United States infrastructure challenge: 5 quick facts / by Federico Villalobos

The United States faces the challenge to upgrade and expand its transportation system (roads, bridges, ports, airports, railways, mass transit). The Trump Administration has promised a US$1 trillion investment plan. No details have been revealed as of July 2017.  In the meantime, lets review 5 quick facts about US infrastructure investment needs.  

1. Transportation infrastructure requires US$4 trillion in new investments during the next 25 years.

The Global Infrastructure Hub (GIH) recently published the Global Infrastructure Outlook which estimates the United States transportation infrastructure investment gap at US$3,709 billion (US$3.7 trillion) for the next 25 years. For the same period of time (2016-2040), the American Society of Civil Engineers (ASCE) projected a US$4,942 billion (US$4.9 trillion) investment gap.

To put in perspective, the recent Panama Canal expansion required a US$5 billion investment. The US infrastructure gap is almost 1,000 times greater.   

US infra gap

2. Roads & Bridges accounts for 80% of investment needs

According to GIH and ASCE surface transportation will require most of the new investments. Approximately US$8 out of each US$10 will be mainly invested on roads and bridges.

Roads & Bridges

3. State & Local money funds 77% of current investments (Federal 23%)

We are all focusing on what Washington is going to decide on infrastructure. However, almost 80% of current investments are funded with State and Local money. It does not mean that federal dollars are not important. Federal resources play a key role in the form of grants and enhancement instruments to support projects developed by state and local authorities.

Federal & State

4. Funding and Financing are different concepts

A lot is been said about bringing in private money through Public Private Partnerships (PPP). It is importante to mention that PPPs are an excellent way of transfering risks to private partners and promote efficiency gains.  

However, it is important to differenciate between funding and financing. Funding refers to the sources of income to repay for the project investments during its life: taxes, tolls, tariffs. Financing refers to money invested. Broadly speaking financiang could take the form of public debt, private debt or private equity. Therefore, private money is not "free money", funding will be needed to repay for it.

5. Average gasoline tax US$49.98 cpg (diesel US$55.98 cpg)

Fuel taxes are a traditional source of infrastructure funding. According to the American Petroleum Institute, gasoline taxes are on average US$49.98 cents per gallon (diesel US$55.98 cpg) across all the United States.  These numbers include the US$18.4 cpg (gasoline) and US$24.4 cpg (diesel) federal excise taxes, which fund the Highway Trust Fund. The federal taxes have not been adjusted since 1993. Given the backdrop and the significant investment requirements some States have increased charges on fuel consumption. Is the Federal Goverment going to do the same?

Gas Taxes

In addition to these facts, public authorities must realize that infrastructure is not a matter of 4 years. Adequate infrastructure planning and preparation requires a long term view.