From sea to shining sea, America is facing an infrastructure crisis. All types of US infrastructure, including roads, dams, and wastewater treatment are all crumbling into disrepair. One needs to look no further than the ongoing tragedy in Flint, Michigan, to see the human cost of this crisis. A recent report from the American Society of Civil Engineers stressed the urgent need for investment in water infrastructure, and outlined the considerable economic consequences of failing to act on this warning.
Failure to Act
The report, titled “Failure to Act: The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure,” shows that the nation’s drinking water and wastewater infrastructure is aging and overburdened, and that investments are not keeping up with need. However, a modest increase in investment in drinking water, wastewater, and wet weather water quality measures can prevent future economic losses.
Many of America’s water and wastewater infrastructure systems were built around the turn of the century and are showing their age. Unless new investments are made by 2020, unreliable and insufficient water infrastructure will cost the average American household $900 a year in higher water rates and lower wages. American businesses can expect an additional $147 billion in increased costs and the economy could lose up to 700,000 jobs. The American people as a whole will miss out on $416 billion in GDP, $541 billion in personal income, and $6 billion in US exports.
However, the report says, an investment of an additional $84 billion between now and 2020 into municipal water and wastewater treatment systems, pipes, and wet weather management can prevent these losses. Annual capital investment in water infrastructure is approximately $36.4 billion. To meet the needs of a growing population for clean, available water, the annual investment must increase to $91 billion. An additional $9.4 billion per year between now and 2020 would avoid $21 billion per year in costs to households and businesses.
Trump’s Infrastructure Plan
During his campaign, President-elect Donald Trump made headlines with his trillion-dollar plan to invest in US infrastructure. You would think that means an increase in government funding for water and wastewater treatment. As details emerge, however, it has become increasingly apparent that he actually intends to let corporations do most of the investment.
Basically it works like this: the government would sell $1 trillion in revenue-producing bonds, needing only to supply an equity cushion to ensure everyone gets paid. Investors would get a tax credit to entice them to buy bonds, and the tax revenue from new jobs created by the projects would make up for that cost. These projects will be contracted out, netting a 10 percent profit margin for the private contractor. Trump’s economists claim that construction costs are higher when built by the government, and the private sector would be more efficient.
This line of argument is commonly used as justification for privatization, but it has been a disaster virtually everywhere it has been tried. This kind of scheme specifically ties infrastructure—designed for the common good—to a for-profit model. Private operators will only undertake projects if they promise a revenue stream. This is one thing if we’re talking about a bridge in New York City or a road in Los Angeles, which can be easily monetized through tolls, but many places that actually need infrastructure investment aren’t so lucky.
For example, the only way to entice private-sector actors into rebuilding Flint, Michigan’s water system would be to give them a cut of the profits in perpetuity. Chicago did a similar thing when it sold off 36,000 parking meters to a Wall Street-led investor group. Chicago residents now must pay exorbitant fees to park, and city government is helpless to alter the rates.
There are other dangers to this kind of privatization as well. It can lead to contractors skimping on costs to maximize profits. It also gives private investors and contractors too much power over project selection. The notion of an inherent public benefit to infrastructure improvements is totally eliminated, and replaced with one where improvements to infrastructure are only justified by their potential to generate profit for private contractors.
Kidal Delonix is a contributor to Mr. Hoffman's blog. The views and opinions are entirely his/her own and may not reflect Mr Hoffman's views.
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