How state and local governments can make the most of their infrastructure

By Richard Geddes

After years of delay, it appears likely
that Congress will soon consider a major infrastructure bill. Such a bill has
the potential to address America’s set of widely known, endemic infrastructure
challenges. Those include often-inadequate funding, deferred maintenance,
costly project delivery, and slow technological adoption.

However, given vast new COVID-related deficit spending and a record federal debt, a massive deficit-financed infrastructure bill appears unlikely. Indeed, key senators such as Joe Manchin (D-WV) stated that Congress must fully pay for an infrastructure bill via tax increases. It is thus critical that any infrastructure bill encourage the state and local governments that own the vast majority of US infrastructure to extract latent dollars from the infrastructure they control.

Via Twenty20

As I stated in my September 25, 2019 testimony before the House Committee on the Budget, smart federal policies can help achieve that goal. Several concrete steps Congress should take include:

Promote
asset recycling and value capture
. State and local owners have used the
same approaches to operate and maintain much of America’s infrastructure for
decades. Meanwhile, developments in proven, efficient technologies and
management techniques abound. Adoption of those technologies allows public owners
to capture more value from infrastructure under their control.

Under an asset-recycling program, the
federal government encourages state and local governments — typically via a 15
percent bonus payment combined with technical support — to explore new partnerships
with private entities that allow for the realization of added value from aging infrastructure
assets. Those arrangements run the gamut from short-term leases, to long-term
leases and concessions, to asset sales. The key element is that government
owners get more value by adopting new, cleaner technologies and better
management of infrastructure assets, with assistance from private partners. The
newly realized value is then ploughed back into the jurisdiction’s
infrastructure program, hence the term “recycling.”

Examples of new technologies that can
be encouraged by such a program include methane capture at wastewater
treatments plants (or indeed any facility producing such gases). This allows
the conversion of an otherwise wasted, greenhouse gas into electricity. The
newly created electricity lowers the plant’s
operating
cost. Public owners can use the prodigious cost savings to pay for the
technology’s installation. Another example is conversion of aging chemical
sodium streetlights to LED. The new bulbs generate more light with less power,
again allowing installation of the new technology at no cost to the public
owner. A third is the adoption of “smart” stoplights that use cameras to change
color based on traffic actually approaching the intersection instead of a rote
timer.

The upside of America’s aging and poorly maintained infrastructure is that billions of dollars of dormant value could be released via this and other new policy approaches. A 2018 study revealed that public owners could realize between $720 billion and $885 billion through long-term leases alone.

Promote state and local self-help. In addition to asset recycling, Congress can promote policies to urge the raising of other fresh revenues. Those include new revenue via user fees such as mileage-based user fees, converting old High-Occupancy Vehicle (HOV) lanes into HOT lanes, and value tolling of Interstate highways. Smart policy would also repeal restrictions on states commercializing and upgrading their highway rest stops, perhaps by including vehicle-charging stations.

Provide
technical support to state and local infrastructure owners via PPP units
. The standard,
decades-long way of providing infrastructure in the United States has led to
the set of problems we face today. The major changes described above require
expertise and new modes of thought regarding infrastructure delivery.

An often-overlooked aspect of federal infrastructure policy is providing state and local owners with the support and expertise they need to adopt these new techniques. As Carter Casady and I explain in a 2016 AEI policy report entitled, “Private Participation in US Infrastructure: The Role of PPP Units,” governments have addressed that need internationally through the creation of specialized entities to assist public owners in adopting new delivery approaches. These small groups of experts within government analyze proposals and give advice on value-enhancing proposals. Congress would be wise to help state and local governments create such units.