Tag Archives: investment

Measuring Infrastructure Performance Is Complex

Performance is the execution of a task or fulfillment of a promise or claim. Musicians give a good performance when they play well, provide listeners with insights to the meaning and emotion behind the music, and entertain their audiences. Employees of large companies have annual performance reviews to reflect on how well they and their immediate supervisors think they are doing their jobs.
For civil infrastructure, performance has something to do with moving people and goods, supplying water, removing wastes, and keeping us comfortable. However, just as we might disagree about whether a singer has given a good performance, individual infrastructure users, companies that depend on infrastructure, government agencies that build it, people who live near the facilities, and others may have their own ideas about both what is the task or promise the infrastructure should fulfill and how well the job is being done. Because these several groups all play a role in shaping our infrastructure, determining how it is used, and taking advantage of the services (or disservices, as some might say) delivered, we often refer to them as stakeholders.
These stakeholders are a wonderfully diverse bunch and their ideas are dynamic. Trying to understanding what might be meant by “good performance” for infrastructure gets complicated. The U. S. Army Corps of Engineers in the 1950s and ‘60s built the Buford Dam and others along the Chattahoochee River for power generation, flood control, and navigation purposes. Lake Lanier, a large reservoirs created near Atlanta, Georgia, became an important part of that growing region’s water supply as well as a popular recreation area. Downstream, where the river joins with others rolling south toward the Gulf of Mexico, oyster harvests in Apalachicola Bay depend on the freshwater flows. The states of Alabama, Florida, and Georgia have feuded for decades over the water management in the river basins. Since construction of the Buford Dam and Lake Lanier was completed in 1957, the tasks they are expected to perform have certainly shifted.
Sometimes stakeholders are very direct in stating the broader objectives they have in mind. Public works investments during Franklin Roosevelt’s “New Deal” era, for example, were planned to give jobs to some of the legions of people left unemployed by the Great Depression as well as to provide the services of municipal buildings and libraries. Huge water projects built in the vast and largely empty southwestern areas of the United States were intended to enable settlement and consolidate the nation’s hold on land which (to quote Robert Frost’s famous poem, The Gift Outright) “was ours before we were the land’s.” The spending of public funds on new roads and water mains is routinely justified by expected gains in property values and subsequent tax revenues expected when newly accessible and serviced land is developed.
Sometimes our objectives are less overt. Some highways built in urban centers during the 1950s and ‘60s were viewed by their planners as instruments of slum clearance as well as transportation arteries. Public backlash gave rise to more general resistance to new construction and the term NIMBY—“Not in my back yard!”—that has since come to be recognized in many languages. A recent Saint Index© survey of U.S. attitudes about real estate projects and development found that our extended economic downturn may be softening opposition to new development in general, 74 percent of American adults still do not want it in their own community.
Sometimes we simply have too narrow a perspective. Vitruvius, the 1st Century BC Roman who gave us the 10-book De Architectura, wrote famously that our infrastructure should not only ward off hostile attack, glorify the gods, and enhance public convenience, but should do so with “strength, utility, grace.” A panel of experts convened by the National Academy of Sciences to consider principles for improving the nation’s infrastructure (full disclosure: I served as the staff support and a primary report author-editor) asserted that we must manage our infrastructure to “… incorporate effective recognition of infrastructure as a multimodal and multipurpose system—a stream of services—as well as an armature of community development.” In other words, no infrastructure should be conceived of as doing only one thing.
In any case, whether the objectives, promises, or claims are narrowly or broadly conceived, explicitly or implicitly stated, the performance of infrastructure as a public investment must be judged by how well it serves the community. Measuring the return on investment will always be complicated.

How Much Infrastructure Spending Is “Enough?”

Concern for the state of our public works infrastructure seems to have percolated to the forefront of current political discourse.  The web-based news and commentary site The Infrastructurist, for example, recently presented their “First Annual Infrastructurist Forum” on the future of U.S. infrastructure, attracting statements from such luminaries as Representatives John Mica (R-Fl) and Nick Rahall (D-WV), Chairman and Ranking Democratic Member, respectively, of the House Transportation and Infrastructure Committee; real-estate development expert turned pundit Chris Leinberger of The Brookings Institution; and Forbes magazine columnist Joel Kotkin.  Reports on both the national political scene and local issues in The New York Times, TheWashington Post, the Los Angeles Times, and other print media outlets feature the term almost daily.  There has not been so much attention to the topic since the months following the 1981 publication of America in Ruins: Beyond the Public Works Pork Barrel, by Pat Choate and Susan Walter.

Choate and Walter warned that government spending on infrastructure had failed to keep pace with the nation’s needs, causing our public facilities to wear out faster than they were being replaced.  The book sparked national debate about not only how much we should be investing in infrastructure, but also whether such public investment is worth making.

Suggesting that we were not then spending enough, Bill Clinton’s 1991 presidential campaign included a promise to “rebuild America,” but an $80 billion program proposed early in his first term never made it through the Congress. A recent Congressional Budget Office (CBO) report shows that total annual public spending for transportation and water infrastructure was higher in 2007 than in 1991, when viewed as a percentage of our Gross Domestic Product (GDP) the amount has declined steadily for four decades. (Public Spending on Transportation and Water Infrastructure, November 2010)  Whether or not America was “in ruins” in 1981, the American Society of Civil Engineers in 2010 issued a Report Card for America’s Infrastructure with an overall GPA of “D.”

On the question of whether public investment in infrastructure is worthwhile, economists have bickered about the measureable rate of return on investment.  Such academic heavyweights as David Aschauer, Douglas Holtz-Eakin, Alicia Munnell featured prominently in the late 1980s and 1990s.  A truce was called (or perhaps interest in an unwinnable dispute simply flagged) with widespread agreement that the rate of return, observed at the level of the nation or large regions, had been at least positive in recent decades.  Researchers continue to document examples of quite reasonable returns. (For example, nearly 16% on transportation investment; Alfredo M. Pereira and Jorge M. Andraz, 2005, “Public Investment in Transportation Infrastructure and Economic Performance in Portugal,” Review of Development Economics 9:2 (177-196))

So an argument can be made that public investment does yield net returns.  But how much investment is needed to maintain productivity and growth?  Walter Rostow’s seminal book The Stages of Economic Growth: A Non-Communist Manifesto appeared in 1960, asserting that economies launching into modern industrial growth show investment rates rising from about 5% of the national income to 10% or more. The CBO study shows U. S. investment in transportation and water infrastructure has been below 2.5% for some years; allowing for spending on other infrastructure (such as waste treatment facilities or schools, for example) would certainly increase this percentage, quite possibly to a level within Rostow’s range. 

Economist A. O. Hirschman, at about the same time that Rostow’s work was being completed, argued that temporary shortages of infrastructure can be tolerated, that facilities can be built later to catch up with demand derived from private industry’s growth.  (The Strategy of Economic Development, 1958)  He went on to suggest that what retards economic advance in most cases is a shortage of management capability rather than physical facilities.  More recent analyses have provided supporting evidence. (Charles R. Hulten, “Infrastructure Effectiveness as a Determinant of Economic Growth:  How Well You Use it May Be More Important than How Much You Have,” 1996 and 2005)

What has been neglected in all of the analyses that I have seen is an explicit consideration of maintenance spending, as distinct from investment.  Infrastructure, like most engineered systems, requires periodic care to keep it functioning properly.  Leaves, trash and other debris clog drains that channel rainwater away from roadways must be cleaned out.  Filters that remove silt and bacteria from drinking water must be flushed.  The costs of such maintenance effort typically are accrued in different accounts from those the represent “investment.”  But if maintenance is neglected, the quality of services and longevity of facilities will be impaired.  My discussions with people who manage maintenance in public works agencies suggest that maintenance budgets are often squeezed, forcing neglect.

In the absence of data and solid analysis for estimating appropriate levels of spending, I have found that many facilities managers use as a rule of thumb that about 2% of the current replacement value of the facility should be spent annually on routine maintenance.  (For example, see Committing to the Cost of Ownership: Maintenance and Repair of Public Buildings, 1990, The National Academies Press, the report of a study I worked on with a number of government facilities managers.)  Spending less (assuming the money is used effectively) risks premature deterioration and failures.  Failure of the Interstate 35W bridge collapsed in Minneapolis in August 2007 and rupture of a 66-inch water main in suburban Washington, DC, in December 2008 are two of many examples of such risks becoming reality. 

The point is, we really do not know how much we need to spend for our infrastructure.  But the evidence suggests we need to spend more than we do now.