Wednesday, April 24, 2013

Infrastructure Operating Cost Is One-Half To Two-Thirds of Cost: Former CBO Director Calls For More Public Private Infrastructure Partnerships To Help Pay Ongoing Operating Costs

Posted by Milton Recht:

From Bloomberg, "Let the Free Market Not Bureaucrats Build Bridges" by Peter Orszag, Vice Chairman Citigroup, Former CBO and OMB Director:
For a country that prides itself on a robust private sector, the U.S. lags behind many other nations in using the private sector to finance, build and operate infrastructure. From 1990 to 2006, for example, public-private partnerships financed five times as much transportation infrastructure in the U.K. as in the U.S. -- even though the U.S. economy is more than six times larger than that of the U.K.
[Mayors] seemed to generally agree that access to low-cost financing isn’t the crucial obstacle. The more basic problem is the complex decision-making and approval process, along with the challenge to generate future revenue streams sufficient to pay for the ongoing costs of the project and the original loans to build it.
Economists Barry Bosworth and Sveta Milusheva of the Brookings Institution, who have pointed this out previously, say decision-makers too often look to obtain free federal funding for projects whose benefits are largely local. They also focus too much on new construction, and too little on operating costs and maintenance, which account for more than half of the total spending on infrastructure, according to the Congressional Budget Office. In mass transit and aviation, the share is more like two-thirds.

Partnerships with the private sector don’t make these operating and maintenance costs disappear -- ultimately, someone still pays -- but they provide a way to finance those costs, as well as the upfront investment, by leaning on people who directly use the infrastructure rather than the city’s taxpayers as a whole.
Also, see my post, "By 2015, Highway Trust Fund Will Have Funds Shortfall: Options Include Cutting Spending, Raising Gasoline Tax Or Both."

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