There's no free ride on infrastructure
"You can pay me now or you can pay me later." That saying from an old commercial implied you either do basic maintenance now or you will pay dearly for major repairs in the future. When it comes to the nation's infrastructure, it appears the public and, following their lead, our elected leaders, would rather pay for it later. That strategy must change.
When economists talk about infrastructure, we refer to those critical parts of the nation's economy that allow goods and services to flow freely. As Merriam-Webster so accurately defines it: "The basic equipment and structures (such as roads and bridges) that are needed for a country, region, or organization to function properly." Unfortunately, our infrastructure is deteriorating rapidly.
Simply consider the recent news. In New York City, a 110-year-old gas main leaks and the explosion levels two buildings. Philadelphia has a similarly aged system and gas leaks have been reported across the city. There was a major sewer main break in Valley Forge. There are bridges shut down all over the region. And that is just the local story.
Nationally, the Report Card for America's Infrastructure, a quadrennial study produced by the American Society of Civil Engineers (ASCE), details the issues facing our key facilities. The 2013 overall grade of D+ was distressing but not surprising. Our transportation system is hurting. We are spending only just over half of what we need to deal with our deficient bridges. As for the roads, the ASCE estimates that urban congestion costs the economy $101 billion annually in wasted time and fuel. Every driver knows we are already paying for it now.
If you thought our transportation infrastructure is in bad shape, the issues facing water and environmental resources are worse. There are roughly 240,000 water main breaks each year. The American Water Works Association estimates that "the cost over the coming decades could reach more than $1 trillion." The ASCE noted that "capital investment needs for the nation's wastewater and storm water systems [could] total $298 billion over the next 20 years."
Basically, our aging backbone is falling apart. Unfortunately, repairing and building new infrastructure are extremely expensive, meaning we must raise significantly more revenue - either by taxing or borrowing. And right now, doing either is the political equivalent of committing a felony.
Take Pennsylvania - please. The contortions the state politicians went through to pass a transportation bill in order not to "raise consumer taxes," would have made a pretzel-maker jealous. Fees were increased on wholesalers so any price increase could be blamed on the private sector. Brilliant. Was this the best way to fund our transportation needs? Must I really answer that?
Worse, Pennsylvania is failing to take advantage of a major asset, Marcellus shale. In 2012, Pennsylvania was the third-largest producer of natural gas. But, unlike everyone else, the state does not have an extraction tax. Pennsylvania's natural gas impact fee was created so politicians could make believe they didn't tax the industry. Was this the best way to raise money? Must I really answer that?
Pennsylvania can become one of the lowest energy-cost locations in the nation, but it has done little to plan for or help fund the infrastructure needed to effectively employ the resource. To expand commercial and household usage, pipelines, fueling stations, and distribution centers need to be built. But that requires money, and money has to come from somewhere and in this political environment, new revenue is a no-no.
Similarly, New Jersey's Trust Funds are woefully underfunded. To replenish them, more money is needed, but the state hasn't increased the gasoline tax in 25 years. Is it any surprise the ASCE estimated that the state's deteriorated roadways costs every driver $600 a year? Yet few politicians are willing to raise the gasoline tax to fund the needed transportation improvements.
Most of us are sick of being taxed and taxed some more. Interestingly, though, you don't hear voters calling for politicians' scalps if market forces drive gasoline prices up 50 cents. But a legislator who suggests increasing the gasoline tax a few pennies is likely to be toast.
We have to start paying the costs of maintaining and expanding our transportation, energy, and communications networks or our economy will become less competitive in this global economy. Other countries are busy creating 21st-century facilities. If we don't, we and our children and our children's children's children will pay even more dearly.
Joel Naroff is president and chief economist of Naroff Economic Advisors Inc., of Holland, Bucks County.