The fiction of federally funded infrastructure

Members of Congress are used to logrolling each other to move as many projects from their district’s wish list onto a joint list of projects that can garner 218 votes in the House and 51 votes in the Senate. Old habits die hard — even after long experience that federal earmarking produces far less than optimal results.

When Congress talks infrastructure, there is an albatross in the room — federal grant funding. Earmarks make good news today. But, tomorrow’s taxpayers own the albatross — 10 times the earmark.

One fundamental misunderstanding is the source of the problem. Commentators wrongly describe Congress’ role in financing and delivering infrastructure owned and managed by state and local governments. For example, in January, Fox News’ Chris Wallace asked how the administration could expect that a traditional 80 percent federal — 20 percent state funding split could possibly be flipped to 20 percent federal — 80 percent state split.

{mosads}The “traditional” 80 percent — 20 percent federal/state funding split to which he alludes is nothing but fiction. The mechanisms by which infrastructure is designed, built, funded, operated, and maintained to obsolescence are complex. The media doesn’t understand them.

From where does the fiction of an 80 percent- 20 percent federal/state funding split come? Prior federal grant programs make grantees responsible for paying to operate and maintain facilities that receive grants. Ninety percent of life cycle costs are incurred during operations, after initial design and construction. Federal grants to state and local governments relate only to the other 10 percent — the cost of initial design and construction.

Federal grants fund only the design and construction of new infrastructure. The 1916 U.S. Highway program, the 1956 Interstate Highway program, and the 1972 EPA wastewater treatment program did not fund operations and maintenance. That responsibility – 90 percent of total cost — is left, by federal statute, to state and local grantees.

For every $1 spent on a facility’s design, at least $10 is spent on initial construction, and at least $100 is then spent on operations and maintenance over that facility’s life.

Yes, Congress funded 80 percent of the initial cost of the Interstates and 3,000 wastewater treatment plants. But, this was only for design and construction — 80 percent of the first $11 spent by a grantee — or $8.80. The next $100 was not funded by grants. The actual federal-state split is 8 percent — 92 percent. For each $8 in federal grant, state and local governments took responsibility for $92 in life-cycle cost.

Wallace’s 80 percent – 20 percent” split is off by a factor of 10. Federal grant programs have funded 8 percent (or less) of life cycle costs. While innocent, this is a profound error.

Earmarking state and local projects in Congress encourages senators and members to put a $100 obligation on future officials and taxpayers in their home states and districts in exchange for a politically expedient, but small, grant of $8-$9 today.

The condition of today’s infrastructure shows federal grant policy for the albatross it has become. A federal policy that assumes 90 percent of total costs do not exist has not ended well. The results are plain.

Different ideas about the long-term role of the federal government in state-owned infrastructure are necessary. The administration’s plans, including its Legislative Outline for Rebuilding Infrastructure in America, may have metaphorical potholes, as Wallace suggested. But, federal grant policy has produced decades of actual potholes.

The irony, of course, is that the administration is proposing an increase in federal grant support (from 8 percent) to 20 percent of life cycle cost — more money — for projects that attract binding private sector or state and local funding commitments — commitments that cover operations. This is a sea change in logic that would lower life cycle costs.

The administration proposes at-risk, private sector involvement against contract requirements that raise levels of service within time and budget constraints. There isn’t a taxpayer in America opposed to actual accountability in infrastructure services.

By pretending to be the traffic cop for all things infrastructure, Congress has pushed away new ideas, contributors, and investment. Federal grants displace at risk, private sector investment — to the detriment of the nation. Congress should at least discuss a return to the dual track strategy of public and private sector infrastructure delivery that built America’s basic infrastructure platform.

That dual track allowed life cycle competition on cost and quality, encouraged new technologies at private risk, and allowed Congress to protect the federal purse by picking its spots — with federal interests in mind.

During this period, American GDP grew at 16 times the rate of Europe. If Congress doesn’t displace the private sector with federal grant programs, the dual track strategy attracts private investment. Two-thirds of our infrastructure holdings are in the private sector. The internet and wireless are recent examples.

Congress’ tactic of “earmarks or nothing” has failed.

Only Congress can open this dead end — to different, better ideas.

John Brown Miller, Ph.D., was previously a professor of civil engineering at MIT, chairman of the American Bar Association Section of Public Contract Law and is an expert on infrastructure procurement.