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Show Me The Money - Preamble

There are two looming factors that should result in huge amounts of infrastructure spending in the US and globally in the coming decade. In the US particularly there is the need to build infrastructure to repair, replace and reimagine our current crumbling systems. And worldwide, as well as in the US, there is the urgent need to build new, innovative infrastructure as well as climate-adaptive infrastructure to deal with the already-occurring consequences of climate change and to mitigate further future damage.


The fact that infrastructure spending is also thought of as an immediate employment stimulus is somewhat a red-herring – as discussed in our “Why Rush Now?” blog – since the lead-time for thoughtful and appropriate new infrastructure programs, of the sort we are considering here, is most often on the long side and does not provide the more immediate jobs and economic stimulus imagined by some. But certainly, longer term, such spending can lead to enormous down-the-road employment opportunities. Infrastructure spending is absolutely critical for both US and global growth, efficiency, and economic vitality -- and longer-term will create jobs around equipment manufacturing, construction and maintenance, as well as enhance economic productivity. It is just not the answer to significantly reduce unemployment immediately.


Yet here we are on the cusp of another US Presidential election with both political parties again talking about trillion-dollar infrastructure programs, after (another) almost four years of promises leading nowhere. What always gets in the way of these vitally needed investments? There are a host of well-known answers to that question, ranging from failure to agree on project specifics, confusion around future technology direction, debate around revitalizing vs. replacing legacy systems, environmental concerns, permitting challenges, vested stakeholder interests and conflicts, political “pork”, national and local worries about excessive debt and the like. And what is not said often but is also of paramount importance is how and for what purpose should we build a project -- and this requires careful thinking about the future and the transformational changes about to occur in so many sectors bearing on infrastructure. But extremely high on the list of issues impacting the pace of infrastructure development is the question of “who pays”.


There is no fixed definition of “infrastructure” so aggregate statistics around who funds infrastructure can be confusing. Generally, however, the major components of infrastructure as we use the term include surface transportation, aviation, railway systems, marine ports, power plant and electrical grid systems, industrial and manufacturing facilities, walls, clean water and sewer systems, buildings, sports and recreational facilities, mines, and telecommunications/broadband networks and supporting software and control systems. An even broader definition includes schools, hospitals, government buildings, and residential buildings. Some definitions exclude the huge category of military assets, which we have not included here.


Funding for all this adds additional complexity, as the funding approaches for the various types of infrastructure differ throughout the world, and in many countries state-sponsored infrastructure projects dominate, adding even more complexity to the picture. That has been even more dramatically skewed of late by China’s Belt and Road Initiative (BRI) sponsored projects across Central China, South America, Indo-Asia and Africa.


First, we will concentrate on infrastructure needs and funding in the US and here there is an important reality that gets lost in much of the public debate and politics around big national infrastructure plans. That reality is that the vast majority of investment in infrastructure in the US does not come from federal programs or sources, but rather from a combination of state and local government funding, and substantially from private investment capital. Based on US Bureau of Economic Analysis (BEA) data, a 2017 Cato Institute report on “Who Owns U.S. Infrastructure” pointed out that private sector, state and local governments own most of the US non-defense infrastructure. In fact, infrastructure ownership by state and local governments is almost 7 times larger than federal (non-defense) assets, while private sector infrastructure ownership is 3.5 times the size of all types of government-owned assets combined.



The Cato Institute analysis also broke down ownership of government infrastructure by asset type and, looking at only narrower categories of infrastructure, showed an even more dramatic contrast between state/local and federal ownership, with federal assets representing less than 2% of the “government owned” total by this narrower definition.


Infrastructure in the US has historically been financed by local governments through municipal bond issuance or other low interest loans. National policies could and still can surely influence both local and private investment via such things as mandates, changes in environmental policy, tax subsidies and other policies, but clearly the bulk of the money for infrastructure programs in this country flows from state and local sources and private sector investment. And that was before the global pandemic, collapsing state and city tax collections (a recent NPR report listed 34 stated that have already experienced “at least a 20% drop in revenue” vs. the prior year period) and the press of other funding requirements that have all decimated local government budgets.


According to Congressional Budget Office figures quoted in a 2017 Deloitte study, the US spends approximately $400-billion each year on public infrastructure, but even that large figure is inadequate for the repair, maintenance and upgrade of our deteriorating assets. How inadequate? The Global Infrastructure Outlook (a G20 initiative report) estimates that US public infrastructure spending requirements for each year (between now and 2037) will be about $100 - $150-billion more than what is currently budgeted/forecast.


What does this mean as we look at huge, daunting investment requirements for new infrastructure that reimagines our existing systems and prepares for the impact of climate change? It means that even more creative approaches to infrastructure funding will be required, and it means a lot more private sector finance and ownership of assets. In some considerable sense, infrastructure competes for funding in capital markets that are global. Further, and most importantly, the global markets in infrastructure and related businesses and activates is enormous. These needs offer enormous potentials for US companies, and finding the money to help finance that as well as serving the US markets is critical to understand in addition to satisfying the US infrastructure needs.


It is apparent then, in talking about the sources of money or funding for projects we have much ground to cover particularly considering the vagaries and differences between public and private projects and funding sources, the unique attributes of long-lived infrastructure assets, the various pools of money each try to attract as well as the international dimensions of all that. To that end, we plan to cover this topic more fully in future Musings. We will start by considering US public projects, federal, state and local, and then move on to privately owned projects both in the US and internationally in sections to come, as well as the public international infrastructure markets. What a time to be in infrastructure!


[1] Excludes military assets.

[2] Excludes military assets.

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