The backbone of the American economy is our infrastructure system – the roads we drive on, the bridges we cross and the waterways we use for shipping. With a new infrastructure spending bill on the mind of many on Capitol Hill, this Market Intel will shed light on current and historical spending patterns on America’s roadways and waterways.
Infrastructure projects typically are expansive and costly public systems and facilities created and maintained through federal, state and local government funds. According to the Congressional Budget Office in 2017 public spending on transportation and water infrastructure accounted for $441 billion through either direct spending or grants. At $177 billion in 2017, U.S. highways are the largest infrastructure expenditure. They account for 40 percent of total transportation- and water-related public spending.
The largest spending discrepancy between federal and state and local is in water utilities, including water-supply and wastewater-treatment facilities.
- Water utilities account for $4 billion or 4 percent of the federal infrastructure budget.
- Water utilities account for $109 billion or 32 percent of state and local budgets.
Figure 1 outlines the percentage of government expenditures in 2017 for some of the largest infrastructure investments.
Ground transportation needs new funding
The U.S. highway system is funded through the Fixing America’s Surface Transportation Act and the Highway Trust Fund . The act authorizes $305 billion for fiscal years 2016 through 2020, with a focus on highway safety and structural highway programs. The Highway Trust Fund historically funded all federal highway programs, as well as 80 percent of public transportation programs. The money comes from fuel, truck and tire taxes. Last raised in 1993, the excise tax on fuel – 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel – accounts for about 90 percent of the fund.
Increases in fuel consumption since 1993 had been maintaining the fund. But after the recession starting in 2007, a greater propensity for fuel efficiency has stymied the revenue growth of the fund, leading to consistent overspending. Based on Congressional Budget Office’s latest baseline and trends, the fund will begin realizing cumulative shortfalls in 2022. That will result in as much as a $124 billion deficit in the highway account by 2029.
Waterways funding increases
Similar to the U.S. highway system, our nation’s ports and inland waterways also benefit from two major sources of capital funds – the Inland Waterways Trust Fund and the Harbor Maintenance Trust Fund. But they aren’t like federal funding provided for highways and municipal water infrastructure. Instead federal funds distributed to the Army Corps of Engineers is not dispersed through a formula to states or competitive grant programs.
- The Inland Waterways Trust Fund, which pays for 50 percent of construction and major rehabilitation costs for national inland waterways, is funded through a 29-cent-per-gallon tax on barge fuel.
- The Harbor Maintenance Trust Fund is also utilized to help fund Army Corps of Engineers operations and maintenance activities. It’s funded from a direct tax of $1.25 per $1,000 of cargo moving through coastal and Great Lakes ports.
While both of those funding streams are funded partially through user taxes, the other half is from the general fund and appropriated by Congress. Public spending on water transportation in 2017 equaled $10.2 billion, and increase of $3.5 billion from 30 years ago. Figure 3 reveals the change through time in public spending on water-transportation infrastructure between 1987 and 2017.
Expenditures need to fund improvements
For the past 60 years state and local capital spending on transportation and water has seen an average annual growth rate of about 1 percent. More than half the spending comes from state and local revenues. State and local revenues in 2017 were $102 billion. Federal grants were $64 billion, or 62 percent of total capital spent. State and local revenues have since 1981 consistently outpaced spending from federal grants. Figure 3 illustrates the trend of state and local capital spending on transportation and water infrastructure from 1957 to 2017.
With no agreed upon definition of what is included in “infrastructure,” determining the level of funding needed and where it should be authorized continues to be a problem. Some define infrastructure more narrowly, identifying key systems such as transportation, water and energy. Other definitions include telecommunications, education, recreation and health.
To meet the diverse demands of urban, suburban and rural communities as well as to maintain a strong economic standing, vital infrastructure improvements must be made. Particularly for rural communities and American agriculture, the stability of the nation’s highways, bridges, railways, locks and dams, harbors and ports is paramount. Strong federal investment along with creative solutions are necessary to meet the challenges of rural America.