Main Street, not Wall Street, should fix crumbling U.S. infrastructure
Repairs will cost trillions. Public pension funds can help pave the way.
By Kathleen Sebelius and Andy Stern Topeka, Kan. and Washington At its best, America's infrastructure has powered our economic prosperity, created well-paying jobs, and served the public interest.
Today, however, it has fallen into a dangerous state of disrepair. The Minnesota bridge collapse last summer brought home the urgency of repairing and modernizing our nation's system of highways, bridges, tunnels, power plants, transmission lines, and airports.
But doing so will be prohibitively expensive. Current plans seek to exploit the nation's need for private profit. But there's a better source of capital at hand: public pension funds.
The American Society of Civil Engineers estimates that $1.6 trillion is needed in the next five years alone just to maintain the adequacy of existing infrastructure.
But even if every bridge was repaired, it still would not be enough - trillions more will be required to build the new systems necessary to keep our economy competitive. As anyone who commutes every day knows, we need to reduce congestion on our roads and in the air, speed the transportation of people and goods, increase energy efficiency, and do so in ways that are environmentally sustainable.
The thought of coming up with the money necessary for all this, makes people wince - understandably. This is a time when many states face budget shortfalls and our federal deficit is at an all-time high.
Leaders of both the Republican and Democratic parties know the US cannot raise money from traditional public sources of financing, including municipal bonds, user fees, and taxes.
The financiers on Wall Street already have positioned themselves to take advantage of this national crisis for their own gain. Where most Americans see crumbling bridges and traffic congestion, the money managers see a treasure trove of fees, profits, and more record bonuses for CEOs.
It's why some private equity firms and banks on Wall Street are raising massive funds to buy these assets that have typically been owned and managed by the government.
In recent years, new infrastructure funds have been established in North America with capital commitments of $40 to $45 billion. These private funds have sprouted up like weeds, structured for short-term profits and sky-high fees - usually up to a 2 percent management fee plus up to 20 percent of the profits.
It would be a monumental mistake to turn the future of America's infrastructure over to the same crowd that brought us the subprime crisis, an economy loaded down with debt, and recession.
We should know better by now than to create a scenario where bridges and highways are sliced and diced like subprime loans into financially engineered "collateralized infrastructure obligations."
America needs a large source of stable, long-term capital to build the system of buildings, roads, and power supplies needed to sustain the country. We need a source of capital that values infrastructure because it provides a reasonable rate of return, strengthens the overall economy, and doesn't burden users with excessive fees.
Enter that source of capital:
Public pension funds, which are responsible for the retirement benefits of more than 18 million Americans, have more than $3 trillion in assets, and a long-term investment approach consistent with the stable returns that infrastructure assets generate.
Pension funds could buy and build infrastructure, putting the profits to work for the retirement of workers, not for the benefit of Wall Street CEOs.
This is how it works: Pension funds pool their assets and invest directly in projects to build new roads and bridges in multiple states, bypassing the Wall Street firms that want to siphon off profits. The steadyily increasing streams of revenue that come from tolls and other sources would deliver stable, long-term returns to working Americans, while creating well-paying construction and service jobs connected to each project.
These pooled pension direct investment vehicles would:
· Provide the much needed capital infusion sought by governors and state legislatures to improve their states' infrastructure;
· Ensure that billions of dollars stay in our communities instead of going to big financial firms;
· Create a multiplier effect, generating jobs, economic activity, and new tax revenue for states;
· Achieve strong investment returns and stable long-term cash flows that meet or exceed actuarially required levels; and
· Support "green" infrastructure projects that are environmentally sustainable.
Hurdles remain to pension funds' direct investment in infrastructure. Pension funds with little history of collaboration will have to work together. But one important barrier could be lifted by passing federal legislation that would allow pension funds to access tax-exempt debt to finance infrastructure investments.
This is a solution worth supporting. Public pension funds, governors, state treasurers, comptrollers, and the Service Employees International Union (SEIU), whose members participate in pension funds with more than $1 trillion in assets, have begun preliminary discussions about how to create this type of investment vehicle.
This collaboration offers a promising model for a win-win solution to help address the growing infrastructure problem we face across America.

· Kathleen Sebelius is the Democratic governor of Kansas. Andy Stern is the president of the SEIU and author of "A country that works."


From the from the May 07, 2008 edition - http://www.csmonitor.com/2008/0507/p09s02-coop.html

I don't really understand. She states that the gov't can't raise user fees, but the new owners of said infrastructure can? If the pension funds can make money from it, why can't the gov't? Something doesn't add up.

I found it interesting...definitely am not sold on the idea, at least yet.

You bring up a good point about fees. Where does the payback/profit come from.

And, at the risk of posting without reading the entire original post, I'll add this. I just drove 3,500 miles of the southwest quadrant of the country - 5 states including Sebelius' - and every freaking inch of it was under construction. Roads, bridges, pipes, lines, the whole smack. How is it, then, that we can't afford to fix infrastructure?

Most of that is short term fixes, not solid long term solutions.

In Kansas, remember we're on year 9 of our 10 years LTP, long term transportation plan. We spend in excess of 400 million per year, which is above average considering our conditions. We, in Kansas, do not have the severity of infrastructure issues that MOST States have.

If rebuilding highways is short term, what's the long term? I saw nearly constant construction across Kansas, Oklahoma, Texas, New Mexico, and Arizona. Probably more in those other states than in Kansas.

There's patching and there's fixing.

In Kansas, there is a lot of fixing going on. And right now, most of the Kansas money is being pumped into OVERLAND PARK and the I435 US 69 BP exchange.

Patching/overlaying is buying time. A big problem are overpasses/bridges. They need rebuilt or expanded to handle capacity. Same is true for many roads. Also a lot of safety issues, roads that need shoulder additions, barrier walls, etc to meet current safety standards. Many interchanges do not meet current acceleration/deceleration standards, speeds, etc. In many cases, the bases of the roads are shot. These are all expensive fixes.

Did you get any road tar? Road tar = temp fix. Just buying time.

Dusty conditions, lots of HUGE earth moving equipment creating new bases is GOOD.

And transportation is only one small part of the infrastructure system. Rail lines, transmission lines, airports, etc are other needs.

Subway systems are ubber-critical to NYC right?

They only cost about 1 billion per mile to build....

No road tar that I've found. How much of this is directly related to meeting "current safety standards?" I mean, if we felt we needed to bring every building in the country up to current electrical and/or plumbing code, it would cost trillions. But we know that it isn't practical to do that; we do it as time and money allow. There will never be enough to do everything that needs done, the way we want it to be done. There never was and there never will be; I guess my point is that that isn't anything new.

Roads are a different animal. How many people die per year from past-dated electrical code? How many hours of congestion are added from poor electrical wiring?

....

Roads wear out in about 40 years. We're at the time limit on most highways. Rebuilding to current safety and flow standards is important. Remember, you're investing for 40 years. Don't cheap out now cuz it's too dang expensive to go back and add it later.

You're right, they are completely different. However, the principle still applies IMO. There is never going to be enough money to fix everything and/or bring everything up to current standards in anything resembling the short term. There's only so much money to go around.

What's your point? I don't think anyone (me or Mutt) tired to argue that point.

Are you saying our infrastructure is not in "trouble"?

I don't think it's in trouble to the degree that some do. My only point is that there will always be demand for more and more money; there will never be enough and we have to settle for what we can reasonably do.

Our infrastructure is in need of repair, but throwing money at it is no solution. Spending money wisely goes a long way. For example, the dam I take care of does not meet standards. It has an uncontrolled spillway, does not have enough height, and the backslope is too steep. The front slope could use a complete rebuild. It needs at least $100M to 'fix'. And if it fails, it would be disasterous to several communities. That is the facts. What is not ever mentioned by the doomsayers, is that the dam is in no danger because we take care of it. It does not meet compliance because the codes changed since 70 years ago when it was first built. I would love to see the money spent on it, but I also have to admit that it is not as high of a priority as required for funding.

Not all roads need rebuilding. In many cases, a grind and top is all that is needed. The big issue is timely maintenance. That is often the first thing the politicians kill to provide money for other wants. We are reaching a point when we will have to do a lot of re-building to replace infrastructure lost by lack of maintenance.

We also need to find ways to improve funding. Federal law prevents me from adding a small surcharge to utilities that would establish a fund for upgrades. I know that I will have to spend $XM for scheduled upgrades in the future. Adding $0.10/KGal to the price now would give me $6M to work with when it will be needed. However, the way the law requires now, when those projects come due, I will have to do a bond issue and charge a lot more to the customers, but also pay off on the bond. It also slows the processes down. If I have a major repair/replacement need arise, before I can do it, I have to get funding approved. This can take a long time, depending on how much of an emergency it is.

I have to believe that a lot of roads are better served by taking them away from governments. We do not like the idea of toll roads, but they are a viable option in many cases. Mile for mile, a toll road can cost a lot less than a state road to build. There is so much less money spent on federal reviews and documentation that it dramatically affects the budgeting without improving the construction standards.

I would like to see more road supervision privatized, it would be more cost effective than gov't control and maintenance.

Cost control is also key. Mass spends about 7X as much per mile than NH, and NH's roads are much better. Why is that??
MassPike authority (another duplicate gov't agency) has a huge operating budget, but they are taking a loan, Mass gov't co-signed, for $800MM due to budget short falls. Inefficiency that I prefer not to give more money to.

And that is just the roads, roads are cheap in relative terms. If you want to start talking bridges, tunnels, rails, etc, there are huge costs with those, and many people get very rich with those contracts. Put a private company in charge where their profits are on the line, and you'll see some things change.

Biggest problem I see, how do you enforce the upkeep? Selling certain main thorougfares will give that company a monopoly on a route. You have to pay to use it, but put up with whatever the conditions are. And as for gov't overseeing and demanding conditions be kept to an acceptable level, oversight never seems to be held up or followed through.