a framework for infrastructure investment in the 21st century - mi infrastructure conference
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A FRAMEWORK FOR INFRASTRUCTURE INVESTMENT IN THE 21ST CENTURY
Identified Need
Need to boost worldwide investment in infrastructure by 60%:
• $36 trillion spent in the previous 18 years• $57 trillion needed during next 18 years
ASCE: ~$200 billion/yr additional funding needed in the U.S.
Source: Infrastructure productivity: How to save $1 tril-lion a year McKinsey Global Institute (MGI), January 2013
How did we get here?
Population / Infrastructure Trends
Tax Policies (long-term trends)
Spending on Infrastructure
Physical Condition and Environmental Factors
Now, what do we do about it?
10.0
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1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Tax
Rev
enue
s (%
of
GD
P)
Federal Tax Revenues (as percentage of GDP)1945-2015
3-yearrollingaverage
Average
Population vs. Infrastructure
Long-Term Trends
Infrastructure FootprintUS: Population vs. Land Development (1982-2007)
Sources:Population: US Census BureauDevelopment: USDA-NRCS
Infrastructure FootprintUS: Population vs. Land Development (1982-2007)
Sources:Population: US Census BureauDevelopment: USDA-NRCS
Infrastructure Footprint
Sources:Population: US Census BureauDevelopment: USDA-NRCS
0%
10%
20%
30%
40%
50%
60%
1982 1987 1992 1997 2002 2007 2010
Perc
ent I
ncre
ase
vs. 1
982
Michigan: Population vs. Urban Footprint1982-2010
Urban Footprint Population
Infrastructure Footprint
Source:SEMCOG
Developed before 1970
Developed after 1970
Population in 1970: 4.7 mil-lion
Population in 2015: 4.7 mil-lion
Infrastructure FootprintState of Michigan
28 years (1982-2010):
Population increased by 8%
Developed land area increased by 50%
Over a 5:1 ratio in infrastructure footprint expansion relative to population
Infrastructure FootprintUS: Population vs. Land Development (1982-2007)
On average, each taxpayer is paying for 20% more infrastructure
Purchasing power for roads is 30% less than in mid 1980s (adjusted for inflation, considering both state and federal fuel taxes)
Infrastructure FootprintUS: Population vs. Land Development (1982-2007)
Unlike roads (which are visible), underground utilities are much older and poorly maintained
Little to no political motivation to match funding levels to actual needs
Sewer/water rates not keeping up
No funding source for stormwater
Infrastructure FootprintState of Michigan
Impact on roads:
35% increase in infrastructure (per capita) in Michigan
1984: $0.24/gal (combined federal + state fuel tax)
2015: $0.54/gal what it should be today, based on inflation
2015: $0.38/gal what it is today
30% effective decrease in funding
Combining these two trends: 50% decrease in available investment per mile of road
Impact on sewers and water systems: varies by community, but similar in magnitude
Infrastructure Footprint• How did this happen?
• Land is cheap• Few or no incentives to redevelop older
areas• Old design standards offer little to no room
for creative design• Desire for lower taxes• Desire for bigger lots, larger houses• Developer / Engineer Pressures
• Cost• Schedule
Demographic Changes
Source:Economic Implications of a Shrinking Number of Young People.
Terry F. LudemanWisconsin Dept. of Workforce Development
Demographic Changes• Larger percentage of
Americans on a fixed income and therefore highly resistant to higher fees and taxes
• Decreasing reliance on passenger vehicles (vehicle miles traveled in decline since 2005)
• As a result, continued downward pressure on fuel tax revenues
100%
110%
120%
130%
140%
150%
1982 1985 1989 1992 1995 1999 2002 2005 2008 2012 2015
Total Vehicle Miles TraveledRelative to 1982, 12-month rolling average
Source: FHWA
Population-Adjusted VMTTrend
Tax PolicyLong-Term Trends
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1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Tax
Rev
enue
s (%
of
GD
P)
Federal Tax Revenues (as percentage of GDP)1945-2015
3-yearrollingaverage
Average
Tax Revenues
20
25
30
35
40
45
50
Inco
me
Tax
-%
of
GD
P
Tax Revenue as Percentage of GDPSource: Heritage Foundation, 2015
20
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24
25
26
27
Inco
me
Tax
-%
of
GD
P
Tax Revenue as Percentage of GDPSource: Heritage Foundation, 2015
Tax Revenues
France:
45%
United Kingdom:
35%
Germany:
38%Tax Revenue as % of GDP (incl. state/local taxes)
Jamaica:
24%
United States:
24%Papua New Guinea
25%
Tax Revenues
Tax Revenue as % of GDP (incl. state/local taxes)
• Large percentage of aging infrastructure built with sources of revenue that are no longer there:
• Federal-Driven• Interstate system (initial investment: 1950s – 1970s)• Sewer systems and treatment plants (EPA grants)• Water distribution systems (EPA grants)
• Developer-Driven• Local roads• Sewers (storm and sanitary)• Water mains
• States and municipalities have inherited these assets
• Much of this infrastructure is reaching the end of its useful life
• There are no programs of the size/magnitude of those we enjoyed in the 1950s – 1970s
Tax Revenues
• Example (water/wastewater)
• Grant program authorized by Clean Water Act (1972)
• 1972-1987: funding took the form of grants• 75% federal / 25% state/local match (pre-1981)• 55% federal / 45% state/local match (1981-1987)
• 1987: funding switched to low-interest loans (SRF)
• 1972-1987: $72 billion in appropriations (15 years)
• 1987-2012: $36 billion in appropriations (25 years)
70% funding reduction (post-1987)80%+ reduction when factoring inflation
Tax Revenues
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1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Tax
Rev
enu
es (
% o
f G
DP
)
Federal Tax Revenues (as percentage of GDP)1945-2015
3-yearrollingaverage
Average
Source:
White House Office of Management and Budget
Tax Revenues
Tax Revenues
First 35 years(1945-1980)
Tax revenues below 70-year average only 23% of the
time
Tax Revenues
Latest 35 years(1980-2015)
Tax revenues below 70-year average 77% of the time
Fuel Taxes
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
1990 1995 2000 2005 2010 2015 2020
Fue
l tax
($/
gal)
Fuel Tax History1990-2015
Wisconsinwith CPI
Michiagn -ENR Index
Federal
Michigan
Wisconsin
Michiganwith CPIIndex
Spending on Infrastructure
Infrastructure Spending
0.50.70.91.11.31.51.71.92.12.32.5
1960 1970 1980 1990 2000 2010 2020
% o
f GD
P
Federal Spending on Physical Resources* (1962-2017)* Energy, Natural Resources, Environment, Commerce, Transportation, Community Development
5-yearrollingaverage
55-yearaverage
Source:
White House Office of Management and Budget
Social Security / Medicare
Source:
White House Office of Management and Budget
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1960 1970 1980 1990 2000 2010 2020
% o
f GD
P
Federal Spending on Human Resources* (1962-2017)* Health, Medicare, Unemployment, Social Security, VA Benefits
5-yearrollingaverage
55-yearaverage
Spending Priorities
Source:
White House Office of Management and Budget
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1960 1970 1980 1990 2000 2010 2020
% o
f GD
P
Federal Spending: Human Resources vs. Physical Resources
HumanResources
PhysicalResources
Federal Transportation Funding
Federal fuel tax revenue will decrease by 27% in the next ten years
20
25
30
35
40
45
50
55
2015 2017 2019 2021 2023 2025
Annu
al F
uel T
ax R
even
ues
($ B
illio
ns)
Projected Fuel Tax Revenues and Outlays (inflation-adjusted)
2015-2025Source: Congressional Budget Office
TaxRevenues
Outlays
Transportation Funding By State
Michigan: $309
Transportation Funding By State
$200
$400
$600
$800
$1,000
$1,200
$1,400
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Per Capita Transportation SpendingFederal + State + Local ($ per year)
Excludes Washington DC and Alaska
U.S. Median: $663
Michigan: $433 (35% lower than national me-
dian)
StimulusPublic Works Stimulus (ARRA)
$48 billion for transportation
$10 billion for water/sewer
Overall infrastructure funding gap:$1.3 trillion (2001 dollars)
Bottom LineShift in tax burden from federal to state to local
Magnitude of investment: hard to make it up at the local level
Physical Condition&
Environmental Factors
Visible Problems
Hidden Problems
Hidden Problems
Economic Burden from Failing Infrastructure
Changing impact of wet weather on collection systems
CityPeak 6-hour rainfall (in.) TP 40 Bulletin 71 NOAA Atlas 14
Garden City 3.49 79 >100 37Exceedance Interval
Detroit (west fringe) 3.59 91 >100 43 25-yr to 50-yr
Romulus 3.65 98 >100 48 50-yr to 75-yr
Westland 3.49 79 >100 36 75-yr to 100-yr
Royal Oak 4.79 >500* >500* 200 >100 yr* Extrapolated
Exceedance Interval (years)
Key
August 11-12, 2014 Rainfall Event
Now, what do we do about it?
Assume shift in revenue bur-den to local government
Appeal to the right audience and SELL IT
Charge for ALL utilities (even stormwater!)
Develop a business plan for your infrastructure
Establish inflation-adjusted revenue framework
Appeal to the Right Interests at the Right Time
Elected Officials
Voters
Appeal to the Right Interests at the Right Time
Elected Officials
• May require 2-3 separate messages to reach each type of elected official
Business owner/leader Budget HawkEnvironmental advocate
• Keep your messages simple and direct – address their key interests
Appeal to the Right Interests at the Right Time
Elected Officials
• Examples
Business owner/leader Impact of failing infrastructure
on local businesses
Budget HawkIncreased cost of emergency repairs (long-term budget impacts)
Environmental advocatePollution impacts of failing infrastructure
Better V I S U A L S help
Appeal to the Right Interests at the Right Time
Voters
• Hire a Public Relations Firm
Targeted, Coherent MessageProfessionally-crafted
materials for mailing, website, TV, etc.
Bedside MannerEngineers are not naturally
gifted at communicating with the public
ReferendaMaximize the chances of a successful millage
• Branding Public Works
• Start with understanding how police and fire legitimize services:
• Maintaining law and order
• Protecting your family
• Around-the-clock availability
• Immediate response
• Heroes
Appeal to the Right Interests at the Right Time
Public Works Police/Fire
Streets (snow removal and deicing) – timely response, generally within one day (available 24 hours 7 days a week)
Fire: immediate response to call. Available 24 hours, 7 days a week.
Sewer backups, flooding – timely response to complaint, but solution may take months or years (available during week, business hours on call?)
Police: immediate response to emergencies. Available 24 hours, 7 days a week.
Most problems require planning, design, construction (lead time of one to several years)
Problems generally resolved on site.
Appeal to the Right Interests at the Right Time
Charge for ALL Utilities• Stormwater Utilities – the final
frontier• Stormwater spending bleeds money
from the General Fund• Almost all communities in Michigan
don’t have a stormwater utility• Many communities simply don’t
have the ability to tackle stormwater CIP
• Stormwater utilities can be used to partially fund road projects (10%+ of road projects are related to drainage)
Metro Detroit
Potential for about $200 million per year in stormwater user fee revenues* if all communities adopt stormwater enterprise funds.
* Average Midwest stormwater utility revenue is $43 per capita per year
Infrastructure: A Business Model
• Variable Costs (labor, materials, CIP)
• Fixed Costs (O&M)• Debt service
Expenses
• Effective sales/marketing
• Pricing strategy: need vs. politics
• Inflation-adjusted revenues
Revenues
Asset Manage-ment Plan
Infrastructure: A Business Model
Total Cost of Owner-ship Ap-
proach
The Subsidies are Over
• Who build it?• Land developers• Federal grant money (post-CWA)
• Who owns it now?• Municipalities• HOAs• Water/sewer authorities
• Our rate structures are based on subsidized infrastructure
Lastly….look INWARD
• Urban expansion (without population growth) is paralyzing us
• Land use policies must discourage greenfield development until we can backfill underpopulated urban areas
• Build where we already have the infrastructure
…and finally…
If Infrastructure played well on TV:
Critical Structure Investigation
CSI - Michigan Dedicated group of licensed structural engineers who risk life and limb to inspect bridges and dams on the
Grand River, preventing catastrophic failures just in the nick of time while using the latest in forensic technology, really cool gadgetry and great character development.
Jon Oliver (HBO)Infrastructure Segment
What Now?• Redefine it:
• More education on tax and spending history• Understand who built it and who owns it• More emphasis on health, public safety, and
consequences • Increased emphasis on what is BELOW the
ground• More aggressive education for kids and public
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1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Tax
Rev
enu
es (
% o
f G
DP
)
Federal Tax Revenues (as percentage of GDP)1945-2015
3-yearrollingaverage
Average
What Now?
• Charge for it:
• Accept the local “bootstrap” reality (no more federal handouts)
• Create Stormwater Utilities• Couple fees to CPI or CCI (inflation)
What Now?
• Sell It!
• We’re still not loud enough• Use PR firms• Make the case for each audience
(four separate messages):• Business model / finance • Economics • Environmental• Public safety
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