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It’s the Perfect Time to Fix Our Roads and
Bridges<http://www.bloomberg.com/news/print/2013-03-26/it-s-the-perfect-time-to-fix-our-roads-and-bridges.html>
By Peter Orszag - Mar 26, 2013

Roads, bridges and other infrastructure in the U.S. are steadily growing
older and weaker. Given low interest rates and elevated unemployment, this
is an ideal moment to invest in fixing them.

Our structures are aging as fast as we are. From 2000 to 2010, the median
human age in the U.S. rose by almost two years, from 35.3 to 37.2, and the
average age of nonresidential corporate fixed assets increased by about the
same amount. Fixed assets as a whole aged from an average of 20.7 years to
22.1.

Does age matter? Unfortunately, with infrastructure it does.

A December 2010
report<http://www.dhs.gov/xlibrary/assets/st-aging-infrastructure-issues-research-technology.pdf>from
the Department of Homeland Security underscores the threat. “Age,” it
says, “often acts together with and may reinforce the effect of other
factors such as design, maintenance, and operation in increasing the
vulnerability of infrastructure.”

Consider the situation in New York
<http://topics.bloomberg.com/new-york/>State, where about 10 percent
of the roughly 22,000 bridges were built
before 1930. More than 10 percent of these old bridges have a
superstructure rating of poor or worse, compared with less than 5 percent
of the bridges built during the past four decades.

As my former colleague Larry Summers has
written<http://blogs.reuters.com/lawrencesummers/2013/01/22/america-has-multiple-deficits/>,
“No one who travels from the United States abroad can doubt that we have an
enormous infrastructure deficit. Surely even leaving aside any possible
stimulus benefits, current economic conditions make this the ideal time for
renewing the nation’s infrastructure.”

So what to do?
Barbell Approach

The 2009 stimulus bill helped a bit -- it allocated about $100 billion to
infrastructure investment (estimates vary slightly depending on the
definition of “infrastructure”). But that was only about 12 percent of the
total bill, and it was not sufficient to address the growing problem.

Four steps are needed now.

First, we need to couple immediate federal spending on public assets with
substantial, credible deficit-reduction measures that are scheduled to take
effect later on. Such a “barbell”
approach<http://www.bloomberg.com/news/2012-06-05/barbell-approach-only-way-to-lift-heavy-economy.html>to
fiscal policy would require that Republicans acknowledge the value of
additional stimulus while the unemployment rate is high, and that Democrats
see how Medicare, Medicaid and Social Security could be preserved and
strengthened through certain cost-saving measures over time. The upfront
piece should include an ambitious $250 billion infrastructure program
(including federal, state and local spending) over the next two years.

Second, we should bring
back<http://www.bloomberg.com/news/2012-08-07/bring-back-build-america-bonds.html>Build
America Bonds. The traditional approach to state and local
infrastructure financing allows the interest on the bonds to be excluded
from federal taxation. That approach has been shown to provide undue
benefit to purchasers in the top marginal-tax bracket. Build America Bonds,
in contrast, provide a direct subsidy to the borrowers, and thereby deliver
more of the federal subsidy to the state and local governments.

More than 2,000 Build America Bonds were issued in 2009 and 2010, and the
Treasury Department has estimated that state and local governments have
saved $20 billion in present value as a result. It’s time to bring the
program back.

Third, federal policy makers should see how innovative programs such as the
Chicago Infrastructure Trust work in practice. If Chicago can point the way
for other cities to attract new forms of financing, it will have done a
great service.
User Fees

Finally, federal, state and local governments alike should expand the use
of pricing to get the most out of existing roads, bridges and the like and
to finance improvements. User fees for transportation, for example, should
be expanded, as was recently recommended by Jack Basso, a former chief
operating officer of the American Association of State Highway and
Transportation Officials, and Tyler Duvall, a former assistant secretary at
the Transportation Department. This approach, they noted in a
paper<http://www.hamiltonproject.org/files/downloads_and_links/THP_15WaysFedBudget_Prop9.pdf>for
the Hamilton Project, has been successful in other countries but has
been used much less in the U.S. A road-pricing system could raise as much
as $55 billion a year to finance new investments or deficit reduction, the
U.S. Transportation Department has estimated. It would also cut congestion
and carbon emissions.

In the absence of such steps, our infrastructure will only become less safe
and less productive. Although we may not be able to do much about our own
aging, there’s plenty we could do to keep public infrastructure young.

(Peter Orszag is vice chairman of corporate and investment banking and
chairman of the financial strategy and solutions group at Citigroup Inc.,
and a former director of the Office of Management and Budget in the Obama
administration. The opinions expressed are his own.)

To contact the writer of this article: Peter Orszag at
orszagbloomberg@gmail.com

To contact the editor responsible for this article: Mary Duenwald at
mduenwald@bloomberg.net
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