Looking at Infrastructure Investments to Boost Economic Growth

Decades of focus on larger initiatives means missed broader economic development opportunities from transportation infrastructure investments.

The standard sales pitch for infrastructure investments is persuasive on its own: massive renewal efforts will create jobs that employ many people while improving safety, efficiency and services that improve life for residents. Infrastructure investments like energy, transport, communication, irrigation and water supply have proven that they propel economic output.

In an article written in 2012 for the Federal Reserve Bank, authors Sylvian Leduc and Daniel Wilson assessed the economic impact funding a new highway created for San Francisco:

"Federal highway grants to states appear to boost economic activity in the short and medium term. The short-term effects appear to be due largely to increases in aggregate demand. Medium-term effects apparently reflect the increased productive capacity brought by improved roads. Overall, each dollar of federal highway grants received by a state raises that state’s annual economic output by at least two dollars, a relatively large multiplier."

In Kansas City, Kan., there have been numerous examples of how transportation infrastructure has driven economic growth. Just look at the Village West development and the Burlington North Santa Fe Intermodal and Transportation Park , specifically. Both locations lacked viability and attractiveness before transportation infrastructure was built. Since newly implemented infrastructure investments have been introduced, each location has become a strong economic driver because of the effective infrastructure links.

Transportation links make parcels viable to developers, and when strategically planned, there can be trickle down effects that boost economic prosperity.

“When a developer is deciding between two otherwise identical parcels, it is the accessibility and availability of infrastructure that is the deciding factor. Additionally, moving people and goods efficiently and effectively is essential to the economy. People locate where they will have mobility and accessibility to the goods and services they desire,” said Howard Lubliner, Ph. D. P.E. , who leads the infrastructure team at SKW, about Kansas City’s infrastructure developments. Lubliner spent 16 years with the Kansas Department of Transportation first designing roads and then overseeing construction and management of them.

What are the Best Places for Infrastructure Investments?

Re-shifting focus to non-traditional regions as opposed to focusing on already thriving areas may be the out-of-the-box solution that spurs development in economically challenged regions.

Large cities will always be the heartbeat of economic growth and confidence and thereby attract more interest and infrastructure investments, leaving smaller cities and rural communities at a disadvantage. A New York Times opinion piece, A New Map for America by Parag Khanna, a senior public policy in Singapore and author of "Connectography: Mapping the Future of Global Civilization,” stated:

America is increasingly divided not between red states and blue states, but between connected hubs and disconnected backwaters.”

Infrastructure that bridges disconnected areas to economically strong population centers could improve the growth potential of those smaller cities and rural communities.

Citing China, Khanna described development as a force that is doing away with traditional city borders and instead creating “26 megacity clusters with populations of up to 100 million each, centered around major hubs like Beijing.” Over time these clusters, whose borders fluctuate based on population and economic growth, could become the areas that the central government allocates funding subsidies, that industry designs supply chains around and that social engineers connect to the world.

The missing link between the struggling smaller city and the resource-rich could be the economic potential that is unlocked by transportation infrastructure. By connecting more remote areas with larger cities, a regional network and its economic viability is expanded.

What are the Best Ways to Finance Infrastructure Projects?

The U.S. Conference of Mayors (USCM) is actively advocating for increased local decision making in transportation investments to the Trump administration, and how to package funding for infrastructure is part of the conversation.

Oklahoma City, Okla., Mayor Mick Cornett said at the USCM annual winter meeting in January, “We are going to need to help Washington understand that infrastructure cannot simply be paid for through private sector incentives. It’s going to take a broad package of investments to make it all happen.” He also stated that local governments are in a better position than state and regional bureaucracies to get infrastructure projects done wisely and efficiently.

Of vital importance to mayors and local governments to funding infrastructure are municipal bonds, which are currently exempt from Federal taxes, along with grants. On the transportation side, the $4.5 billion FAST Act, including the FASTLANE and Transportation Alternatives Program, are authorized through 2020 along with the Transportation Infrastructure Finance and Innovation Act. The Transportation Investment Generating Economic Recovery (TIGER) grants could also be continued. There are currently several federal funding opportunities communities can consider for a variety of infrastructure and community development projects.

Lubliner thinks that user costs are both the most appropriate way to fund infrastructure projects and they resonate most with the public because they are more understandable and transparent in the explicit value they provide. Example user costs that he refers to are instances like paying a few extra dollars in tolls to get to work 15 minutes faster. Users can see the value of paying the toll and what the cost directly buys them. But tolls are generally a tough sell, even when they promise to leverage millions in private investments, and in addition to potentially unhappy voters, groups like the American Trucking Associations lobby against them.

Philip Allan, economic policy analyst from the New School of Economics, believes the best way to fund infrastructure projects is through land value taxes, “As Henry George observed, the value of land increases disproportionately in relation to the infrastructure investment,” he said.

By taxing land value, as opposed to incomes or total property value, Allan told Gov1 the investments will more than pay for themselves.

Pursuing public-private partnerships (P3s) for funding is a trend that would presumably continue under Elaine Chao, Trump nominee for Transportation Secretary currently approved by the Senate Commerce Committee.

Kellogg School of Management at Northwestern University articulates some of the benefits of using the P3 model. P3s could provide access to large amounts of up-front capital. It could also help lead to faster construction and better maintenance. Some believe that private investors may keep a closer eye on their investments than the government, therefore will continue to protect their assets.

P3s require a dedicated payment source to repay the private sector's original investment, and that payment structure can take many forms under Moving Ahead for Progress in the 21st Century Act (MAP-21), the law governing surface transportation investments since 2012. The Build America Transportation Investment Center under the National Surface Transportation and Innovative Finance Bureau released a P3 handbook with information about procurement and incentives.

Another interesting fundraising tool is identifying smart technology investments related to infrastructure projects. In a report based on USCM's 2016 Smart Cities Survey that found more projects involving smart technologies happening outside of large cities, smaller locales have greater flexibility for testing innovations and can attract investment through that avenue. "Mid-sized and small cities that are looking for economic growth will be keen to attract investment by agreeing to become test-beds for new technology," according to the report. This seems to ring true for Columbus, Ohio, the winner of the 2016 U.S. Department of Transportation's $50 million Smart Cities challenge, and recent autonomous vehicles research and testing.

Andrea Fox and Megan Wells developed this report.

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