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Research Questions

  1. Why is demand for better-maintained transportation and water infrastructure and new investment not being met under current policies, funding, and market conditions?
  2. What are efficient and equitable ways to identify and act on regional and national transportation and water infrastructure priorities?
  3. What strategies are likely to improve on current practice, and what policy changes, primarily at the federal level, could remedy some of the problems identified?

This report identifies the policies that promote and deter investment in and maintenance of U.S. transportation and water infrastructure. It focuses on status and trends in operations and maintenance (O&M) and capital spending by all levels of government; reviews current policy and practice; and recommends actions that the federal government could take to better align both policy and spending to public priorities.

The United States' transportation and water infrastructure needs are diverse, as are the reasons for maintenance backlogs and delays in rebuilding and modernization. Massive federal spending to repair or build anew may do some good by stimulating demand for construction services, but it will not fix what is broken in our approach to funding and financing public works — and not everything is broken. Underinvestment, to the extent it is occurring, varies widely by ownership, geography, and type of infrastructure. For example, while road and bridge conditions generally have improved overall since 2002, conditions on less-traveled roads have deteriorated. Lasting changes will require thoughtful consideration of targeted spending priorities, policy constraints, and regional differences.

The authors see no need for wholesale change in current roles and responsibilities among federal, state, and local governments. Policy changes at the federal level could drive public spending to high-priority regional-scale projects designed to deliver sustained national economic benefits. Changes in federal tax and fiscal policy could draw more private capital into financing public infrastructure, but direct private investment in transportation and water infrastructure is likely for only a limited class of profitable projects, and striking the appropriate balance between a larger role for the private sector and protecting taxpayers from financial risk has proven difficult in practice.

Key Findings

The Spending Picture Is Not Dire, but Serious Problems Exist

  • The data do not support a picture of precipitous decline in national spending on the physical condition of transportation and water infrastructure.
  • Where the local and regional economies are thriving, good governance is the rule, and revenue streams for sustainable operations and maintenance (O&M) are in place, infrastructure tends to be well maintained and modernized.
  • Elsewhere, problems persist that defy easy solutions. For example, the federal Highway Trust Fund and many of the state funds for drinking water and wastewater treatment plants have not been operating on a sustainable basis for some time now, and communities with declining tax bases struggle to maintain their roads, bridges, and water systems and repay their debts to bond holders.

The Federal Government's Role

  • State and local governments account for most expenditures on transportation and water infrastructure. The federal government could do a better job intervening in the gaps where state and local actions are less effective or beyond their capacities.
  • The federal government's strengths are in setting performance standards and requiring consistent evaluations of life-cycle costs and benefits; supporting states in their compliance and enforcement of environmental, health, and safety rules; incentivizing and encouraging multijurisdictional regional infrastructure plans; funding research on innovative technologies that could benefit all states; and targeting capital investment in projects with national benefits.
  • The federal government does not have an explicit set of priorities for direct investment in infrastructure projects of national significance.
  • National and regional infrastructure needs differ markedly from the decades past, when Congress first enacted many of the programs that still dominate the policy landscape.
  • An across-the-board ramp-up of federal spending is unlikely to solve the infrastructure problems that need fixing. Lasting changes will require thoughtful consideration of targeted spending priorities, policy constraints, and regional differences.

The Role of Private Capital Is Still at the Margins

  • Private investment in transportation and water infrastructure currently is less than 1 percent of total funding across all sources.
  • The federal government in recent years has taken a number of steps to lower transaction costs imposed by federal rules and sequential review processes, and to actively promote public-private partnerships on projects receiving some share of federal funding, but direct private investment in transportation and water infrastructure is likely for only a limited class of profitable projects.

Recommendations

  • Preserve the federal tax exemption on interest earned from municipal bonds for at least the next decade.
  • Reinstate Build America Bonds (BABs) with taxable interest for a ten-year period and experiment with other financing alternatives.
  • Target longer-term projects likely to produce significant national benefits.
  • Focus on capital investment, including major investments in renewal of aging infrastructure and new infrastructure incorporating advanced technologies.
  • Prioritize maintenance of federal assets, such as mission-critical military bases, dams, levees, locks, national parks, and other vital federal infrastructure.
  • Make resilience to natural disasters and adaptation to rising seas, increasing flood frequency, and other changing climate impacts a condition for spending.
  • Streamline the regulatory review process among multiple federal agencies.
  • Consolidate the U.S. Army Corps of Engineers and the U.S. Bureau of Reclamation into an integrated national water resource agency.
  • Fund competitive grants for research, development, and deployment of new technologies.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Status of and Trends in Spending on Transportation and Water Infrastructure

  • Chapter Three

    Infrastructure Funding and Finance Mechanisms Currently in Use in the United States

  • Chapter Four

    Federal Transportation Policy and Its Impact on Infrastructure Investment

  • Chapter Five

    Federal Water Policy and Its Impact on Infrastructure Investment

  • Chapter Six

    Policy Options

  • Chapter Seven

    Summary of Findings and Recommendations

This project is a RAND Venture. Funding was provided by gifts from RAND supporters and income from operations. The research was conducted by the Infrastructure Resilience and Environmental Policy Program within RAND Justice, Infrastructure, and Environment.

This report is part of the RAND Corporation research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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