If there’s one thing most Americans agree on, it’s that our national infrastructure blows.
But we never do anything about it.
Why not? Who’s to blame? And how can we finally fix it?
In the meantime, Professor Kanter stopped by the other day and explained everything. Our conversation follows. Here are the key points:
- America’s lousy infrastructure is hurting our economy and all Americans. Unless we want growth to stagnate, we need to fix it.
- Lots of people are to blame: Washington politicians, local politicians, Americans who elect those politicians, a collective delusion that American exceptionalism means we don’t have to invest in anything, a system that places lots of power in the hands of states that have little incentive to cooperate with one another.
- The GOP fantasy that everything can be privatised is nuts. You can’t privatize airports, roads, bridges, and rail lines. We can’t leave everything to the states, either. Infrastructure crosses state lines.
- The Democrats also eagerly kill smart things like gas taxes — so it’s not like they can escape blame. Both parties are to blame. And so are we, for not demanding better.
- We need taxes to pay for our infrastructure, but they don’t have to be income taxes. We can use sales taxes, tourism taxes, and usage taxes.
- We need to “market” our infrastructure investments better. “Infrastructure” sounds boring and unsexy. We need to wrap an inspiring vision around the rebuilding of our infrastructure — around the country we want to be.
- Government can’t do everything. We need private-public partnerships. We also need entrepreneurs and technology.
Henry Blodget: If there’s one thing that pretty much every American would agree on, it’s that our infrastructure is terrible. You have spent a long time compiling statistics on how terrible and embarrassing it is. Can you share some?
Professor Kanter: All right. About a week a year is lost by the average American each year in traffic, just sitting in traffic. A quarter of all bridges in America are considered structurally deficient or functionally obsolete, which means they could fall down and kill people as a bridge did in Minnesota a few years ago. We don’t have high speed rail even when we could have it in the Northeast corridor. Our trains are running on tracks that are shared or there’s electric wiring that’s a hundred years old. It’s ageing, it’s deteriorating and it isn’t as good as that of other countries.
HB: To anyone who travels internationally, or even people who travel inside the United States to cities that have actually built a new airport in the last ten or twenty years, it’s just a national embarrassment. Why is the United States now effectively a third world country?
Prof. Kanter: Airports are an interesting example because they’re all controlled locally and some of them, including in New York City, LaGuardia, is considered a real disaster. When people land from other countries at Kennedy airport in New York, they think that they’re not in a first world country at all. Why? This under-investment, it’s how we pay for things, in part, and people don’t want to pay taxes. We’ve had an anti-tax backlash in recent years even for things that are shared goods that no one’s going to do any other way. We’ve tried to find private operators who want to take over airports, and they’re very hard to sell, we can’t get bidders. Because there isn’t enough money to be made so instead passenger taxes pay for them.
One way or another, this is all about taxes, but it also is about an image of the country that we’re the best, and we’re an exception, and we’re the country that everybody else looks up to. You can get complacent and become so self-satisfied that you think you don’t have to invest again. And a lot of our infrastructure investments were made a while ago, after World War II.
Blodget: Talk about what was different after World War II. Then, a president, I believe a Republican president could say, “You know what? It’s time we had a great highway system.” And suddenly we untold amounts of money building our Interstate system. Presumably even then people didn’t love taxes. What was different?
Prof. Kanter: What was different after the war? First of all, a tremendous amount of pride in winning the war, a change in residential patterns, people started moving to the suburbs. And President Eisenhower, who had been a general, felt the U.S. was vulnerable, so we built those highways under a defence label, a defence umbrella. It was the national defence highways and he wanted to be able to not only move around the country faster but to be able to evacuate cities. Of course that’s a real joke as all the people who tried to get out of New Orleans after Hurricane Katrina know, you don’t evacuate cities by everyone piling into cars. But that was the rationale.
We also had a burgeoning auto industry. That industry had grown stronger and stronger and that industry had a real stake in highways over other forms of transportation. We also had what used to be called the Military Industrial Complex.
With a defense rationale and strong industry, he could get the funding to start this venture. There’s still a lot of money in the federal government. A lot of it got spent for other purposes, military purposes in the 2000’s. Because after all we ended up with a surplus after the Clinton administration and now a big budget deficit because of spending on wars in the Middle East. So much of America has been driven by who we’re at war with or not.
Blodget: One of the points you make in your book is that, yes, a lot of the blame should be laid on Washington, and I want to talk about Washington in a minute. You also point out that the word “infrastructure” isn’t particularly exciting, nobody wants to get behind “infrastructure,” and you just said that Eisenhower actually sold the construction of our amazing Interstate system as a defence project. Is there hope for us if some of the folks who actually want to rebuild America sell it as some sort of defence initiative or military initiative? Is it marketing? Can we more effectively market it to ourselves?
Prof. Kanter: Well, I think we can effectively market just about anything with the right kind of vision and story, but we’ve been telling a defence story for a long time and we don’t have another story. We should have an economic growth story — we’re going to stagnate without this. Other countries, many of which by the way lost World War II and therefore, had to start from scratch, now have more modern systems than we do in the United States. We have to think of it as an economic competitiveness issue. And the need is really urgent because the highway trust fund might run out of money in a month.
We will have a question of whether we’re going to have the money to repair projects that are already underway. Imagine all those repair vehicles just sit there because there’s no funding. We have a larger population, as the population grows we want to put people to work, we want to know where the jobs are going to come from and investing in having infrastructure that works helps everybody. First of all, even forget about whether we have a big vision of growth, we have to get people to work. If they’re losing time because they’re stuck in traffic, if they can’t get from place to place, it’s too frustrating, they’re not going to want to be in America or American cities. Businesses aren’t going to want to locate here.
We also have huge inequality and social justice problem in America where the rich are getting richer and we seem to have more poor people accumulating and losing the middle class. Well, the poor don’t have access to public transportation in many cities, they often can’t afford a car. If we want to have better quality of life for everyone, lower crime rates, we need to do something about the problems that hold back some people in America. Even without a social justice rationale, without values, it still makes sense for absolutely everybody. Everybody depends on this, everybody.
Blodget: Let’s get into, then, this question of why it is not happening. Is it just me or is the reality that the Republican party is the party that always seems to be against any sort of government spending. Is it the Republicans’ fault?
Prof. Kanter: I would say that there may be more people of that persuasion who are against infrastructure spending or the taxes that might pay for it, but there are several reasons for that. I don’t want to get too partisan because my home state of Massachusetts, which is pretty Democratic, the Democratic legislature turned down a rise in the gas tax to pay for public transportation because they were concerned that that would hit poor people harder than rich people. Many of the red states are states that don’t depend on railroads or mass transit. They’re states that were built on automobiles and people drive long distances. I would say on all sides of the debate we can fault the fact that there are partisan battles in Congress and an inability to get anything done. I think that’s the problem, that people don’t agree, but this is something we should all agree on because bridges that are about to fall down don’t care whether they’re in a red state or a blue state.
Blodget: That’s unquestionable, and everyone seems to agree on that and yet, as you point out so clearly, nothing ever gets done. To defend the general Republican position, Boston has been doing the Big Dig forever, it is always held up as this tremendous source of government waste and bureaucracy. Is the Republican position that government should just get out of everything and we should find ways to make private enterprise build our infrastructure. Is there anything to that?
Prof. Kanter: The Big Dig is long behind us and it’s actually done very good things for the economy. There is something to be said for a larger private sector role but not necessarily getting government out of it entirely. The private sector can be a source of finance, whether it’s private capital in the U.S. but also private capital internationally. Sovereign wealth funds like infrastructure because they invest for the long term and they like things that are slow and steady rather than fast and flashy, like venture capitalists do. There are a lot of inefficiencies that can be taken out of the system. The permitting process often takes way too long, having things politicized so that a change of political administration means that a project can be suddenly stopped or redirected, those are all problems, and we’ve had these problems in America for a long time.
I would say the best role for the private sector is in partnership with government. I would say the other role for the private sectors is as innovators. It’s entrepreneurs who are creating all kinds of new technology that can improve our roads. For example, there’s an app in Boston, it happens to be the city of Boston that has this app, that your car can send word to the city that a particular street needs to be repaired. We can apply new technology and government can be a customer. San Francisco has parking apps that the city actually commissioned, but it is entrepreneurs and innovators in the private sector that are the ones to get things off the ground. Government does sometimes move too slowly, holds it back, and it’s one reason why we don’t have enough great technology in our aeroplanes yet, although it’s coming, is because the regulations hold it back. When it comes to things where lives are involved, like auto-safety or safety in the air, I think people are often grateful that there is some regulation.
Blodget That does seem to support at least part of the GOP position that we need to really strip away regulation, simplify permitting.
Prof. Kanter: Well I wouldn’t go that far, because it isn’t just one package. The question of sufficient funding to upgrade roads and bridges, not just repair them, there isn’t even agreement on what should be done. I think that we should be adding some aspect of technology, chips and sensors, to every repair that’s done so we’re ready for the digital future of wireless communications and seamless connections across modes of transportation, absolutely. You can’t get agreement about that either. I think you can’t get agreement about a common pass, toll pass, across the Eastern Seaboard let alone the West Coast, so that your tolls are charged one pass, it’s not a different system state to state. Some of this is the legacy of a federal system in which the states have power, in which many systems are fragmented, and in the legacy of that system means that it’s harder to do things nationally. I would say it’s not a disbelief on the part of some people in government per se. It’s a deep distrust of national. They think local option, local rule.
Blodget: That is an argument you hear all the time, also generally on the Republican side of the aisle: “Hey we should leave this to the states.” How much of this has to be federal and national versus local? What’s the right split there?
Prof. Kanter: Well the exact right split, we’re going to have to do a lot of calculations on various asks in trillions of dollars worth of budgets but the principle should be that local and regional is the point of action and it’s the place where you set priorities for what will be good for your region. Regions often cross state lines, and therefore states can’t do it alone. There aren’t necessarily a lot of incentives for governors or states to collaborate, so that’s one reason why we have a national system.
In addition, there are some priorities that should be national priorities. There are big debates now about education and whether there should be national standards for education. Arithmetic doesn’t work differently if you’re in North Dakota versus Georgia, it works the same way. The idea that you have to have deep local commitment to doing it your way doesn’t work for certain things. As we enter a world where science and technology matter even more, although there are some people who don’t believe in the facts that science provides, we’re dependent on it. That starts pushing for certain standards to be set nationally even if the locus of action is local.
In the middle of May, a commission that I’m on about infrastructure in the middle class will release our report. One of our recommendations is that there be incentives in federal grants for high priority regional projects that are showcase examples of what you can do with technology and smart planning to greatly improve cities and regions. I think we could achieve consensus, that the federal government doesn’t necessarily do it, it enables, it sets standards, and it also aggregates funds. States and cities alone couldn’t aggregate enough funds and one of the truths of America that isn’t told often enough is that the so-called “blue states” are actually sending a lot of money to the so-called “red states”. The red states who don’t like the values of the blue states are happy to take the money and that’s coming through a national taxation system.
Blodget: How much collectively, nationally and locally, do we spend on infrastructure per year now, and what should the number be if we were spending enough?
Prof. Kanter: I know that it’s trillions of dollars and that there are many more trillions of dollars to do everything right. We’re not going to tear down existing infrastructure and replace it with something totally new, if we were China we might be doing that. One of the reasons China has those shiny new airports and great subway systems is they just moved millions of peasants off certain land near cities. We don’t do that. I think we can be a lot smarter about how we upgrade existing assets and I’ll give you an example with public/private partnerships.
In Washington D.C. there’s a tunnel that has to be enlarged so that double-stack trains can go through. It’s very efficient to send trains that have a second story. That project is being financed, it’s probably under a billion dollars, and at least two thirds of it is coming from a freight rail company spending their own money on that infrastructure and state and national money are filling in the rest. Here’s the private sector willing to invest and do something fairly simple that will make the system more efficient and at fairly low cost without relocating the rails. That’s an example.
I think apps, I’m a big believer in digital technology, can make things much more efficient, can save time, can save money. I think electronic tolling does that and there’s now high occupancy toll lanes in many cities in which people pay a whopping premium to use those at high traffic times. That’s a great source of revenue. That more than pays for the cost of repairing those roads and keeping them in good shape.
Blodget: So, to fix everything, to end on an optimistic note, more public/private partnerships, more federal and local spending. On the federal and local spending, what has to happen to tax rates? How much do they have to go up for the United States to have a 21st century infrastructure system?
Prof. Kanter: There are different ways that states are working on paying for it. Some states are raising their sales tax slightly. Some states are using tourism taxes, which local residents say they don’t even feel because it’s people who are coming into those areas. It’s not income taxes. States and local governments also have bonding capabilities, they can issue municipal bonds, that’s been an honorable source of funding for a very long time. A little harder sell when interest rates are so low, but still, there’s the ability to sell future gains to investors.
Public/private partnerships aren’t necessarily just turning it all over to the private sector, it’s also attracting foreign capital that sees that there’s some long term benefit. To do everything that it takes, it does take spending money, but there are many different ways one can find that money. In fact there’s one way that goes back a long time to how we financed the transcontinental railroad. It’s called tax increment financing and you’re essentially selling a bond based on the increased value of the land because a train goes through there. That’s a great way. You’re not paying for it now, you’re paying for it later because you’ll capture more in property taxes because of the increased value.
That’s the kind of thing I’d like to see because that’s building the future and building future value. Then you pay back some of the investment based on those future returns. That seems to me to be good for everybody and it can create a country with roads that work, with better airports, with more opportunities for people to grow the economy in places that have been left behind.
Blodget: You make a point in your book that we love to blame Washington but, of course, ultimately we’re to blame because we send everybody to Washington and to our local governments. What is it that is going to get Americans to finally really care about this issue and prioritise it? Do we have to have massive bridge collapses where hundreds of people die or terrible accidents at airports? What is it that’s going to shock the country into finally doing something about this?
Prof. Kanter: I wrote a book because I hope to contribute to the conversation. I think that the shock of real problems won’t necessarily do it either, because what happens is people think it’s terrible and yet go back to business as normal. Maintenance is not a vision, I think we do need a vision that’s aspirational about how great we could be. That for every person who’s a commuter, who’s wasting hours and hours on trains that are delayed, or in cars that can’t move, the idea that that doesn’t have to be that way can help. We can be aspirational, we can depoliticize the issues, not make them partisan issues, we can be much more creative about financing, we can get the entrepreneurs at the table.
Google is a big force for investment in this sector and Google’s not waiting, Google is putting its own fibre optic cable networks, competing with Verizon and others in Kansas City and other places, Google is lobbying for these investments. The scare tactics haven’t worked, the unsexy issue tactics haven’t worked. I think it takes leadership, and that comes back to my expertise, I teach leadership. It takes leadership, it takes people who are willing to stand up, sketch the vision, get support behind the vision, and then start with small noticeable steps, quick wins that everybody can see, see that actually works and it works in my region, let’s do more of it, it’s worth investing in. I’m also counting on the tech entrepreneurs many more of whom are getting interested in transportation as an issue that they can contribute to.
Blodget: Thank you, Professor Kanter.