Infrastructure Upgrades Need Plan, Funding

WASHINGTON, DC-Ever since the Urban Land Institute and Ernst & Young teamed up to produce an annual report on the state of the nation’s infrastructure, it seemed as though the duo’s efforts were largely focused on convincing readers of the need for the upgrade–a point reinforced by post-Hurricane Katrina New Orleans–and later–the tragic collapse of the Minneapolis bridge.

Fast forward to 2009, the message has been received–albeit also influenced by economic factors–and the country is poised to embark on an unprecedented series of infrastructure upgrades. The report, called “Infrastructure 2009: Pivot Point” notes that required upgrades are estimated to be approximately $2.2 trillion. In what is hoped to be just a down payment on this endeavor, President Barack Obama has folded some $132 billion for infrastructure repairs in his economic recovery bill, which was signed on February 18. These projects range from roads, transit, a smart energy grid–and more recently–a high-speed passenger rail project. This investment, besides providing the obvious safety and quality of life benefits to Americans, will also provide a boost to the commercial real estate industry. In a telling figure in the report, 60% of US developers surveyed said that their projects had been constrained because of a lack of infrastructure.

Now that the necessity of upgrades has been accepted–and at least some of the necessary funding earmarked for this purpose–ULI and E&Y are examining the next phase: how to execute a project of this magnitude. Funding is also key; for while the initial projects will be funded with government largess, there is little doubt that the private sector will have to step up for the next wave of projects. For investors, the report is a heads-up that the traditional investment schemes in infrastructure–which have never reached in, this country, the sophistication seen in Europe and Asia–are about to be revamped as well.

As such, this report focuses on the best way to redistribute infrastructure funds and key gateway projects to the US, Michael Lucki, Global Leader of Infrastructure and Construction at E&Y, said at a press conference yesterday afternoon when the report was released. “At the federal level there needs to be more coordination for infrastructure planning and funding.”

The report lauded the Obama Administration’s plan to establish an American Infrastructure Bank. Laid out in broad strokes earlier this month, the bank would help finance national networks, attract more private capital, and advance public/private partnerships. Whether or how this bank makes its way through Congress remains to be seen, of course. However even without a national funding entity, Lucki says the way infrastructure investment is made will undoubtedly change in the coming years.

“The emphasis will shift more to user pays, instead of taxpayer pays,” he said. Some of the proposed measures are sure to meet with stiff resistance: vehicle miles traveled charges for instance or gas taxes. Other savings could be found through technologies such as smart metering installed in homes and businesses for power, heating, and water. The common thread running through these proposals is a definite link established between future federal funding to states and local governments and national goals for infrastructure policy.