Wednesday, May 14, 2008

GAO Report Highlights Infrastructure Problems

According to the General Accounting Office (GAO), the US needs to reexamine how it funds, improves and rehabilitates its vital surface transportation infrastructure.

Through our prior analyses of existing programs, we identified a number of principles that could help guide a reexamination of the federal surface transportation program. While these principles are designed specifically to reexamine the surface transportation program, most, if not all of them, could be applicable to other federal infrastructure programs. These principles are:

• creating well-defined goals based on identified areas of national interest,
• establishing and clearly defining the federal role in achieving each goal,
• incorporating performance and accountability into funding decisions,
• employing the best tools and approaches to emphasize return on investment, and
• ensuring fiscal sustainability.

The reasons are very clear:

The economic well-being of the United States is dependent on the reliability, safety, and security of its physical infrastructure. The nation’s infrastructure is vast and affects the daily lives of virtually all Americans. In total, there are about 4 million miles of roads, 117,000 miles of rail, 600,000 bridges, 79,000 dams, 26,000 miles of commercially navigable waterways, 11,000 miles of transit lines, 500 train stations, 300 ports, 19,000 airports,5 55,000 community drinking water systems, and 30,000 wastewater treatment and collection facilities. Collectively, this infrastructure connects communities, facilitates trade, provides clean drinking water, and protects public health, among other things.

According to Popular Mechanics, there are ten critically important pieces of US infrastructure that need repair or rehabilitation immediately, including major interchanges, dams, airports, and canal locks.

For example:

In 2006, engineering experts calculated that in any given year there is a 1-in-6 chance that the Herbert Hoover Dike will fail, releasing waters from Lake Okeechobee. If that happened, South Florida's water supply could be contaminated, and 40,000 lakeside residents could be threatened by flooding. The Army Corps of Engineers has been working on improvements, but funding is limited–for the 2009 budget year, the government alloted about half of the requested money. In February 2008, a 1000-ft.-long stretch of dangerously eroded land was found near state-owned floodgates north of the lake.

The collapse of the I-35 bridge in Minneapolis, Minnesota highlighted the need to continue to invest and rehabilitate infrastructure. The cost of replacing bridges that collapse and kill or injure US citizens adds more of a burden are spread to the costs of lawsuits as well as the cost in productivity and wear and tear on other resources when commuters are shunted to other roads and vital arteries.

Kansas Governor Kathleen Sebelius and Service Employees International Union (SEIU) President Andy Stern, warn that turning the financing of infrastructure projects over to Wall Street could lead to another subprime mortgage meltdown:

Leaders of both the Republican and Democratic parties know the U.S. cannot raise money from traditional public sources of financing, including municipal bonds, user fees and taxes.

The financiers on Wall Street already have positioned themselves to take advantage of this national crisis for their own gain. Where most Americans see crumbling bridges and traffic congestion, the money managers see a treasure trove of fees, profits and more record bonuses for CEOs.

It's why some private equity firms and banks on Wall Street are raising massive dollars to buy these assets that have typically been owned and managed by the government.

In recent years, new infrastructure funds have been established in North America with capital commitments of $40 billion to $45 billion. These private funds have sprouted up like weeds, structured for short-term profits and sky-high fees -- usually up to a 2 percent management fee plus up to 20 percent of the profits.

It would be a monumental mistake to turn the future of America's infrastructure over to the same crowd that brought us the subprime crisis, an economy loaded down with debt and recession.

We should know better by now than to create a scenario where bridges and highways are sliced and diced like subprime loans into financially engineered "collateralized infrastructure obligations."

America needs a large source of stable, long-term capital to build the system of buildings, roads and power supplies needed to sustain the country. We need a source of capital that values infrastructure because it provides a reasonable rate of return, strengthens the overall economy and doesn't burden users with excessive fees.

Every decade or so, there is a renewed call for a return to the 1930s and the resurrection of the Civlian Conservation Corps as a means of reducing unemployment, investing in infrastructure, and energizing the American people in an effort to improve their country:

[Civilian Conservation Corps] CCC enrollees throughout the country were credited with renewing the nation's decimated forests by planting an estimated three billion trees from 1933 to 1942.

The 1932 Presidential election was more a cry for help from a desperate people near panic as it was an election in a "landslide" vote, the nation turned to Franklin Delano Roosevelt and the Democratic party searching for an end to the rampant unemployment and economic chaos that gripped the country. They weren't disappointed. Accepting the Presidential nomination on July 1, 1932, New York Governor Roosevelt planned a fight against soil erosion and declining timber resources, utilizing the unemployed of large urban areas.

Professional foresters and interested layman raised these aims. In what would later be called "The Hundred Days," President Roosevelt revitalized the faith of the nation with several measures, one of which was the Emergency Conservation Work (ECW) Act, more commonly known as the Civilian Conservation Corps. With this action, he brought together two wasted resources, the young men and the land, in an effort to save both.

The President wasted no time: He called the 73rd Congress into Emergency Session on March 9, 1933, to hear and authorize his program. He proposed to recruit thousands of unemployed young men, enroll them in a peacetime army, and send them into battle against destruction and erosion of our natural resources. Before it was over, over three million young men engaged in a massive salvage operation, the most popular experiment of the New Deal.

Could an infrastructure revitalization project, based in part on the CCC model, make up for the gaps in what Federal, state and local governments are willing to spend on infrastructure? A proposed pilot program could answer that question, if enacted and studied properly.

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