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Another American Money Pit: Infrastructure

by: Graham Summers July 29, 2008 | about stocks: PKB    

Graham Summers

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Pop Quiz…
What country needs to spend:
  • $1.6 trillion in the next five years just to maintain its infrastructure’s adequacy?
  • $78 billion to $137 billion per year for the next 20 years to eleminate its backlog of bridges and highways?
  • $15 billion per year to maintain its transit systems (improving them would cost another $9 billion per year)?
  • This country’s civil engineers gave its infrastructure a “D,” down from a D+ in 2003?
If you guessed the USA, you’re right.

Over the last 40 years, US federal investment in infrastructure has fallen steadily from 0.45% of GDP to a mere 0.05% of GDP. A full review of the problems facing the US would require a small book. So I’ll simply focus on some of the more glaring items.

For starters, 27% of the nation's 590,000 bridges are either structurally deficient or functionally obsolete. This issue alone would cost nearly $10 billion a year for 20 years to amend.

There are 9,471 sewer overflow problems in some 772 communities spread across 33 states. This results in some 850 billion gallons of raw or partially treated sewage water flowing into rivers, lakes and wetlands every year. This issue requires $50 billion to fix.

The average US public school building is 40 years old. More than three quarters of these have deferred maintenance. The Government Accounting Office estimates more than $100 billion in investment is needed to bring the nation’s schools up to standard.

As advanced as the US proclaims to be in terms of technology, we’re actually dramatically behind other developed nations. Denmark’s broadband market penetration stands at 34 connections per 100 inhabitants. The US is only at 22 per 100 inhabitants. Similarly, 35% of Japan’s internet connections are fiber optic. In the US it’s only 3%.

According to the National Surface Transportation Policy and Revenue Study Commission, the US needs to invest roughly $225 billion per year for the next 50 years in order to add capacity and maintain infrastructure. Currently it spends about $85 billion a year. Put another way, public investment needs to almost triple if the US doesn’t want more incidents like the 2007 bridge collapse in Minneapolis.

Simply put, we are on the cusp of a massive multi-trillion dollar boondoggle in infrastructure spending. And with the election coming you better believe this issue is going to be receiving a lot more attention.

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This article has 25 comments:

  •  
    Jul 29 10:57 AM
    I wouldn't call it a boondoggle. At least we'll get something for the expenditure. Unlike, say, sending $150 billion in checks to the lower half of the income spectrum. It's the difference between investment and consumption. What really steams me is how much money we spend now on pork-barrel infrastructure projects, then the pols turn around and moan about how they need to raise taxes cause we can't afford to fix the essential stuff.
    Reply
  •  
    Jul 29 11:07 AM
    "The average US public school building is 40 years old. More than three quarters of these have deferred maintenance."

    Public schools are funded by their respective state governments, not the Federal government.
    Reply
  •  
    Jul 29 11:24 AM
    The infrastructure spending by the US is all there and accounted for, it's just in Iraq. :-(

    Could someone please invade us so we can rebuild our infrastructure?
    Reply
  •  
    Jul 29 11:26 AM
    Seems that kind of federal and state neglect would argue for privatization? Perhaps states and the feds will start privatizing/selling/le... roads and bridges instead? like Chicago and Indiana did...
    Reply
  •  
    Jul 29 12:29 PM
    "Could someone please invade us so we can rebuild our infrastructure? "

    Maybe the Airforce could drop a few hundred JDAMs on DC...
    Reply
  •  
    Jul 29 12:41 PM
    You must also take into consideration average family size when comparing broadband numbers. Europeans tend to have smaller families than Americans
    Reply
  •  
    Jul 29 12:46 PM
    This is just another waste of time reminder.This and all of the other concerns pertaining to the economy and financial sector ,should have been discussed year ago.Back then,some caution would have averted today's issues.
    Now as the stock market has declined substantially,(but is making the bottom), we are subjected daily to stories about financial or related sector problems-of course the open short interest is at the record.
    It suffices to say that just as always,the infastructure issues will be addressed in the period ahead .
    In the meantime ,I supose we will hear another finacial sector horror story.
    To me ,all of these negative articles mean one thing ,we are making a major bottom.
    Reply
  •  
    Jul 29 01:22 PM
    So what's the trade here? Without any further analysis an article like on a site called "seeking alpha" is kinda pointless.
    Reply
  •  
    Jul 29 02:21 PM
    Randdy your are right when the market they keep on saying how great evreything is now they keep on kvetching....
    Reply
  •  
    Jul 29 02:31 PM
    A great opportunity to privatize the infrastructure. Or we can pay bloated government wages for shoddy workmanship for which no one is responsible and complain about how we need to spend another trillion to fix it. Let the private sector take over and they will spend as much as necessary, as efficiently as possible, and not a penny more.
    Reply
  •  
    Jul 29 02:36 PM
    It's possible that our nation faces a problem in this area, although I think the post overblows the issue. There's certainly no problem for investors here. It's possible that out in the real world some communities might face problems figuring out how to managed accidents or raise funds quickly, but the fact that the nation needs a lot of infrastructure work just means a lot of job opportunities for companies that engage in this kind of work. As bridges fail you'll see more political pressure to do something fast, and doing something fast usually means highly profitable contracts for the companies involved. When the government spends money on infrastructure work, it doesn't go into a black hole: it goes to raw materials suppliers and contractors who perform the work, then they pay their employees, then their employees spend the money, etc. A large amount of government-funded infrastructure work is usually a benefit to the economy, such as it was in Japan post-WWII. The amount the US sponsored pales in comparison to how much the Japanese invested in their own economy and how much their corporations grew out of the wreckage of WWII.
    Reply
  •  
    Jul 29 03:26 PM
    China is building 10+ or more cities of about 20-30MM people from scratch, and they're putting in communications, transportation, and energy infrastructure in a coordinated fashion -- state of the art. Jus' sayin'.
    Reply
  •  
    Jul 29 03:50 PM
    Where're my gas taxes going?
    Reply
  •  
    Jul 29 04:19 PM
    This is the classic evidence of a country that is largely controlled by corporate interests. Much of federal money is spent annually on the military, farm subsidies, health care, pharmaceuticals etc. - all to make large profits for the corporate players and to provide almost nothing for the country's infrastructure or its citizens. Is this a real democracy when corporate interests control both political parties through private political financing?
    Reply
  •  
    Jul 29 05:13 PM
    "A great opportunity to privatize the infrastructure. Or we can pay bloated government wages for shoddy workmanship for which no one is responsible and complain about how we need to spend another trillion to fix it. Let the private sector take over and they will spend as much as necessary, as efficiently as possible, and not a penny more."

    Uh... huh. Yes, let's get the "private sector" to take over. After all, they've done one heckuva job rebuilding Iraq. Cuz they're so "efficient" and "ethical" n stuff. Operation Infrastructure Rebuild c/o Halliburton, Enron, Bear-Sterns & Indymac. All with a nice taxpayer "privatize profits, socialize losses" backstop, of course. Yup... that's the ticket.
    Reply
  •  
    Jul 29 05:15 PM
    Problem is that most Americans (politicians included) have never travelled outside the US. If they did, they'd see what a sorry state the US infrastructure is in compared to many other countries. Take a trip to France: every road, every sign, nearly every building is perfectly maintained. Or take a trip to Singapore, or Japan, or China, or Germany, or Chile, or Canada or Korea etc etc These countries understand that there is such a thing as "the public good', there are not just corporate interests. Corporations can't be expected to invest in a nation's infrastructure. Even though they benefit from it, you can't expect them to fund it. So the American experiment, "just give corporations everything they want and it will all work out", falls woefully short. Unfortunately there are these inconvenient little things called "people" who live in a country and need things like highways, bridges, not to mention schools, and health care, and solvent banks.....Time for the Robber Baron era to end.
    Reply
  •  
    Jul 29 07:07 PM
    When I drive around US cities, it seems to me that the roads are in much better shape than they were in the 1980's when car-sized potholes dotted the freeways of Detroit, Chicago and NYC. I think though that the US should declare a moratorium on new highway construction and devote all funds to mainteneance for the next tens years or so. More highways just create more traffic.
    Reply
  •  
    Jul 29 07:40 PM
    User 229 and Rokjok, you nailed it.

    Bidding on contracts assigned at the State and Federal level is very prone to Chronie Capatalism. Our nation does outsource almost everything to the private sector these days, but these are back door deals on who gets the contract ahead of the bidding process. That speaks to HARMS comment about Haliburton. That is Chronie Capatalism. More accurately, you call this Fascism. OK, so Republicans had more then there fair shair in Iraq, Democrats in Mortgages. It's a non-partisan issue of corruption and greed up there on the Hill.

    Remember the Big Dig in Boston? $14.6 B spent on an original cost estimate of $6 B when it was started in 1991. Some remember that a 38 year old women died when one of the tunnels collapsed because of cheap rivets used to reinforce the concete. Her husband in the car lived, practically unscathed. Where did all the 'cost savings' of the rivets go? We all know the answer and it was not into that tunnel.

    Such has been the way of America for a long time now. You must change Washington and to do that you educate the American public to the truth, not the Obamamessiah-Hitler or McLame-don't understand-economics way either.

    Hats off to gentlemen like Peter Peterson and David Walker. Guess what? They are the new American philanthropist. We will become the new enemy of the State, but I am not concerned. 60 million armed Americans with a government not supported by it's military is good odds that We the People will have our way. And the truth is already out on the web, can't pull a gestapo now either, it has been broadcasted the world over many times saved and replicated. Now the process must accelerate to propogate that truth.
    Reply
  •  
    Jul 29 07:50 PM
    Republicans have been running down the infrastructure for the past 50 years.

    Instead of upgrading, they've been telling the Sheep that "it's your money--we're giving it back to you" and then giving it to The Already Rich.

    Plus, in the past year, they've been looting the treasury giving to The Ultra Rich (who made bad decisions).

    The GOP is a Crime Syndicate, plain and simple. They need to be prosecuted under the RICO laws and forced to either flee to Uraguay or be extradited to the Hague and forced to break rocks on a rockpile until everything is paid back...
    Reply
  •  
    Jul 29 08:33 PM
    Welcome to AmeriKa, the land of bailouts and entitlements.
    Reply
  •  
    Jul 29 09:55 PM
    I have to agree with Caltortom. But also less is more when maintenance costs are high. Given high gasoline prices, there should be more emphasis on public transportation and less on roads.
    Reply
  •  
    Jul 30 04:56 AM
    for all the bragging about 'old europe' the crooks running the administration should have looked at how far ahead and much more up-to-date most European countries are in terms of infratsructure (despite all their financing problems with pension and social security, medicare etc).
    It#s the classic trap the ancien Romans fell into. In order to maintain their world empire they wasted all the money on troops and armament and on sending their legions everywhere. while their heartland declined economically. The u.s is facing the same. wasting trilions on wars and army and weapons, consumers borrrwoing to the hilt - a pure consumption economy that all of a sudden discovers that all the 'services economy' talk was just plain stupid - now that the financial services bubble has collapsed
    Reply
  •  
    Jul 30 10:00 AM
    A number of people here, including fxtrader, are right on the money. Comparing our infrastructure to Europe and Asia makes it look to me like our country has been run by slumlords! First we spend billions blowing up Iraq's infrastructure, then billions more to rebuild it.

    A well maintained infrastructure helps with commerce which helps the economy. Spending the money here instead of abroad helps create jobs that cannot be outsourced.

    Those in power now talk the capitalist talk in justifying our lack of investment at home as something that is too expensive. But they don't think spending $120 Billion a year in Iraq is too expensive, AND they look for anti-capitalist bailouts when they screw up. They want to have it both ways, all of the reward and none of the risk! It must be nice for them short-term but the rest of us suffer this mis-allocation of resources.
    Reply
  •  
    Jul 30 11:29 AM
    More and more astute citizens are picking up on the fact that our government has become a fascist totalitarian state.

    What can we do short of armed rebellion?

    Vote out all incumbents that's what!!

    Every candidate for federal, state and local political positions are part of the kakistocracy that is ruining America! Ask yourself; does the government sector shrink when private industry declines? No it doesn't. Budgets continue to escalate in mandated and unfunded crushing debt put upon us.

    The ONLY way to correct the problem is for the American people to vote them out of office. A mass purging of the jobbery that has broken the trust of the electorate must happen to save our country.

    Break the stranglehold in government by voting for a third party candidate if possible; but DON"T RE-ELECT THE POLITICIANS CURRENTLY IN OFFICE!
    Reply
  •  
    Jul 30 01:40 PM
    Maybe just globalize the infastructure of the world. Take all the US transportation govt. workers and trade them 1:1 for Japaneese, European, China govt. workers. I bet the US would hire them, but nobody would hire the US worker.
    Reply
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