Public Infrastructure Dividends
The Benefits of Capital Investments in New York City
We live in an era of fiscal austerity. Spending decisions – by families, communities and governments – are subject to more and more scrutiny, to ensure we are not living beyond our means. In the case of government spending, each dollar is not equally important to individuals and not equally important to society and to the whole economy. This is worth remembering as governments cut their budgets.
Operations and Investments are Different
States, cities, counties and other local governments, like businesses, have budgets separating "now" from the "future." The general budget covers spending for the day-to-day operations; it is concentrated on paying workers, suppliers and utilities in order to provide the services residents expect from their government. This budget tends to be the focus of political arguments over the size of spending and taxes. The less noticed capital budget lays out investment projects for the long term. It recognizes that both the costs, and the benefits, of public projects are spread over years, often decades.
The historic separation between government operations and capital spending is based on good reason and long experience. The all-too-human preference for the short term has often crowded out even the most pressing signs that long term needs must be addressed. When the economy is weak or there is a prolonged fiscal crisis, even highly valued investments do not get maintained. So, sometimes we must stand back and recognize a bold truth: the dollars of capital spending are different. They leave an enduring imprint on the landscape, provide benefits over decades, and represent essential investments in the future.
Public Projects Add to Wealth
We travel today using roads, bridges, tunnels, airports and train networks built – and financed – by prior generations. When we turn the tap or flush, we likely take for granted the miles of sewers and water mains, aqueducts and treatment plants others installed to make this possible.
Public infrastructure forms a big part of our national wealth and capital. It represents savings inherited from earlier generations – a visible testimony to the commitment that prior generations have made to improve our quality of life. Each subsequent generation has a responsibility not only to act as stewards of this capital but also to secure improvements for the future.
Uniquely, capital projects offer both immediate and long-lasting benefits. A dollar spent today on public infrastructure gives an immediate boost to the economy and, according to the Congressional Budget Office, will result in an estimated $1.80 in economic activity.
Tomorrow and beyond, these projects support our economic growth because they form the economy's capital base. They are the vital linkages in the economy, making it work on a daily basis. A modern and up-to-date capital base – work places, tools, machines, computers, software and vital infrastructure – increases worker productivity. The more productive we are, the faster our economy grows and, ultimately, the higher is our standard of living.
In addition to the benefits capital projects provide to any single user – the motorist on the bridge, the commuter on the train or highway, the family turning on the tap – they provide multiple benefits to entire communities. This is often taken for granted. It is as if the public infrastructure were always there and always will be. To ensure that public works remain part of our landscape, there must be general recognition of the need for common action – by every generation – to increase our capital stock.
Nothing Lasts Forever: The Need for Replacement & Renewal
It is in the nature of infrastructure that it declines in value over time. Materials and equipment wear out; technology and skills become obsolete. This depreciation alone argues for a steady stream of new investment in order for the economy not to fall backwards.
Unfortunately, America's investment in basic infrastructure (transportation and water) has fallen from just over 3% of GDP in the late 1950's to 2.2% in 2009. Not surprisingly, in their 2009 report card, the American Society of Civil Engineers (ASCE) noted that our infrastructure has been "crumbling" for so long it only receives a "D" grade. To arrest this decline requires saving – setting aside some resources now and turning them into productive investments. This does not come cheap. If we had spent in 2009 the 3% share of GDP on public infrastructure that we did fifty years ago, it would have required about $110 billion, on top of the $317 billion spent that year. And, this added spending must take place year after year to offset the "crumbling" and to initiate and sustain new projects.
Vital Benefits for the Regional Economy
We often do not even note the benefits of this infrastructure spending. While the costs of public projects – the amounts being borrowed to build them and the taxes to repay the interest – can receive considerable attention because the numbers are large, the benefits do not get budgeted. They are diffused in small amounts to a large number of people over generations. As a result, these additions to our national assets may only be noted in ribbon-cuttings, and then go largely forgotten. Individuals will take advantage of these projects, but even they will not necessarily think about the cost of maintaining, improving, or replacing them.
New Yorkers see daily reminders of the value of public projects. The City is the core of a tri-state economy of twenty-two million people. Manhattan is its primary business district, supplier of the best jobs and site of its strongest tax base. It would not be possible for the New York region to sustain its $1.4 trillion economy – with a dazzling array of diversity and economic opportunities – without the web of infrastructure that links the area together. When we lose one piece of this infrastructure web – whether from neglect (West Side Highway) or malevolence (World Trade Center transit facilities) – the economy takes notice, usually through a decline in productivity or an increase in vacant properties.
Because Manhattan is an island, access is vital. The transportation infrastructure provides widespread benefits; improvements in it save time, reduce transfer hassles, overcrowding and congestion. Commuter benefits may be measured in the dollar value of the time saved. Further economic benefits are generated by new or better access to commerce, jobs and customers, usually captured through increased property values and new economic activity. Quantifying these benefits is difficult; sometimes the assumptions used to estimate them over time prove not to be realistic. But, few dispute they exist, as the case studies below illustrate.
