America has earned a D+ for infrastructure conditions and needs after decades of underinvestment, according to the 2017 Infrastructure Report Card issued by the American Society of Civil Engineers (ASCE). The condition of infrastructure, ASCE says, “has a cascading impact on our nation’s economy, impacting business productivity, gross domestic product (GDP), employment, personal income, and international competitiveness.” Strong infrastructure is of particular importance for commercial real estate, which directly affects how the country works, lives and plays. Government policies are critical in ensuring that our nation has the strong infrastructure — including roads, railroads, ports and water systems — that it needs, and that all those systems are working efficiently and effectively.
President Donald Trump’s self-declared “Infrastructure Week” wrapped up on June 10. His goal was to focus on ways to reduce red tape and improve cooperation between the government and private partners.
As a first step, Trump has vowed to reduce regulatory barriers to development. “We are here today to focus on solving one of the biggest obstacles to creating this new and desperately-needed infrastructure, and that is the painfully slow, costly and time-consuming process for getting permits and approvals to build,” he announced during a visit to the Department of Transportation. He promised to reduce the average time to receive permit approval from the current 10 years to two years.
However, the Washington Post writes that: “The president, who had called for $1 trillion in new infrastructure programs to create millions of jobs, now faces an increasing probability that not only will his proposal fail in Congress but that existing infrastructure efforts will also stumble.”
The Post says the failure may occur because Trump wants most of the new funding to come from private sources rather than directly from the federal government. He wants to use roughly $200 billion in federal spending to generate an additional $800 billion in private infrastructure spending.
New spending is essential as investment in our critical infrastructure systems is not keeping pace with the growing needs of the nation – thus diminishing America’s long-term economic competitiveness.
NAIOP has made increasing infrastructure investment a top legislative priority for 2017. For years, NAIOP has advocated for the reauthorization of transportation programs. The problem, of course, is how to pay for this level of new investment.
In the latest issue of NAIOP’s Development magazine, Robert Dunphy explains several ways that governments could tap into new funding sources for infrastructure projects. Dunphy, a transportation consultant and emeritus fellow at the Transportation Research Board, suggests:
- The federal government could allow tolls on the interstate highways. “Tolling only the urban portions of the interstate system would generate about $40 billion annually, according to the Congressional Budget Office,” Dunphy writes.
- Creating or expanding regional toll authorities. There are only about 6,000 miles of toll roads in the federal highway system. That amounts to only about 1 percent of all federal roadways. Increasing the number of toll roads would increase revenue for repair and expansion of highways.
- Governments could charge drivers by the mile, instead of simply collecting taxes on the gasoline drivers buy.
- Creating a carbon tax. “A 2017 report by the U.S. Treasury estimates that a ‘midrange’ tax of $50 per metric ton would generate $250 billion annually, a major windfall if it were used for infrastructure improvements,” Dunphy writes.
- Increasing state funding. Pennsylvania, New Jersey, Maine, Indiana and Washington are among the states that have increased state gas taxes in recent years. “These states have demonstrated that higher state gas taxes can generate significant funds, all of which the states get to keep,” Dunphy writes.
Some of those ideas are unlikely to earn much political support. For example, a tax on carbon would face broad opposition in Congress and the Trump administration. However others, such as tolling on highways, clearly fit into the framework the Trump administration has made a central feature of its plan: expanding the use of public-private partnerships (P3s) by incentivizing private-sector investment in infrastructure projects.
Dunphy also notes that these P3s could be used to increase infrastructure investment. “Politically popular ideas have depended on what real estate people recognize as OPM — other people’s money — such as juggling Federal Reserve requirements, carbon taxes or repatriation of overseas earnings of American companies,” he writes. “Lacking any miraculous breakthrough, there will be a growing need for innovative projects that charge tolls and other fees, allowing them to be financed as public-private projects.”
According to Dunphy, “There have been 34 public-private partnership contracts for major construction projects in the U.S. over the last 30 years.” He adds that, “a successful program at the national level might be able to overcome such inertia.”
NAIOP supports these collaborative projects. Lawmakers should create a regulatory and tax environment for investment that helps expand the use of P3s to address our expanding infrastructure and transportation needs. By working together, Congress and private investors can fund the infrastructure the country will need to succeed in the 21st century.