal axes and ees levied on pas-senger and airlines. In 2010, $5.3 billion in supplemenal general und revenues

were added o he rus Fund in order o mee congressionally auhorized expen-

diures o $15.5 billion.72


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Tas no enough. Te FAA esimaes ha he capial unding

disribued via he Airpor Improvemen Fund needs o grow

by $7 billion on op o he $15 bi llion ha was appropriaed or

2010 or a oal o $21.5 billion annually or a leas he nex ve

years.73 (also see accompanying box abou NexGen unding)

Freight rail: $1.4 billion

In FY 2009 and 2010, he ransporaion Deparmen released

$473 million in one-ime reigh rail improvemen grans in he

ransporaion Invesmen Generaing Economic Recovery, or

IGER gran program.76 Tese compeiive grans enable reigh

operaors o repair and expand heir rail lines, address barriers o

speedy rail service such as limied unnel heighs and widh and

problemaic road crossings, and consruc inermodal connecionswih pors and key warehousing locaions. Tese one-ime grans

were a good sar o wha is needed o improve he eciency and

expand he use o reigh or goods movemen.

In addiion, on an annual basis he SAFEEA-LU ac includes an annual appro-

priaion o $220 million or rail crossing grade improvemens.77And in 2010 he

Railroad Rehabiliaion Financing Improvemen loan program awarded one loan

o $17 million or reigh rail improvemens.78

o pu hose invesmens in conex, consider ha our naional reigh rail inra-

srucure needs an inusion o somewhere beween $175 billion o $195 billion

over he nex 20 years o mee is expansion and repair needs, and a leas mainain

he curren share o goods movemen via reigh rail, according o he American

Associaion o Sae Highway Ocials.79 Larger reigh operaors wih annual

revenues o more han $250 million and he smaller operaors (known as Class 1

railroads80) predic ha hey can und all bu approximaely $53 billion o hese

improvemens rom heir own resources.81

A separae sudy released by he American Associaion o Railroads, NaionalRail Freigh Inrasrucure Capaciy, ound ha he cos o addressing exising

needed improvemens o smaller branch linesclearance improvemens such as

elevaing bridges and widening unnels, so ha double-sacked rail cars can pass

In addition to the traditional capacity and

expansion needs o our airports, the Federal

Aviation Administration expects to spend

approximately $20 billion to build a state-

o-the-art air trafc control system known as

NextGen by 2025.74 NextGen provides critical

new inrastructure capacity to our airport

saety systems. The FY 2010 appropriations

or NextGen were $868 million.75Although

this basic technology upgrade o our air trafc

system could be reasonably considered as a

critical element o our air travel inrastructure,

we have not actored these capital costs into

our inrastructure unding proposal because,

to date, these acility improvements are paidor with general revenues.

NextGen funding


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saelyis approximaely $34 billion over 20 years. Tese wo sudies sugges ha

public invesmen should be a leas $34 billion in he nex 20 years o he needed

reigh rail improvemens o opimize he use o reigh rail or goods movemen.

Where here are clear local economic developmen benes beyond hose which

accrue o he operaors, such as rail reigh connecions o growing warehous-ing ceners, or evidence ha clearance improvemens associaed wih oher

inrasrucure such as raising bridges and widening unnels will increase goods

shipped by reigh rail, hen we believe he ederal governmen has an addiional

invesmen role o play.

As such, we propose an increase in public invesmen o $1.4 billion per year o

address clearance and branch line issues and inves in warehousing and special spurs

where such invesmens will promoe economic developmen or communiies.

Ports: $1 billion

Capial improvemens o our pors are primarily paid or by por

meeting the infrastructure imperative

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