There’s no money for infrastructure, so cities must think differently

You might have missed it with all of the distractions of this increasingly unhinged presidential campaign, but the Republican standard-bearer is running to the left of the Democrat on infrastructure.

Hillary Clinton (D) has proposed spending $275 billion over the next five years on repairing the nation’s crumbling roads, rail systems, bridges, water tunnels and utility plants, with an additional $25 billion devoted to funding a new infrastructure bank to support loans and loan guarantees, possibly bringing total spending on infrastructure to the level of $500 billion.

{mosads}Donald Trump (R) would double that, spending $800 billion to $1 trillion over the same period, through the creation of an infrastructure fund backed by government-issued bonds that investors and citizens could purchase. Given that a recent report from the American Society of Civil Engineers estimates it would take $1.6 trillion by 2020 to get the country’s infrastructure up to snuff, even Trump’s plan falls short of meeting the need.

The theoretical agreement about the funding crisis in infrastructure may be purely academic, however, given that Congress can barely bring itself to fund urgent highway maintenance spending when it comes up for a vote.

In the meantime, cities and municipalities, after having bounced back from the deep recession of 2007 to 2009, face the pressing need to maintain and upgrade their deteriorating infrastructure. They can’t afford to wait for Washington to get its act together, and they can’t afford to fund the necessary work themselves. In recent surveys, cities have identified infrastructure funding as their most challenging issue going forward, and they are running out of options that don’t break their budgets and destroy their solvency.

One recent cautionary tale is the small city of Lamar, Colorado, whose authorities in 2004 gave the go-ahead to the conversion of an antiquated gas-fired power plant into a coal-fired plant, hoping to benefit politically by lowering utility bills for constituents.

Years of work on the new plant was undertaken by the Arkansas River Power Authority, of which Lamar was one of six municipal members. But the repowering project ran into several cost overruns and engineering problems, as well as a lawsuit brought by an environmental group. So city representatives voted to take on new debt to pay for the project’s rising costs on four separate occasions, and decided to attempt funding through a series of bond issuances.

By the time the doomed project was abandoned in 2014 after the Lamar Utilities Board bowed to political pressure and agreed to a settlement with environmental activists (which effectively closed down operation of the new plant), the city had approved $155 million in debt funding.

Now Lamar is attempting to shirk its debt obligations by filing suit and asking to be forgiven of the debt if freely approved, putting in jeopardy its ability to borrow for future projects as potential investors observe a history of fiscal mismanagement and attempting to evade paying for that mismanagement.

Lamar’s story might be looked at as a good example of the failed, old model of infrastructure funding that runs up debt and issues bonds without concern for consequences. And if the courts start allowing the dismissal of debt owed by cities, those that finance the projects will have a disincentive to back the bonds funding the infrastructure projects that serve the public good.

With dim prospects of federal funding and severe budget constraints going forward, cities should seek to avoid this type of debacle by turning to new and innovative models of funding infrastructure such as private-public partnerships (PPP). Some cities and municipalities have already discovered that PPPs allow them to shift most of the cost of vital infrastructure renewal to equity and investment firms, transferring the fiscal risk of new projects to investors while lightening their own budgetary impact.

It’s a solution that more and more cities will turn to in the near future as their acute needs for upgrading their infrastructure will not likely be met by a sufficiently large influx of money from a Congress no longer in the mood to shovel out dollars, even to “shovel-ready projects.”

Robertson is CEO of Crispin Solutions, a public affairs and communications consulting firm. He formerly served as policy director for Senate candidate Ed Gillespie’s (R) 2014 campaign and was senior policy adviser for the Joint Economic Committee.

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