“Crumbling” is the word most associated with American infrastructure today. C minus being the most recent assessment by the American Society of Civil Engineers as disastrous failures such as the Texas blackouts and California wildfires underscore the country’s endemic problems. Without fresh investment and management changes, the worst is yet to come.
America’s infrastructure gap — the difference between currently available funding and what’s necessary to maintain a state of good repair — is in the trillions. Although passing an infrastructure bill is a congressional priority, what should be a bipartisan issue may fail because of funding issues: the lack of dollars to pay for maintenance, improvements, and upgrades.
Because there is little appetite in Congress for massive new deficit spending after the nearly $2 trillion coronavirus relief bill, it’s critical to extract every possible dollar from existing infrastructure. This can be done via new efficient technologies and improved management approaches. Federal policy should also be changed to update the old ways of doing business.
One of the most promising proposals is asset recycling, which starts with new federal policy frameworks to encourage state and local governments to enter into new contractual arrangements — such as public-private partnerships — and obtain new value from their infrastructure assets. These include short-term leases, long-term leases, or concessions. The key element is that government owners get more value by adopting new, cleaner technologies and better management of infrastructure assets. This added value can be reinvested into infrastructure improvements.
Such agreements can also reduce deferred maintenance — a pressing problem that has led to the sorry state of today’s infrastructure — by contractually stipulating a minimum level of required maintenance and reinvestment over time. Owners would obtain more value from existing infrastructure while retaining public ownership. The older and more poorly maintained the infrastructure, the greater the value potentially realized.
Under an asset-recycling program, public infrastructure owners have a range of options to obtain fresh funding from the assets they control. The federal government also incentivizes states and local governments to explore new operational and technological approaches by offering a 15 percent bonus on all new funds raised by the program. Australia and other countries have successfully used similar programs to capture more value from existing infrastructure.
The first step in an asset recycling program requires public owners to conduct a thorough inventory of the infrastructure assets they own. The next is to estimate the value of those assets. That may be straightforward for some assets, such as land and office buildings, and more difficult for others, such as toll roads or airports. Valuation is, however, critical because it provides a benchmark against which to gauge newly captured value.
The third step, with the help of outside experts, is to assess how to best utilize and manage those assets for the long term. Can more value be captured from those assets? Can parking garages or excess office space, for example, be sold or leased? Can salt storage sheds be moved to less valuable locations and the newly available land be sold or leased?
Importantly, added value can also be realized by adopting new, efficient technologies that improve infrastructure operation. Examples include methane capture at wastewater treatments plants (or at any facility producing such gases). This allows the conversion of an otherwise wasted fuel into electricity, which is used to power the plant. Other applications abound: contracts to convert old chemical sodium streetlights to light emitting diodes, and the adoption of “smart” stop lights that change color based on traffic actually approaching the intersection. The key is to use scarce federal dollars to incentivize state and local owners to take a fresh look at traditional ways of managing public infrastructure.
The final step is for the public owner to finalize these transactions, receive the incentive bonus, and plow or “recycle” all proceeds back into the infrastructure, hence the term “asset recycling.” Given that much of America’s infrastructure has been managed for decades under a traditional delivery approach, there is likely to be enormous latent value. A 2018 study revealed that between $720 billion and $885 billion could be realized via asset recycling just through long-term leases. Providing states and local owners with more flexibility would likely generate even more value, with minimal federal spending.
The federal government should simultaneously provide new technical training for the many owners who may be risk-averse, and attached to old ways of delivering, managing, and operating infrastructure. Although not done under the asset-recycling moniker, there are examples of similar completed transactions. Those include the Chicago Skyway lease, the San Juan International Airport lease, the Bayonne water system lease, Maryland’s Seagirt Marine Terminal lease, and the Ohio State University parking system lease. It’s time to abandon old ways of delivering infrastructure and adopt new approaches. A federal asset-recycling program is a wise first step.
Richard Geddes is a visiting scholar with the American Enterprise Institute. He is also the founding director of the infrastructure policy program and a professor for policy analysis and management based at Cornell University.