Monday, April 21, 2008

Broken Bridges and the National Debt

The good news is that nobody was killed last month before authorities shut down a busy 2-mile stretch of I-95 in Philadelphia to repair a badly cracked concrete pillar. The bad news, besides the inconvenience the shutdown caused commuters, truckers, and various Philly neighborhoods, is that we may not be so lucky next time. This is not hype. A bridge collapsed in Minnesota last summer, killing 13 and injuring five score more, and thousands of U.S. bridges and overpasses are in need of repair. Solving this pressing problem will not be easy.

A hike in the gas tax is not in the cards, not with oil above $100 a barrel. (In fact, John McCain, Mr. Alleged Fiscal Conservative, is calling for suspending the gas tax this summer!) Using general tax revenue raises sticky questions of equity like why non-drivers should subsidize automobile ownership. We could borrow and worry about repaying later but unfortunately that little game may be just about over. The national debt is now about $9.3 trillion. That’s over $30,000 for every person legally resident in the country. With the dollar so weak – it takes about 2 of them to buy a British pound, over 1.5 of them to buy a euro, and about 1 of them to buy a Canadian dollar – foreigners are understandably wary of purchasing Treasuries. At home, fears of inflation loom larger every time the Federal Reserve cuts interest rates and that is bad for bonds. (To his credit, Philadelphia Fed president Charles Plosser wanted the Fed to cut the overnight rate only 50 basis points instead of the 75 it ultimately decided upon on Tuesday.)

Another approach is to try to make the construction industry more efficient. As Barry LePatner (with help from myself and Tim Jacobson) argued in Broken Buildings, Busted Budgets (2007), there is a lot of fat in the industry. Trimming it would help taxpayers get more bang for their infrastructure buck, regardless of its ultimate source. But it will still take a lot of money to fix all of our crumbling bridges, money we don’t seem to have.

The Founding Fathers offer yet another approach. They groaned under a massive national debt, incurred fighting wars and buying Louisiana, that they wished to pay off as soon as it was economically prudent to do so. They succeeded in the 1830s in part because they kept the federal government out of the infrastructure business altogether (with a few minor exceptions). Ingenious early state governments farmed the job out to corporations – for-profit toll bridges, turnpikes, and canals. Pennsylvania led the way in 1792 with its charter of the Philadelphia and Lancaster Turnpike. The system worked tolerably well then and could work even better today because technology has greatly reduced the cost of collecting tolls. New Jersey recently considered selling or leasing its turnpike to a for-profit corporation before jettisoning the idea after a popular uproar. That may have been a mistake; corporate-owned for-profit roads have succeeded elsewhere despite barriers built into the tax code against them.

I know having corporations in charge of our roads, tunnels, and bridges will seem like a big step for many Philadelphians and Americans more generally but they have little to fear. Corporations can maintain our roads and bridges more cheaply than governments currently do. They have incentives to complete construction projects quickly, with few disruptions, because they do not want traffic volume and hence tolls to suffer. Because they can be sued and need insurance, infrastructure corporations are also safety-minded.

Clearly, our bridges need repair. The question is how best to pay for all the work that needs to be done. Letting corporations do the job in exchange for tolls is a very old idea whose time may have come again.

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