The Economic Benefits of Infrastructure Investment, Part III: We Need to Address the Problem Now to Save in the Long Run

The Economic Benefits of Infrastructure Investment, Part III: We Need to Address the Problem Now to Save in the Long Run

“Infrastructure Matters.” This is the message that various industry groups and organizations are promoting during this year’s Infrastructure Week and National Public Works Week. Infrastructure matters because it is the backbone of our economy and essential to maintaining a safe, healthy, and high quality of life. Yet, if infrastructure is so obviously critical, why is there a need to raise awareness about its importance?

Just yesterday, at an APWA New England Chapter National Public Works Week luncheon, Dan McNichol shared stories on this topic and talked about his books and his Low and Slow Across America Infrastructure Tour with a room full of public works professionals as he works to raise awareness of this issue. The short answer is that some in the public and in government tend to overlook the built environment until local infrastructure fails and causes a disruption or a catastrophic event—like the Flint, Michigan water crisis—draws media attention to infrastructure or maintenance failure. In addition, citizens and elected representatives may not be aware of how great the shortfall is to adequately assess, fund, and direct attention to maintaining our nation’s infrastructure. The gap between what is currently being done to address our infrastructure challenges and what is required is substantial.

Failing to fix an escalating problem

 It is well known among our industry peers that the cost to address infrastructure needs in the United States is enormous. In the widely cited Infrastructure Report Card from the American Society of Civil Engineers (ASCE), the U.S. needs to invest $1.4 trillion in infrastructure between the report’s publication and 2025 and $5.2 trillion by 2040 to meet essential infrastructure needs—almost double what the country is projected to spend over that period. (We covered the ASCE’s findings in Part I of this blog post series.)

Despite industry awareness of the cost, the U.S. has underinvested in infrastructure for decades. In 2014, the Senior Managing Director with Standard & Poor’s testified in the U.S. Senate that the Federal Reserve Bank of St. Louis determined that overall government spending on U.S. public infrastructure had fallen to a 20-year low of 1.7% of GDP. According to the Director’s testimony, this percentage was substantially lower than most developed countries and “more than five times lower in relative terms to what is spent in Canada.”

There is a real cost associated with this lack of investment. The ASCE determined that if the investment gap is not addressed throughout the nation’s infrastructure sectors by 2025, the economy is expected to lose almost $4 trillion in GDP, resulting in a loss of 2.5 million jobs, not to mention the serious risk to safety and the environment.

Certainly, municipalities are investing in water and wastewater infrastructure improvements, but current spending isn’t keeping pace with need. In 2010, the EPA estimated the cost to maintain and upgrade drinking water and wastewater systems at $91 billion, but only $36 billion had been funded, leaving a gap of $55 billion. That gap is only widening. As systems age, the investment required to sustain these systems will reach $126 billion by 2020, with an estimated funding gap of $84 billion. In another 20 years, assuming the same trend, maintenance and upgrades will cost $195 billion and the gap will reach $144 billion unless current funding trends change.

The reality of the replacement era

 More than a decade ago the American Water Works Association (AWWA) announced that the U.S. was entering an “era of infrastructure replacement” when our nation would need to begin rebuilding the water and wastewater systems built and funded in the last century (and before). Many of the wastewater treatment plants built in the 1970s and 80s following the passage of the Clean Water Act are reaching or are beyond their replacement age.

The AWWA also points out that most of our buried drinking water infrastructure was built 50 or more years ago during the rapid demographic changes and economic growth that followed World War II. In some older urban areas, such as those in the Northeast where we perform a lot of our work, many pipes have been in the ground for a century or longer. Depending on the type of pipe and environmental conditions, most pipes have a lifespan of 60 to 95 years. According to the EPA, 30% of pipes in systems that deliver water to more than 100,000 people are between 40 and 80 years old and about 10% of pipes in those systems are older. Given its age, a large portion of water infrastructure in this country is approaching, or has already reached, the end of its useful life.

We’re bearing the financial and environmental burden of this failure to act and adequately address water and wastewater needs. For example, the AWWA estimates that about 14 to 18 percent of the water the nation treats nationwide—more than 2 trillion gallons of water each year—is lost due to leaking pipes, broken water mains, and other faulty components of water supply infrastructure. The Value of Water Coalition states that, on average, 700 water mains break every day in this country—almost one every two minutes. As a result, we not only waste valuable water resources, but we also lose billions in revenue that can’t be captured by delivering that water and waste the resources expended to capture and treat that water in the first place. If wastewater systems are neglected, the nation will see a rise in waterborne illnesses and increased costs to deal with pollution. In addition, there are economic losses associated with water pollution. The Water Environment Federation (WEF) reports that clean water supports billions of industry dollars, from a $50 billion-per-year recreation industry, $225 billion in coastal tourism, and $29 billion in commercial fishing.

Reversing the trend

 The good news is that reversing the underinvestment trend will not only make us safer and healthier, it will also save us money. The ASCE makes the key point that the country “is currently spending more failing to act on our investment gap then we would to close it. Inefficient infrastructure is costing every household $9.30 a day. However, if every family instead invested an additional $3 a day per household, we could close the infrastructure investment gap in 10 years.”

Individual users will be asked to contribute more to address the funding gap, but rate increases will need to be equitable, affordable, and based on sound capital planning. Utilities will also need to operate smarter and find efficiencies. Private capital should be leveraged and provide part of the solution, using Public-Private-Partnership (P3) and other models. But in the end, state and federal government will likely need to expand its role in providing funding to accelerate investment in infrastructure.

The public is willing to contribute to solve our infrastructure crisis when made aware of the need. Woodard & Curran’s Jay Sheehan recently shared on our blog data from a national poll from the Value of Water Coalition, which found that while the public is concerned with the state of clean water infrastructure in this country, respondents were evenly split when asked if they would be willing to pay more to improve and modernize water infrastructure. (Nearly half were willing to pay more with an equal percentage believing that they pay enough.) However, when educated about the challenge to invest in infrastructure that provides clean water and effective wastewater treatment, the respondents were willing to pay more to invest in improving their water service (60% willing to pay more with only 35% believing they pay enough). More to the point, when asked about the Flint crisis, the Coalition found that 95% of respondents believed that it was “important or very important that the infrastructure be improved and modernized” so that other communities would not endure what happened in Michigan.

Investment in water and wastewater infrastructure will benefit our health and the economy. According to the Alliance for Water Efficiency, a direct investment of $10 billion in water and efficiency programs can boost GDP by $13 to $15 billion, increase employment by 150,000 to 220,000 jobs, and save between 6.5 and 10 trillion gallons of water.

The challenge before us is daunting, but with greater public awareness and increased support from government and the private sector, it is not only possible to reverse the trend but an economically and environmentally sound decision. We need to prioritize, and we need to invest. We can’t wait.

Read Part I of this series on the blog, which makes the case for overall infrastructure investment and Part II, which details the benefits of investing in walking paths, bike trails, and parks.

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