Skip navigation

Crumbling U.S. Infrastructure Weighs Heavily on Developers

The approximately $132 billion infrastructure allotment in the American Recovery and Reinvestment Act may create jobs, but it’s only a fraction of the $2.2 trillion needed to maintain the nation’s crumbling roads and transportation over the next five years. That’s according to a new report from the Urban Land Institute and Ernst & Young titled “Infrastructure 2009: A Pivot Point.”

To compile the report, ULI drew responses from 330 of its developer members. “Virtually all of them believe that there will be less money publicly spent on infrastructure and the burden of infrastructure investment will fall more to real estate developers and to local communities,” says Maureen McAvey, executive vice president for ULI’s initiatives group. Indeed, 92% of developers surveyed said rising prices for infrastructure have increased their development costs.

With the U.S. population expected to increase by 110 million people in the next 40 years, the demands on existing infrastructure are mounting. To prepare, the Washington, D.C.-based non-profit research group is advocating bold finance solutions to pay for roads, bridges, water systems and light rail — from the creation of a national infrastructure bank to provide incentives for public-private partnerships, to toll roads and smart technologies that charge end users.

“If you look at gas tax, it hasn’t been raised since 1986, it’s been 18.2 cents ever since then,” says Mike Lucki, global infrastructure leader for Ernst & Young. At the same time, he notes, vehicle gas mileage has likely doubled or tripled, reducing the revenue potential of the gasoline tax.

A new concept, VMT (vehicle miles traveled), would employ global positioning to charge drivers by miles driven, time and location. Similarly, smart meters could be employed for electricity, water and other utilities, shifting the burden of paying for infrastructure from the taxpayer to the end user.

While the pay-to-play model could change user habits, ULI and Ernst & Young are proposing a national infrastructure bank based on a European model to serve as a carrot. “The proposed bank would fund infrastructure projects initiated by developers that are looking at regional issues, not just local issues,” explains Lucki. The idea also is gaining traction at the federal level — President Obama and Transportation Secretary Ray LaHood have both expressed interest in the concept, he says.

The planning and execution of a comprehensive, national infrastructure plan would move beyond the current job-creation strategy to create investment opportunities. “Pension funds, insurance companies and other institutional investors are looking to invest in infrastructure projects as a hedge against their long-term liabilities,” says Lucki. “An estimated $150 billion has been raised worldwide from the private sector for infrastructure development.”

Where and how commercial real estate projects are developed in the future will undoubtedly be decided by the strategy—or lack thereof—that ultimately emerges to repair and expand the country’s critical infrastructure.

“It’s encouraging to see the federal government take an interest in infrastructure issues for the first time in a generation. But the very need for policy changes is getting muddled in the rhetoric about creating jobs, reviving the economy and fixing potholes,” says McAvey of ULI. “The jobs program in not an infrastructure strategy. Our nation has an unprecedented opportunity to craft a definitive reengineering strategy. It must not be squandered.”

TAGS: News
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish