National Infrastructure Crisis
Every four years, the American Society of Civil Engineers issues a report card for America’s infrastructure. In the 2013 report, the ASCE gave the United States a D+ rating with an estimated cost to the year 2020 of $3.6 trillion.
Drinking water received a D; energy infrastructure D+; roads a D; dams a D; and despite the notorious problems with bridges they received a C+ rating.
Other areas of national infrastructure are also rated with no one area receiving a grade higher than B- which was sewer treatment systems which is perhaps ironic in the grand scheme of things.
Despite the poor showings in the 2013 report little progress has been made. The next report is due out in less than 12 months. The report is likely to show that the infrastructure has continued to deteriorate because it is what is known as a "wasting" asset. It is a wasting asset in that the minute the project is built the infrastructure will deteriorate unless maintenance costs and efforts are budgeted.
Despite the C+ rating for bridges, still over 9.5% of all bridges are classified structurally deficient which is almost 70,000 bridges. The cost to rebuild this crumbling infrastructure is massive but it likewise creates an opportunity.
As budgets become tight, it is normal for a family to cut back spending in any areas where they can. Some of the areas that a family might cut back would be on painting the exterior of the house, fixing the gutter, or repairing the sidewalk. The postponement of these expenses has merely pushed the expense into the future while at the same time putting the family and the home at risk. Sooner or later the price has to be paid.
Our Nation, states and communities have been pushing back necessary repairs on our roads, bridges, and buildings for an exceptionally long period of time particularly since the financial meltdown in 2008. This delay in completing necessary repairs and maintaining infrastructure will eventually lead to catastrophic collapse such as what happened with Interstate 35 in Minneapolis years ago.
Areas of concern are the electric grid which is based on 1970s infrastructure and design; outdated and poorly maintained bridge structure; and a road network sorely in disrepair.
Our nation’s day of reckoning is coming within the next 4 years. The infrastructure tipping point will coincide with the tipping point of the pension crisis which is also facing virtually every state and municipality.
Cash for public sector projects will be competing with needs to fund an exploding pension crisis. To win this economic battle, our nation needs to focus on rebuilding the national infrastructure first.
The massive backlog and work for the national infrastructure creates tremendous economic opportunities to rebuild our economy as we rebuild our infrastructure. The economic growth caused by these building projects will help fund the state and municipalities through economic growth and job creation. The improved infrastructure will reduce costs for consumers and businesses as well for transportation as well as eliminate unexpected delays from infrastructure failures.
The solutions to this infrastructure crisis are relatively straightforward.
First, the nation must deal with its antiquated prevailing wage laws which drive up the costs substantially for public sector construction while at the same time substantially curtailing competition. We as taxpayers and customers pay for this inefficiency. With the massive number of projects that need to be undertaken and government becoming cash strapped this change to prevailing wage laws is imperative.
Second, to prevent future crises our government must adopt a life cycle costing approach to its infrastructure. Infrastructure is a cost driver which means that as soon as the road, the building, or the bridge is built the community incurs maintenance expenses. Lifecycle costing requires the community to budget at the time of initial construction the expected maintenance cost over a period of the useful life of the project. In this way the community truly understands with the long-term cost of the project really are. The project is then funded to include the entire lifecycle cost upfront.
Failure to address infrastructure crisis will usually result in catastrophic failure such as when the Interstate 35 bridge collapsed in Minneapolis which required immediate expenditures out of an already tight budget. These budgetary concerns actually started the day the infrastructure was built but the price was not paid until it failed. At that point the cost of failure is not only expensive but potentially deadly.
Restructuring our nation’s laws to repeal prevailing wage laws and to adopt lifecycle costing will start the process of repairing our aging infrastructure and making our nation competitive again.
Col. Frank Ryan, CPA, USMCR (Ret) and served in Iraq and briefly in Afghanistan and specializes in corporate restructuring and lectures on ethics for the state CPA societies. He has served on numerous boards of publicly traded and non-profit organizations. He can be reached at [email protected] and twitter at @fryan1951.