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Infrastructure Success in Boston Raises Prospect of Future Urban Spending

October 24, 2008 at 6:30 PM EST
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The success of Boston's Big Dig infrastructure program raises the prospect of future large state expenditures on similar programs. A fiscal policy analyst and urban planner lay out their respective positions on the benefit of such an investment.
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Now we get some perspective on the questions raised in this series and what challenges lie ahead. It comes from Chris Edwards, director of Fiscal Policy Studies at the Cato Institute, a libertarian policy research foundation in Washington, D.C.

And Michael Gallis, he heads a consulting firm in North Carolina that advises federal, state, and local governments, as well as private companies on urban and regional development strategies. He joins us from Charlotte.

And, Michael Gallis, let’s begin with the question we ended on: Can governments at every level afford to pay the bills that are piling up?

MICHAEL GALLIS, urban development consultant: Well, I think the Big Dig is not the best example to think of transportation investments in this country. I think we have to put it in a little different context.

We were just talking in an earlier segment on the show about the global economy. And we have to realize that the U.S. in the global economy is the island nation, not England, but the U.S. We’re separated by two oceans from 75 percent of the world economy.

The only way to get there is by air and sea. And our roads and rails is what’s going to take our products and goods, our people and services to world markets and bring world markets to us.

We have to understand that the efficiency and quality of our infrastructure is going to be fundamental to our ability to compete in a global age.

RAY SUAREZ: And, Chris Edwards, who pays the bill, then?

CHRIS EDWARDS, CATO Institute: I think the bill should be paid by a combination of both government infrastructure, where private infrastructure is not possible. But increasingly I think the bill should be paid by private companies.

Building highways, for example, we’ve got many examples now around the world of private toll highways. Northern Virginia, where I live, there’s a 14-mile private toll highway that’s been operating for over a decade.

Airports have been privatized around the world. London, Vienna, airports in Australia have been privatized. Even infrastructure such as air traffic control has been privatized successfully in Canada.

So state and local governments are spending, actually, a pretty good chunk of money now on capital investment. Capital investment at the state and local level is now about 2.5 percent of GDP. That’s actually up from the average during the ’80s and ’90s.

However, our roads and airports are still very congested. I think the answer is innovative financing, going to the private sector for building new highways, expanding airports, and that sort of infrastructure.

Need for improvements exceeds funds

RAY SUAREZ: Michael Gallis, Midway Airport on the South Side of Chicago, for a time, it was speculated that the Pennsylvania turnpike was going to be taken over by a foreign consortium. Is private money the way to go when there's this much unmet need?

MICHAEL GALLIS: Well, I think the issue of public and private finance is going to be key to the future. But let's remember: Who pays to build it is going to be different than who actually pays the cost of the infrastructure.

Because when we have private investment -- and we were just discussing this segment in northern Virginia. And that is going to be paid through tolls and fees. And the investors -- 90 percent of that investment was from foreign countries.

Now, the way that deal was set up, if one were to go into all the contracts, the users of that segment of freeway are actually going to pay more than if the government had financed it. And the money that is going to it is going to end up in a foreign country.

So I think we need to think a lot more, and more seriously, and in greater depth about the issue of how to structure these deals and make sure that we're not just shoving the cost off to the users and we're going to end up paying more for it.

RAY SUAREZ: Well, take Michael Gallis' point, that it's a different question when you're talking about fixing things that have been built before and are already publicly owned versus new investment, new development, new capital. Are there two different tracks on which America's infrastructure challenges now run?

CHRIS EDWARDS: I think America ought to use the best examples from around the world, in privatization and in new -- using new technologies, such as toll highway technologies.

Foreign companies are often the most advanced in this technology. And I think America ought to learn the lessons from abroad.

It's true that infrastructure is crucially important in the future for America's competitiveness. And a lot of our infrastructure now, frankly, is not up to world standards.

Our seaports, for example, lag behind seaports in Hong Kong and Singapore and Rotterdam. I think the reason is partly because they're government-owned. Seaport abroad, in places like Britain and Hong Kong, are privately owned and operated. And I think that is an area we need to look at.

Finding other funding sources

RAY SUAREZ: Recently, economists have been weighing in on the proposal for a second economic stimulus package. And some of them have said, "Oh, don't just send people a check. Put it in bridges, in roads, in ports." Is that a way to go?

CHRIS EDWARDS: I don't think we should be looking at this as a short-term stimulus. Frankly, I don't think the government at any level controls the cyclical ups and downs in the economy.

Frankly, if governments did control recessions and could prevent recessions with stimulus bills, we'd never have recessions, because that's what they'd be doing every time.

So I think we should be thinking about this in terms of long-term competitiveness and long-term investment, not trying to change the ups and downs in the economy.

RAY SUAREZ: Michael Gallis, what do you make of that suggestion, to take a New Deal approach toward reinvigorating American infrastructure spending?

MICHAEL GALLIS: Well, I was very frustrated by the first stimulus package, because essentially what it was, was a glorified welfare program.

And the challenge is -- and I would echo what was just said -- we've got to worry in this country about building our competitiveness. And there is no question that the greatest growth of GDP since the end of World War II was from '60 to '70 in what they call chain dollars (ph), $2,000, when we were building infrastructure in this country.

There were two things. It paid for infrastructure, but it also was a huge stimulus to the growth of the national economy.

I think we have to think beyond just handing out glorified welfare checks and calling it a stimulus package. I think we have to really worry about how to build the competitiveness of this country in the 21st-century global economy.

I think we can't just live off our inheritance anymore. We have to begin to think about, what does this country really need to compete effectively in a world where we have gigantic competitors, like China, like the gulf states?

Everybody knows the game today. It's about time we woke up and started investing in our future.

Combining public, private finance

RAY SUAREZ: But, Michael Gallis, aren't we talking about figures that are so huge -- the American Society of Civil Engineers says $1.6 trillion of infrastructure spending is needed pretty soon -- aren't we talking about such large figures that the incentive is to kick the can down the road into the next political term or after the next campaign?

MICHAEL GALLIS: Well, that's been what's gone on for the last 20 years. But, you know, we're kicking around numbers like $700 billion bailout of a financial industry that was acting irresponsibly.

And instead of making responsible investments, you know, here we are stuck bailing out a group of hooligans who should have never been allowed to make the decisions that they did.

I think the number -- the size of the number is not the problem. The issue is how to structure it, how to put it together over time.

And I think, as we heard from Cato Institute, the issue is how to put together public and private finance that makes sense that the American public could benefit from.

RAY SUAREZ: Can we do that?

CHRIS EDWARDS: Yes, I think Michael is absolutely right. Competitiveness is the issue here.

I mean, a recent World Bank report, for example, showed that United States only is 14th-ranked in the world in terms of our infrastructure for trading and logistics and that sort of thing.

We're behind countries like Canada and Germany on our international trade infrastructure. We ought to be number-one. Hey, we're America. We ought to be number-one.

And I think we can be, by learning the best lessons from abroad and using some of these innovative approaches, like privatization of seaports and airports and that sort of thing.

RAY SUAREZ: But is there enough consensus on this issue to do something quickly?

CHRIS EDWARDS: I think, you know, we've seen a lot of action in the highway area. I mean, both Republican and Democratic governors in a lot of states are looking at private toll highways in places like Indiana and Virginia.

So, you know, I think, you know, governments, they're always saying that they're short of money. Here is a way for them, frankly, to raise some money for infrastructure that I think will benefit everybody.

RAY SUAREZ: Chris Edwards, Michael Gallis, gentlemen, thanks a lot.

CHRIS EDWARDS: Thank you.

MICHAEL GALLIS: Thank you.