ATLANTA — State and local governments struggling to address the nation’s trillion-dollar deficit in infrastructure financing will find help in a new book co-authored by Georgia State University scholar Can Chen.
In “Innovative Infrastructure Finance: A Guide for State and Local Governments,” Chen and John Bartle of the University of Nebraska at Omaha describe the state and local transportation infrastructure financing mechanisms that work, both traditional and new. They detail best practices and working examples governments can use to address what has emerged as one of the most urgent issues facing the country.
Below, Chen, an associate professor of public management and policy in the Andrew Young School of Policy Studies, offers more details on their research and findings.
Who is your audience for this book?
The book is a guide that gives public finance practitioners the tools and tells them how best to use them. It is useful for state and local government practitioners — particularly in public works and public transportation — as well as academic researchers, applied policy analysts and students in public administration, public policy and public finance.
What inspired you to write this book now?
I’m always curious about how we can be creative in raising enough money to upgrade infrastructure. We know infrastructure is important — everyone uses it — but we often take it for granted.
Every four years, the American Society of Civil Engineers (ASCE) grades the physical condition of U.S. infrastructure with its Report Card for America’s Infrastructure. The latest overall infrastructure grade in 2021 was a C-. That’s not a good performance. ASCE estimated an infrastructure investment gap of $2.6 trillion between 2020 and 2029.
Well-maintained and high-quality infrastructure attracts businesses. Private firms want reliable and efficient transportation, utility and internet services. So, infrastructure is very important for economic growth and job creation.
We realize in Atlanta how important this funding is for transit, economic growth, equity and the environment. Now with climate change, we need new investments in climate-resilient infrastructure for environmental protection and disaster preparation.
State and local governments are the major infrastructure owners and operators. They need to finance these improvements. If they don’t, we’ll see more problems in aging infrastructure.
What is creating our infrastructure financing deficit? What are the consequences?
There are many reasons for the deficit. On the demand side, government spending on infrastructure has not kept pace with the investment demands of the system. The U.S. has had dramatic population growth in urban areas, which demands more infrastructure.
The demand for infrastructure services is increasing for several economic and social reasons: climate change, shifting supply chains and technological advancements. Environmental sustainability requires infrastructure that uses less energy and encourages less wasteful decisions by users. And the urgent demand for greater social equity requires that access to services provided by public assets be equal and fair.
On the supply side, rising construction costs, shrinking public infrastructure funding sources and constrained public sector budgets due to rising health care and pension costs threaten the future sustainability of state and local infrastructure finance.
Traditional ways of funding and financing transportation infrastructure face challenges due to technological innovations. For example, gas taxes represent one of the most important revenue sources for transportation infrastructure funding in the U.S. However, the improvement in fuel economy and the growing use of alternative fuel vehicles has led federal and state motor fuel taxes to lose purchasing power and become the least sustainable highway revenue source.
In the book, we examine innovative infrastructure finance solutions, including new funding sources, new financing mechanisms and new financial arrangements. New financial mechanisms such as green bonds, environmental impact bonds (EIBs), state infrastructure banks and new financial arrangements such as public private partnerships (PPPs) and crowdfunding are some alternatives. The goal is to find long-term, sustainable funding resources for the use of roads — regardless of the type of vehicle — and to incorporate variable rates or refunds for low-income people who are most impacted.
What are some of the top traditional methods and more innovative financing mechanisms you mention in the book?
General taxes (sales, income, property) and special taxes (gas, utility) are the main traditional methods of infrastructure finance. Debt financing and intergovernmental grants and aid are also important methods, as are federal infrastructure grants like the recent $1.2 trillion American Infrastructure Investment and Jobs Act of 2021.
In sum, we still rely on these traditional methods and cannot totally replace them. However, innovative financing tools can supplement them.
Government-issued green bonds for building green infrastructure projects are attractive to environmental investors, offer long-term benefits and can build a city’s reputation for advancing environmental sustainability. EIBs are innovative performance-based financing tools whose payback is contingent on the environmental performance of the projects. For example, in 2019 the city of Atlanta, in partnership with Quantified Ventures, issued the second U.S. EIB for $14 million to provide funding for innovative green infrastructure projects that address critical flooding and water quality issues, reduce stormwater runoff and enhance the quality of life in targeted neighborhoods.
In the book, we conclude with case studies governments can use as examples. We did interviews with state and local government practitioners and learned more about the lessons and experiences they can share with other jurisdictions.