America's infrastructure is falling apart. Australia has the solution.
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- American infrastructure needs immediate, large-scale investment. Unfortunately, the federal government faces enormous deficits, while states and municipalities are under intense financial pressure.
- Instead of solely relying on traditional government spending, we should embrace the "asset recycling" strategies used in Australia.
- A national incentive infrastructure program can democratize and accelerate the revitalization of American infrastructure.
- Jay M. Tannon is the founder and co-managing partner of American Infrastructure Holdings.
- Jigar Shah is president and co-founder of Generate Capital.
- This is an opinion column. The thoughts expressed are those of the authors.
- Visit Business Insider's homepage for more stories.
America's infrastructure - our roads, bridges, electrical grids, ports - is falling apart and getting worse every year.
The amount needed to revitalize this infrastructure, or its annual "funding gap," has hit $2 trillion and is growing
At the same time, the country's budget deficit in 2020 ballooned to $3 trillion, and American families and businesses need continued support through the COVID-19 pandemic.
The federal government, in short, is struggling to assemble the financial resources to meet our national infrastructure challenge. And beyond Washington, DC, states have long been short on adequate resources to tackle the infrastructure needs.
So how can state and federal authorities hope to repair our crumbling highways, tunnels, railways, transmission lines and other pressing infrastructure needs - let alone launch new infrastructure projects to prepare for the future? One answer can be found 10,500 miles away.
Our infrastructure budget is down under
The Australian government generated $2.4 billion in infrastructure investment between 2014 and 2019. The country invested another $17 billion during the same period through what's known as "asset recycling." Americans can adapt this approach to help meet our nation's infrastructure needs through what we prefer to call "Incentive Infrastructure."
Through incentive infrastructure, government agencies could "sell" crumbling infrastructure assets to private operators. Funds generated by either the sale of these assets or the ongoing right to operate these assets would then be invested by those state and local agencies into new infrastructure.
The old infrastructure would get a private sector facelift with the latest low carbon technology. All of the money generated would be invested into new infrastructure projects, which could also be sold to private owners and the money "recycled" again back to the public sector. The cycle would just keep repeating itself until we got through our trillion-dollar backlog. It can become a self-sustaining cycle - hence, "asset recycling."
Government agencies around the world have saved as much as 30%in life-cycle costs by relying upon private stewardship of infrastructure. In the US, private operation of certain types of infrastructure has produced similar savings generated by greater operating revenue and fewer expenses.
Incentive infrastructure isn't mere privatization, forcing taxpayers to pay dearly for services that are currently free. A thoughtful incentive infrastructure program would focus on the assets and services we already pay for, such as publicly owned power plants, wastewater facilities, and trash collection operations.
Moreover, so many towns, counties and states own and lose money on these assets now. The main problem is that they are not able to keep up with basic maintenance, which causes major problems and more expensive fixes in the future. There is also a fear of new and better technology to avoid being accused of experimenting on unproven sustainable ideas.
Airports are a prime example. They are essentially shopping malls with wings and tighter security. Aside from doling out political posts and awarding contracts to political supporters, why are government agencies paying to maintain and operate airports? Similarly, why are taxpayers responsible for shipping ports? After all, private sector cargo ships already pay fees to use these ports.
"Incentive infrastructure" creates a better future
There are a variety of ways we could implement and incentivize the "recycling" of American infrastructure.
The federal government could, for example, offer matching funds to state and local governments willing to award concessions on infrastructure assets under their dominion. With this approach, a city or state could award a long-term concession on an airport or power plant to a private sponsor and operator for $200 million, and then receive an additional $50 million or more in "incentive" federal funding to help bankroll the next important project in that jurisdiction.
This could surely be done in a manner that ensures taxpayers are protected. Local and state governments would retain oversight, ensuring user rates stay reasonable and operations effective by offering combinations of sticks and carrots. Companies that excel could earn bonuses; others that fail to meet the public's articulated standard could face fines or ultimately forfeit their concessions.
Let's be clear about that public standard: US infrastructure recently earned a D+ from the American Society of Civil Engineers. If municipal bonds adequately funded new infrastructure, or if Congress could finally pass a truly robust infrastructure bill, we wouldn't be struggling to expand broadband access to rural communities,, spending millions of unproductive hours in traffic or train delays, or losing thousands of friends and loved ones to unsafe highways or poorly funded public hospitals.
It is past time to adopt an innovative approach to address this challenge. American infrastructure was once the global model.. While flawed infrastructure hinders America's economic performance, effective infrastructure enables commerce, empowers businesses to expand and to create jobs, and itself creates millions of jobs.
Incentive infrastructure can help put America back on the road to prosperity and security. This new approach to infrastructure funding can fuel the economic engines of our economy and help restore the American way of life as the envy of the world.
Jay M. Tannon is the founder and co-managing partner of American Infrastructure Holdings. Jigar Shah is president and co-founder of Generate Capital.
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