Looking for the Infrastructure in Biden’s Big Infrastructure Plan
Infrastructure matters a lot. And after years of appalling neglect, it is finally at the top of America’s agenda as the centerpiece of the Biden Administration’s ambitious new $2.25-trillion program, aimed at creating millions of jobs, accelerating growth of America’s clean energy industry, tackling climate change, and rectifying social equity imbalances. And that “infrastructure plan” – called the “Jobs Plan” – is just phase one of the two-part roll-out which is also going to include a yet-to-be announced second $1or 2-trillion “Family Plan”.
Now, as much as we are delighted to see the country’s infrastructure challenges being addressed, we have real concerns about the Biden plan that has been announced. Our problem isn’t with the need for an infrastructure plan, or even the need for the social, training, R&D and other policies outlined in this program. It’s that the “infrastructure” piece of it is largely missing-in-action. Biden and his team are arguing that the definition of “infrastructure” has changed, and that fact makes this blending of social and infrastructure programs “ok”. We respectfully disagree. We would argue that it is not ok precisely because we REALLY NEED a lot of (what we used to call) bricks and mortar infrastructure and those projects are short-changed in this plan, even though the headline investment looks huge. We need real steel and concrete in the ground across this country to repair, relocate, expand and update our dilapidated existing infrastructure. But we also need to imbed those old systems with the new technology that will transform them into smart highways and transit systems, including cameras, remote sensors, control systems, data gathering and synthesis capabilities, internet connections, driver-assist technology and devices to communicate with riders and drivers on delays, hazards and the like. Many infrastructure faculties will need to have imbedded into their structures advanced operational technologies such as self-healing materials, dangerous stress levels warnings, signaling devices for maintenance and equipment replacement and servicing requirements, self-maintenance tools, and various feedback signaling to improve operational efficiency and maintenance of the facility. The definitions of infrastructure will be expanded to include all these advanced operational systems as part of overall infrastructure systems.
And we need a lot of new infrastructure as well. We need new infrastructure that isn’t just a repair of outdated systems but is instead cutting edge new, efficient, high-speed transport, water systems, power grids and telecoms system. We should be talking about how we support development of autonomous vehicle networks, how we build the maglev and hyperloop “subway” systems of the future, what the future of drone deliveries and flying taxis will be. These are the big, audacious systems of the future. Unfortunately, though, that’s not what this bill delivers in its current form.
True, there is some money in there for what we’d normally call infrastructure – but it is not as much as you would think once you actually deconstruct the numbers. Parsing through the Biden proposal, you find that even including the big investment in new EV changing stations, only 40% of the identified funds cover what we would traditionally call “infrastructure”, while the rest goes to a host of other programs – but not highways, roads, bridges, tunnels, airports, waterways and the like. Here’s a very high-level breakdown:
Other areas for funding included in the Biden proposal center on additional incentives for businesses and manufacturing in disadvantaged and tribal communities, etc., but what we have listed above outlines the bulk of the proposed spending.
We take little issue with the numerous good programs that are under consideration in this plan. Our concern is that the headline heralding a $2.25-trillion “infrastructure plan” masks what’s really being spent on our crumbling physical infrastructure – which unfortunately gets short shrift. Annual estimates of the investment needed to repair our existing (real) infrastructure as well as upgrade it for the future have ranged from $400 to $700-billion annually, and yet the Biden bill allocates around $900-billion to be spent over 8 years, which is woefully below needed levels. It allocates a total of $165-billion for public transit, passenger and freight rail, to be spent over those 8 years, with most of that going to repairs of existing systems. By way of example, the struggling California high-speed rail project alone is estimated to cost $100-billion. Dams are hardly even mentioned in the plan, with ports and inland waterways allocated just $17-billion in the Biden proposal. Yet with the average age of U.S. dams, according to the American Society of Civil Engineers, reaching 56 years, the Army Corps of Engineers estimated that repairs needed to the dams under their jurisdiction would be $25-billion and repairs to all federal and non-federal dams would cost $64-billion. And these are just the repairs. Where’s the money for the new projects that we need to be competitive in the future? There’s a lot of talk in the proposal about leveraging the tax code and private industry – but there are some well-known problems with that approach. The biggest one is that getting the private sector to build high-risk green-field infrastructure projects – especially projects that have a public purpose that goes beyond a profit motive -- is really tough. Yet those are exactly the projects we need to build if we hope to reinvent our infrastructure for the 21st Century.
In addition to our thoughts about the need for more “steel and asphalt” investment, we have a few other really important “take-aways” from the Biden plan. So here goes. First – passage of this legislation may actually move quite quickly. The Administration and Democratic Congressional leaders say they want this passed by the summer and given the recent ruling by the Senate parliamentarian allowing passage of much of this using budget reconciliation, that might be possible. So, watch this closely and consider that it’s possible the bill that is finally signed could look much like what has already been outlined by the President. And consider what that means.
Second – it seems clear to us that this Administration has every intention of leveraging a “whole of government” approachto both selling this plan and then executing on it. This isn’t being promoted by the White House and one or two departments. Secretary of Treasury Yellen is already promoting the tax provisions. Secretary of Transportation Buttigieg is selling the jobs creation and the economic benefits that these transport system improvements would deliver. The plan leverages and involves the Departments of Energy, Labor, Health & Human Services, HUD, Commerce, the EPA and a host of existing Agencies and newly envisioned sub-agencies. Moreover, beyond just direct investment in projects and technologies, the President has made clear that he intends to leverage the buying-power of the federal government for fleet purchases of new EV and clean fuel vehicles, to promote development of new manufacturing capabilities, and for a “buy America” requirement that also targets disadvantaged communities. From that will come hiring requirements and a focus on diversity and jobs training associated with all these programs. Companies should be ready for all those requirements.
Third – this is clearly a major vehicle through which this Administration intends to implement its clean power and climate change ambitions and contains a host of elements that address these two critical issues. Roadways will be modernized to speed commerce but also to reduce greenhouse gas emissions. Enhancements to public transit will serve multiple objectives, but carbon emissions reduction is one major ambition. A major industrial development focus is the production of electric vehicles and their component parts, which will create clean-energy jobs as well as further the electrification and decarbonization of the transport fleet. Buildout of a coast-to-coast EV changing network serves this same goal. Two-million homes, commercial buildings and schools are targeted for modernization, with the goal of improved energy efficiency as well as climate resiliency. The infrastructure plan intends to “safeguard critical infrastructure and services and defend vulnerable communities” subject to flooding and other climate related events – including resilience for electrical grids, food services, urban infrastructure and other essential services, leveraging funding from FEMA, HUD, the Department of Transportation and other programs. And these proposals should be viewed in light of the Executive Order President Biden signed on January 27, 2021 (Tackling the Climate Crisis at Home and Abroad), which laid out the Administration’s intentions regarding climate change including:
Placing it at the center of the United States’ foreign policy and national security
Making climate change a “government wide” effort involving all departments
property management and real assets
Mandating government entities to undertake a broad restructuring of leasing programs, royalty programs and the elimination of subsidies for fossil fuels
Developing analytical frameworks for understanding and reporting the emissions and climate impacts of projects
Making “tackling the climate crisis” a key avenue through which workers are empowered, retrained and redeployed in the workforce and communities revitalized
And making “environmental justice” a key part of this whole transition
Sound familiar? It should -- since all those points made their way straight into this new infrastructure plan.
There are two other very important points -- we’ll call then points four and five – and I’ll lay them out together because they are the “deal killers” in infrastructure that we never seem to solve, and this plan doesn’t yet tackle. They are the time required for regulatory approval and the aforementioned lack of funding available for greenfield infrastructure projects. As someone recently said, “there is no such thing as a shovel-ready project”, at least not when it comes to these big government programs. Most everything that this plan outlines will take time. Investments in R&D and jobs training and the like can move forward pretty quickly, and some roads can be patched, and a lot of EV changing stations can be built, but new roadways, ports, airports, rail systems, bridges, industrial plants, transmission lines and the like all face planning, permitting, environmental and community reviews, potential legal challenges, procurement protocols and a host of regulatory requirements that add years or even decades to the project execution process. And that adds tremendous cost, uncertainty and delay – impeding realization of project benefits.
The President has an ambitious program to transform the economy – but anyone who has ever developed a major infrastructure project knows exactly why authoritarian China can build major high-speed lines across swaths of their country while the U.S. hadn’t completed a new system in a decade. The White House has said that “…the President’s plan will use smart, coordinated infrastructure permitting” to expedite these programs, but we need to understand what that means in practice. Smart policy needs to address this major hurdle for transport systems, for new energy systems, and for the electrical grid transmission hardening and expansion that is central to this effort. We don’t have decades to waste in this effort. These permitting delays are a huge problem that can’t be swept aside.
As for funding concerns, there’s a huge dilemma -- which we discussed recently in our “Vision” blog on infrastructure funding. The President’s plan provides for almost $1-trillion in “traditional” infrastructure investment from the federal government over 8 years, but that is still well short of what some observers have estimated will be needed to revitalize and re-invest in American industry and infrastructure. Possibly the gap will be less than feared, but the point is that regardless of its dollar size, discussions of how to fund the gap typically reference the “flood” of private capital looking for investments. We think this assumption misses an important point. Private capital doesn’t like risky greenfield projects. Private capital likes significantly de-risked projects, sometimes brownfield developments, but mostly existing operating assets with established revenue streams. Private capital largely loathes development risk. So, if private capital is going to be used, policy makers need to figure out how to de-risk these big new infrastructure projects to attract that capital. That might be through government guarantees and the like, but that is a tough area that will require some very smart thinking and will involve tradeoffs. The Biden plan identifies a lot of investment areas, like R&D, job training and small-business funding that can move forward fairly smoothly, but when we talk about big greenfield infrastructure – the transformational projects that reshape society but aren’t purely profit-driven – then we need to consider the long-standing hesitance of private capital to fund these types of programs, and find a way for the federal government to step in. We don’t see that addressed in this bill.
And finally – there is the “benefits” conundrum. In a 2018 article in “Brookings”, author Aaron Klein wrote about the politics of infrastructure investment “credit” and how misperceptions of where infrastructure benefits accrue skews thinking about where investments get made and credited. An example is the cattle farmer in Montana who is the long-term beneficiary of the improved efficiencies of the port and rail facilities he’ll use in Seattle to export products to Asia. However, when the Seattle port and rail-lines are initially built they largely produce jobs in Seattle and Uncle Sam’s checks go to Seattle where local politicians claim credit for the resulting construction jobs. This “benefits” conundrum in national infrastructure development is likely to be made all the more complicated as lawmakers have moved to reinstate “earmarks”, thereby allowing them to claim credit for key investments serving their specific constituents. So as the Biden plan stresses, most appropriately, its intention to equitably distribute benefits to underserved communities, and politicians worry about near-term investments and jobs in their own districts, we should keep this conundrum in mind and recall the frequent disconnect between long-term versus short term benefits associated with infrastructure.
This is a huge lift that the Biden Administration is proposing, and a version of it is long overdue. Given the Senate ruling which appears to green light the use of the budget reconciliation process for passage of this bill, the chances for actually implementing an infrastructure program are far higher than they were a few weeks ago. But we fear that this is also a bill that, while ambitious, risks not accomplishing the #1 goal of an infrastructure bill – which should be to get the country’s real “infrastructure of tomorrow” built and operating. We need efficient railways, roads, port systems, airports, multimodal interconnects, power grids, and ubiquitous broadband networks. We also need to clean the environment and must address social and development inequities, invest in R&D and provide social services that make us all more efficient. But we shouldn’t delude ourselves about what this plan does and does not do to address our “real” infrastructure needs. We think much more is needed there, both in terms of actual dollars, and with regard to de-risking and speeding project delivery.