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.

D,

You should do a little digging on what is happening in Illinois with infastructure. Our State government is about to throw away billions that were allocated to the state for instructure improvements because of a little family tussle. Somewhat off topic and I apologize, but interesting none the less.

I do agree that our infastructure is crumbling, however I don't think that prvitizing will solve it. It is always a catch up game, just when you get everything up and running, you have to start over, because of population booms where it wasn't expected. It will always need to be done again and it will always be more expensive. Can they keep up, I guess is my question.

When we needed a better way to get from the Inland Empire to Orange County, a private company came in and built what is now called The Toll Roads a series of 4-6 lane roadway that connects to most of the major work centers in Irvine, Tustin, and South County.
In all honesty, I don't know how much public funding was involved, if any, and I don't know what the source of their funds were (ie, pension funds, etc). But it has helped out immensely, and they are privately maintained, to the best of my knowledge.

Well, straight from the website:

Two of the major highways through/around Kansas City have been under construction, nearly non-stop, since the early '60's. They knew exactly where the population was going to go for the most part (although they completely blew their prediction as it pertains to KCI) and have under-built both highways - repeatedly - ever since.

This is OT but somewhat related.

******************************************
"Police to receive new radios

By CHRISTINE VENDEL

The Kansas City Star

Kansas City police board members Tuesday approved spending $4.2
million of public safety sales tax money to buy new police radios.

The project was not originally part of the sales tax increase package that voters approved in 2002. Proceeds originally were earmarked for 10 police projects, nine of which involved building and renovating police facilities. The other was a shared computer dispatch system for city police, fire and emergency management agencies.

But police said Tuesday that the tax had brought in more money than anticipated and that they had no other way to pay for the much-needed radios. Deputy Chief Cy Ritter said city lawyers approved using sales tax proceeds since the radios "are considered infrastructure and are necessary."

******************************************

It's always funny how new projects become "necessary" when there's more tax revenue than expected. The voters approved taxes to pay for a number of very specific projects. If more money comes in than what was needed for those, why isn't there any discussion of reducing the tax? For those who believe no tax is too much, this is a perfect example of why not everyone agrees. This kind of thing happens all too often.

Usually, it is a combination of not on my watch and finance that makes it hard to do things ahead of necessity. Tulsa knew decades ago that they would have to expand certain area thoroughfares. They were not willing to spend the money early on because it would require eliminating funding for other projects, it would prevent developers from creating homes that bring in tax revenue, and it would be a potential election third rail. That is the political process affecting a lot of utilities.

An extreme example is lost bridge on Grand Lake. Before the lake was designed, a county commissioner wanted a connecting road to eliminate a problem with access to an area blocked by two rivers/streams. He decided to build the bridge and then get the funding for the road work. In the next election, he was defeated by an opponent who made a big production of a bridge that went nowhere. Naturally, his opponent did not complete the project and then the building of the lake, sealed its fate. Now it is a landmark on the lake. The bridge that has never been driven on in its entire 80 years.

Nation's bridges, roads still 'structurally deficient'

Group: Repairs would cost nearly $10 billion every year for the next 20 years
Transportation secretary: Federal approach to transportation is broken


By Randi Kaye and Katherine Wojtecki
CNN
MINNEAPOLIS, Minnesota (CNN) -- Mercedes Gorden remembers August 1, 2007, like it was yesterday.

"I remember everything. I remember it being sunny and hot. I had my window down," Gorden said. "The next thing I knew, the concrete started to wave in front of me."

It was a normal day. Or so she thought. She was driving home from work on the Interstate 35 West bridge that spans the Mississippi River when it started to buckle and collapse during the evening rush-hour traffic.

"The bridge pulled apart in front of me ... and I went sliding," Gorden said.

Without warning, cars careened into the Mississippi River below and Gorden's Ford Escort plummeted about 60 feet down into the river bank.

"I said I will not die on that bridge. I am not going to die today," Gorden, 31, said. "This is not the way I am going to go."

She was trapped for more than an hour and rescue workers had to cut her out of the car. All of the bones in her legs were shattered and her spine was fractured. Nine surgeries and countless hours of physical therapy later, she knows it could have been worse. Thirteen people died that day and 100 others were injured.

One year after the tragedy, many Minnesotans and commuters around the country wonder if their bridges and highways are safe. Watch: Are U.S. roads and bridges safe? »

The answer is: Maybe.

Across the United States, there are about 600,000 bridges. The Federal Highway Administration reported in 2006 that one quarter of the nation's bridges were at risk. The American Society for Civil Engineers said in 2006 that it would cost nearly $10 billion every year for the next two decades to fix them.

But the funds used to repair and maintain the country's bridges and highways are drying up. Some of the money comes from the Highway Trust Fund, which Americans pay for through taxes on gasoline. Faced with higher gas prices, more commuters are carpooling, taking mass transit or driving less, about 4 percent less in May alone compared with a year ago. Interactive: Check troubled bridges in your state »

The federal Department of Transportation predicted taxes will fall far short of what's needed for improvement projects -- leaving many projects delayed or even canceled.

Ryan Toohey, a lead strategist with America Moving Forward, a group that lobbies for private investment to fix the nation's infrastructure problems, said nearly every state is facing a budget crisis and doesn't have the money to solve problems.

"When I hear that many states have close to a majority of their bridges deemed obsolete or structurally deficient, that scares me and I think that finding ways to help remedy those problems that simultaneously relieve states of the burden financially is very, very important and should be a welcome trend in the United States," Toohey said.

The Bush administration projected that at some point in the next fiscal year, after October 1, 2008, the highway account will hit zero, down from $8 billion at the start of the fiscal year. Payments for repairs can't be made if the money isn't there.

U.S. Transportation Secretary Mary Peters said, "Without a doubt, our federal approach to transportation is broken" and "it is time for a new, a different and a better approach."

Peters said one short-term solution may be for the Highway Trust Fund to borrow from the Mass Transit Fund. But she said it wouldn't be easy to get congressional approval. The House has passed a resolution to inject $8 billion into the Trust Fund, but even if the Senate passed it, President Bush has threatened to veto the measure.

Some states, such as Minnesota, are trying to get creative in raising money for road projects.

"We are looking at mileage-based revenue structures where people could be taxed based on the miles they travel. We are looking at private sector investments," said Minnesota's Transportation Commissioner Tom Sorel. The Minnesota legislature has passed a package of tax increases to raise $6.6 billion to improve the states' roads and bridges.

Even after the Minneapolis bridge collapse, not all the bridges in the state are structurally safe. In fact, on July 26, chunks of concrete weighing about 1,200 pounds fell from an overpass in St. Paul, just a few miles from the Minneapolis scene.

CNN has learned that bridge was rated "structurally deficient" 23 years ago, in 1985, and the Minnesota Department of Transportation confirmed it was rated "structurally deficient" again in 2007, just days after the Minneapolis bridge collapsed.

Still, the state said it was safe to drive on. Nobody was hurt in the St. Paul bridge incident, but critics like Rep. Jim Oberstar, a Democrat from Minnesota, are demanding action.

"You would have thought the state learned its lesson and done a better job of inspecting the bridges and overpasses, yet this was one they failed to accurately assess ... It was like a meteor falling to the ground," said Oberstar, who is chairman of the House Transportation and Infrastructure Committee.

Sorel said bridges now are supposed to be shut immediately if there is any risk. His department has inspected 1 in 5 of the more than 20,000 bridges across the state and closed at least six. The state also said it has spent $390 million on repairing and replacing its bridges since 2003.

Is that enough?

Not for victims like Gorden, who drives by the site of the collapse every week on her way to physical therapy. She wonders how sales taxes can be found to subsidize a new baseball stadium in Minneapolis -- but not for bridges.

"I say how did we get money for stadiums? How did we get money for all these new stadiums we're building?" Gorden said. "What's more important: baseball or safe traveling? Should we all be afraid every time we cross a bridge now?"

All rhetoric aside, the problem is that we have a need that is financed by a source that is not working. The revenue from gasoline taxes is not growing at a pace to keep up with demand. And with the high price of gasoline, we are drving less and using vehicles that consume less. What is ridiculous is that the actual tax on gasoline is a declining tax. By that, I mean we are probably paying the same tax as when I was a kid and could buy gasoline for $0.25/gallon. If they had priced it per price instead of per gallon, we would be paying a lot more for gasoline, but the revenue would keep up with inflation.

Maybe the solution is to charge every illegal alien a $100 fee per crossing.

Imagine the outcry from the right about THOSE taxes. I agree, that is how it should have been set up....it would have pushed energy efficiency instead of rolling chucks of mass through the critical years were everyone just sat on their butts. Coulda, shoulda, woulda. Didn't happen, so what do you do now?

I got a brilliant idea. Take OUR money that is being spent IN Iraq for the benefit of OTHERS and instead invested in OUR future, OUR infrastructure!

Oh I forgot, we can't use national security fear mongering with that approach. Dam.