May 18, 2018
Activities: Economic Development, Public Works, Transportation
Geography:
Demographics:
Annual ROI: 0.0%
Image source: Getty Images
Our nation’s infrastructure is crumbling . And it will require approximately $2 trillion to remedy this problem. The fact that Congress is allocating only $20 billion toward infrastructure projects this fiscal year is even more alarming.
But what does a poor infrastructure actually mean for the U.S.?
Source: ASCE 2017 Infrastructure Report Card
I can think of 2 major ways off the top of my head that improving our country’s roads, bridges, and other public structures will benefit the economy:
1. Increase economic output
In the short term, building bridges and roads increases the public capital stock. It adds immediate work (jobs) and also raises economic output (because government spending does count in our GDP).
In the long term, an improved capital stock makes it more possible for individuals and businesses to be productive. Bridges might shorten commute times, lowering distribution costs. A new highway might connect customers with businesses they would have previously been unwilling to travel to.
These assumptions are backed up by data. According to a report by Congressional Research Service in January 2018, “on average for the United States, a 1% increase in the public capital stock (about $138 billion in 2016) would result in a higher level of private-sector economic output by 0.083% in the short term (about $12.8 billion), compared with a baseline. The same 1% increase would increase the long-term level of private-sector economic output by 0.122% (about $18.7 billion in 2016), compared to a baseline.”
2. Decrease traffic congestion
Going hand in hand with this one is the amount of labor hours saved not being stuck in traffic. Some estimates have this totaled at over $160 billion per year, which will only rise as population grows. Compare this figure with the state and federal highways annual budget of $280 billion. Crazy.
Taking even a slight 10% improvement in traffic congestion would save $1.6 billion per year. Finding $16 billion in federal, state, and local budgets across the country is certainly achievable. And pinpointing the highest-return projects would be too. If done correctly, a 10%+ return (as indicated in the figures presented in the previous point) could be had on simple projects that have just been put off or neglected due to budget battles and political fighting.
The math (in millions):
Short-term: $16,000 x .083 = $1,328
ROI = 8.3%
Long-term: $16,000 x .122 = $1,952
ROI = 12.2%
Any finance professional will tell you that to earn anything over 10% return on investment would be a healthy haul.
What now?
Clearly there are improvements that need to be made. Whether or not everyone agrees on the economic impact or even political return on investment is another story. Hopefully we move in the right direction, and the more evidence we have to prove the case for improvements, the better our cities and states will be in the long run.
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