Category Archives: Infrastructure

Infrastructure Reality Check

Source: Sarah Crane, Regional Financial Review, Volume 28 Number 7, March 2018
(subscription required)

This article assesses the magnitude of needed U.S. infrastructure spending and compares it to current proposals. Further, it assesses the multiplier effect of such spending and finds that it is stronger during a recession and the immediate recovery period when there is considerable idle resources in the economy.

Competing spending demands and slowing revenue growth will stymie capital investment for many cities

Source: Coley J Anderson, Rachel Cortez, Alexandra S. Parke, Katie Townsend, Moody’s, Sector In-Depth, April 12, 2018
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US local governments are facing acute infrastructure needs following years of deferred maintenance. Local governments’ capital spending fell by 19% between 2009 and 2015, hastening a decline in the condition of public assets. This trend will continue through at least 2018. An increase in competing spending demands and a slowdown in property tax revenue growth will hamper many cities’ ability to stave off further deterioration in capital assets. Cities with growing revenue bases, ample financial reserves and low fixed costs are best positioned to increase capital spending. Cities with weak population growth, narrow financial reserves and high fixed costs will find it difficult to make capital investment a priority.

State, local infrastructure borrowing boom unlikely without greater federal funding

Source: Marcia Van Wagner, Coley J Anderson, Rachel Cortez, Baye Larsen, Timothy Blake, Alexandra S. Parker, Moody’s, Sector In-Depth, March 30, 2018
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US states, local governments and transit authorities’ funding constraints add a layer of difficulty to the Trump administration’s infrastructure plan. The proposal relies on municipalities’ ability to increase leverage, identify new revenue streams and attract private sector partners.

Funding and Financing Highways and Public Transportation

Source: Robert S. Kirk, William J. Mallett, Congressional Research Service, R44674, CRS Report, January 11, 2018

Almost every conversation about surface transportation finance begins with a two-part question: What are the “needs” of the national transportation system, and how does the nation pay for them? This report is aimed almost entirely at discussing the “how to pay for them” question. Since 1956, federal surface transportation programs have been funded largely by taxes on motor fuels that flow into the Highway Trust Fund (HTF). A steady increase in the revenues flowing into the HTF due to increased motor vehicle use and occasional increases in fuel tax rates accommodated growth in surface transportation spending over several decades. In 2001, though, trust fund revenues stopped growing faster than spending. In 2008 Congress began providing Treasury general fund transfers to keep the HTF solvent….

Community-Owned Fiber Networks: Value Leaders in America – Pricing Review Shows They Provide Least-Expensive Local “Broadband”

Source: David Talbot, Kira Hessekiel, and Danielle Kehl, Responsive Communities, January 2018

From the abstract:
By one recent estimate, about 9.2 percent of Americans, or almost 30 million people, lack access to wired home broadband service, which the FCC defines as an Internet access connection providing speeds of at least 25 Mbps download and 3 Mbps upload. Even where home broadband is available, high prices inhibit adoption; in one national survey, 33 percent of non-subscribers cited cost of service as the primary barrier. Municipally and other community-owned networks have been proposed as a driver of competition and resulting better service and prices.

We examined prices advertised by a subset of community-owned networks that use fiber-to-the-home (FTTH) technology. In late 2015 and 2016 we collected advertised prices for residential data plans offered by 40 community-owned (typically municipally-owned) FTTH networks. We then identified the least-expensive service that meets the federal definition of broadband (regardless of the exact speeds provided) and compared advertised prices to those of private competitors in the same markets. We were able to make comparisons in 27 communities and found that in 23 cases, the community-owned FTTH providers’ pricing was lower when the service costs and fees were averaged over four years. (Using a three year-average changed this fraction to 22 out of 27.) In the other 13 communities, comparisons were not possible, either because the private providers’ website terms of service deterred or prohibited data collection or because no competitor offered service that qualified as broadband. We also found that almost all community-owned FTTH networks offered prices that were clear and unchanging, whereas private ISPs typically charged initial low promotional or “teaser” rates that later sharply rose, usually after 12 months.

We made the incidental finding that Comcast advertised different prices and terms for the same service in different regions. We do not have enough information to draw conclusions about the impacts of these practices. In general, our ability to study broadband pricing was constrained by the lack of standardization in internet service offerings and a shortage of available data.

Related:
City-owned Internet services offer cheaper and more transparent pricing
Source: Jon Brodkin, Ars Technica, January 15, 2018

Data shows why customers want muni broadband—and why telecom industry fears it. …. In cases where the researchers were able to compare municipal prices to private ISP prices, the city-run networks almost always offered lower prices. This may help explain why the broadband industry has repeatedly fought against the expansion of municipal broadband networks. This fight includes pushing legislators to draft anti-municipal broadband state laws, lobbying against local ballot initiatives, and filing lawsuits against cities that build their own networks. ….

Understanding Muni Bonds: Prospects for Funding Infrastructure Improvements

Source: Ed Friedman, Regional Financial Review, August 2017
(subscription required)

Both monetary and fiscal policies will affect the municipal bond market over the coming year. Anticipated further tightening by the Federal Reserve will raise all interest rates, including the borrowing costs of state and local governments. The Trump administration’s goal of boosting infrastructure spending will potentially magnify this movement to the extent that it stimulates overall growth. Moreover, the municipal bond market will be one of the alternatives considered for the financing, the others being an infrastructure bank and one or more public-private partnerships.

This article assesses the structure of the muni market, macroeconomic trends in the market, and the role it may play in federal fiscal policy. The costs and benefits of using the muni market are weighed against the other alternatives…..

Public Works 2017 Salary Survey Results

Source: Victoria K. Sicaras, Public Works, Vol. 148 no. 5, June/July 2017

Paychecks continue rising, but not enough to make up for ground lost during the recession and increasing benefits costs.

It’s been nine years since the U.S. economy bottomed out, and the heavily hit real estate and construction markets have finally entered full recovery mode. The unemployment rate has dropped back down to prerecession levels and gas prices are even lower than in 2006. Plus, consumer confidence has so far remained strong in 2017, according to The Confidence Board, the nonprofit economic research association owned by Nielson Holdings.

Spotlight: Building America

Source: Capitol Ideas, Vol. 60 no. 3, May/June 2017

Articles include:
Bridging Partnerships: How Four States Found Funds to Build
By Sean Slone

In February 2016, Rhode Island Gov. Gina Raimondo signed into law a plan to spend $4.8 billion on state infrastructure over the next 10 years. RhodeWorks, as the plan is known, received significant attention for including a new funding mechanism—tolls on heavy commercial trucks—and a focus on bringing the state’s aging bridges up to snuff.

Fueling Transportation Revenues
By Sean Slone

If the recent pattern holds, 2017 could end up being a big year for state transportation funding efforts. In 2013, six states approved major transportation packages. In 2015, eight states followed suit. The intervening even-numbered years saw less activity, perhaps owing to shorter legislative sessions in some states and re-election concerns. But transportation policy analysts are confident this year won’t buck the odd-number year trend for a simple reason: It’s time.

Help Wanted: Prioritizing Deferred Maintenance
By Katherine Barrett and Richard Greene

President Donald Trump’s promise to spend $1 trillion on infrastructure has raised the nation’s awareness about infrastructure needs in all 50 states. Above and beyond the desire or need for infrastructure additions, it’s clear that the crumbling and aging bridges, roads, water pipes and buildings currently in place need attention. The American Society of Civil Engineers recently graded the nation’s infrastructure at a D+; the same as it was the previous year.

Infrastructure Default and Recovery Rates, 1983-2016

Source: Moody’s, Data Report, July 27, 2017
(subscription required)

This study is an update to our previous publication, “Infrastructure Default and Recovery Rates, 1983-2015,” published in July 2016, and focuses on the credit and ratings performance of Moody’s-rated infrastructure securities from 1983-2016. We first characterize the infrastructure universe on the basis of its regional and sectoral distributions, overall default and credit loss rates, ratings distribution, and ratings stability. We then compare the ratings performance of the infrastructure universe vis-à-vis non-financial corporate (NFC) issuers by examining migration rates, default and credit loss rates by rating as well as rating accuracy metrics. Appendix 4 examines the performance of the infrastructure universe over the past ten years, i.e., 2007-2016.

Special Issue: Reforming State and Local Tax Systems

Source: Public Finance Review, Volume: 45, Number: 4, July 2017
(subscription required)

From the introduction:
State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Articles include:
What Drives State Tax Reforms?
James Alm, Trey Dronyk-Trosper, Steven M. Sheffrin

State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.


Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

Gary C. Cornia, R. Bruce Johnson, Ray D. Nelson

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.

Reducing Property Taxes on Homeowners: An Analysis Using Computable General Equilibrium and Microsimulation Models
Andrew Feltenstein, Mark Rider, David L. Sjoquist, John V. Winters

We consider a proposal that reduces by half the taxes on homesteaded properties and replaces the lost revenue by increasing the base and rate of the state sales tax. We develop a computable general equilibrium (CGE) model and a microsimulation model (MSM) to analyze the economic and welfare effects of such a proposal if adopted in Georgia. The results from the CGE model suggest that the proposed reforms have a substantial negative effect in percentage terms on Georgia’s economy. The MSM suggests that such a policy has no effect on the distribution of consumption by income class but increases the percentage of owner-occupied housing relative to rental housing by 20 percent in the aggregate.

Does Perception of Gas Tax Paid Influence Support for Funding Highway Improvements?
Ronald C. Fisher, Robert W. Wassmer

The issue for this research is whether perception of the rate and amount of fuel taxes paid by an individual influences his or her support for funding highway improvements from any source of revenue. A survey of likely California and Michigan voters demonstrates that they often overestimate the rate of their state’s gasoline excise tax and the subsequent amount they are likely to pay for this tax in a month. Regression analyses show that voter misperceptions concerning the magnitude of state fuel taxes affect their views regarding an increase in funding to support highway investment proposals. A reasonable policy implication is that the adoption of proposals to generate additional funds for highway investment is more likely if accompanied by a campaign identifying the existing rate of the state’s gasoline excise tax and the relatively small amount of this tax paid by the state’s typical driver.

State Export Promotion and Firm-level Employment
Andrew J. Cassey, Spencer Cohen

Most US states have export promotion programs, but it is unknown if these programs create long-term employment, which is often the policy’s stated goal. We merge administrative export promotion and employment data from Washington State to test the effect of firm-level export promotion on firm-level employment using the differences-in-differences estimator. We believe we are the first to have US state data at this level of detail. We find firm participation in an export assistance program increases firm-level employment fleetingly, but not in subsequent periods. Thus, we do not find a statistically significant impact to long-term employment from program participation.

Protecting the Vulnerable or Ripe for Reform? State Income Tax Breaks for the Elderly—Then and Now
Ben Brewer, Karen Smith Conway, Jonathan C. Rork

State governments have a long history of providing income tax relief to their elderly constituents. Our research investigates the current distributional and revenue effects of these tax breaks, as well as the economic status of the elderly, and explores how these measures have changed since 1990. Using data from the 1990 Integrated Public Use Microdata Series and the 2013 American Community Survey, combined with the TAXSIM calculator, we calculate current state income tax liabilities and revenues and simulate the effects of removing all age-related tax breaks. Our analyses reveal that the economic well-being of the elderly has grown substantially relative to the nonelderly and that state tax breaks primarily benefit the middle- and upper-income elderly. Revenue costs of these tax breaks have also grown substantially, and their modest and mixed effects on income equality, measured by changes in the Gini, cast doubt on equity as a justification.