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How Much is Aging US Infrastructure Costing You?

The United States has an infrastructure problem. This is according to the American Society of Civil Engineers (ASCE) who rated the current state of US national infrastructure with a D+ average on a scale of A through F. Politicians have long been declaring that something must be done to address the issue and President Trump included infrastructure high up on his to-do list if elected.bigstock-Infrastructure-Costs-53391958 resized for HS.jpg

All the recent discussion about problems with aging US infrastructure raise some important questions including; how is the issue of aging US infrastructure impacting your supply chain and what, if anything, will be done about it?

A Failing Grade

That D+ grade from the ASCE was delivered as part of a regularly published report “The Infrastructure Report Card” which summarizes the condition of interstate highways, airports and inland waterways. The failing grade is nothing new. The group has awarded the same D+ rating since 1998. 

Here are some additional highlights from that report.

  • In 2015 poor infrastructure cost the US economy $147 billion.
  • Forecasts that between 2016 and 2025 poor infrastructure will cost each American household $3,400 each year.
  • By 2025 the total economic impact could amount to 2.5 million jobs.

Highways

According to the most recent report “aging and unreliable” infrastructure will cost US businesses $1.2 trillion by 2020 and the poor condition of roads and other surface transportation costs US businesses an additional $27 billion in freight costs.

According to the Federal Highway Administration there are over 4 million miles of roads in the United States, including Alaska and Hawaii. Of that total, the core interstate highway system comprises a mere 47,000 miles; however, the interstate highway system carries more than one quarter of the total highway traffic in the US. In fact, most of our nations’ freight traffic moves along a combination of the Interstate highway system and 175,514 miles of major highway.

Airports 

There are over 3,300 airports in the US designated by the Federal Aviation Administration (FAA) as key to the national aviation system. Of these, there are just 30 airports that handled 70% of all commercial passengers and nearly 80% of all domestic and international air freight (by weight) per 2015 numbers.

Ports and Inland Waterways

US ports account for 63% of all imports and 76% of total US exports. Inland waterways move 20% of all crude petroleum and 20% of other fuels including coal. Inland waterways face the same challenges as the intrastate highways and bridges. Aging locks and dams, some more than 50 years old, and budget shortfalls for maintenance and repair.

So what is the most recent plan to address these problems?

The Trump Plan Summarized

According to official Whitehouse sources President Trump’s recent plan to rebuild America’s infrastructure will be based on the following concepts:
  • Lower the average permit time from 10 years to 2 years by reducing the amount of government regulation associated with the permitting process.
  • Unleash private sector capital and expertise to rebuild cities and states.
  • Rebuild America’s infrastructure and invest in rural infrastructure.
  • Reimage America’s infrastructure with transformative projects.
  • Implement a work force initiative focused on skill-based apprenticeship education.

Trump Infrastructure Plan Numbers.jpg

Trumps plan to rebuild America’s infrastructure relies heavily on private sector involvement in the form of public private partnerships (PPP’s). In fact, the plan declares $200 billion allocated for infrastructure funding will be used to leverage an additional $800 in private sector capital. These are ambitious numbers and opposition voices have been quick to accuse the Trump plan of being on a path to the privatization of public assets. However, there is are important differences between PPP’s and the straight privatization of public infrastructure. 

Privatization represents the permanent transfer of the infrastructure asset. Whether it’s a toll bridge, airport or port facility – it’s an outright sale of that asset to a private company. The transfer is permanent with no management oversight after the sale. These can work well for things like parking garages or certain toll bridges and roadways.

The private sector involvement mentioned in Trump’s plan comes in the form of public private partnerships. PPP’s are arrangements between government and private partners that are market-based and come with clearly defined term limits. The average is 25 years. The two parties must work together to negotiate various aspects of the agreement and are mutually dependent on each other for success for the duration of the agreed upon term.

There are advantages and disadvantages to the PPP approach. Advantages lie in leveraging the expertise of private companies to speed along large-scale projects while reducing their overall cost. There are also advantages to a win-win relationship where both parties stand to gain. Government is better able to serve the public and private sector entities are allowed to profit within the terms of the agreements.

The biggest disadvantage lies in the initial negotiation of PPP agreements. As previously mentioned, many municipal and even state governments lack the expertise needed to fully analyze the market-based cost and pricing structures of complex long-term deals. PPP’s work best when both parties win and governments tend to lose when they rush in without doing their homework.

An example of a proposed PPP can be found in the St. Louis Lambert International Airport project “designed to allow airports to generate access to sources of private capital for airport improvement and development,” according to Transportation Secretary Elain Chao. The city has received preliminary approval to enter into a PPP wherein a private firm will lease and operate the airport. If successfully implemented, the city will receive millions on the lease agreement in addition to a share of profits.

The Trump plan is ambitious and has come under fire for its lack of detail. One thing that all parties involved can agree on – there is an urgent need to address all types of US infrastructure. The question is will this latest proposal mean positive improvements or will we keep kicking this tired can down our crumbling roads?

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