Urban Change and Poverty (1988) / Chapter Skim
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Urban Infrastructure: Problems and Solutions
Urban Infrastructure: Problems and Solutions
Pages 308-347
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From page 308... ...
The nation's urban transportation network, water supply, and wastewater treatment facilities all provide vital services both for industries and individuals; where capacity is inadequate, growth will be stunted. Similarly, a community with badly deteriorated roads, bridges, or other transportation facilities is in a weak position to attract new businesses.
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From page 309... ...
Rather, their importance to the economy and to society as a whole derives from the services they offer: the opportunity to improve productivity or reduce costs. Although most easily thought of in a physical form a bridge, a wastewater treatment plant, a subway train the real output of infrastructure is service: the movement of people and goods, the provision of adequate clean water, and so forth (Apogee Research, 1986b)
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From page 310... ...
Facilities with these general characteristics strong links to economic development, high fixed costs, long economic life, interaction with other parts of a system, and strong traditional public sector involvement may be termed public works infrastructure. When applied to urban areas, this definition usually inclucles the following "modes": highways, public transit, wastewater treatment, water supply, solid waste, and airports.)
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From page 311... ...
4The clearest examples concern interurban infrastructure; public support for railroads and canals in the nineteenth century and federal promotion of the aviation industry through mail contracts and the air traffic control system are two such instances. 5 Using infrastructure to redistribute income ignores the primary consideration that applies to decisions on infrastructure projects: how productive is the investment relative to the benefits from greater productivity?
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From page 312... ...
R? `bir~ regional competition for new development is a prime motivator for locally sponsored infrastructure projects.
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From page 313... ...
DIFFERENT PUBLIC ROLES The relative incidence of benefits and costs is the key link in determining the proper infrastructure role for the public and private sectors and for the various levels of government. There are strong equity and efficiency arguments that those sectors receiving great benefits from a particular infrastructure mode should bear an equally large share of the financing responsibility.
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From page 314... ...
Roles Physical Core or Population Problems Based Economic or Production Based Maintain system Intraurban Increase capacity Public sector dominates Intraurban Sunbelt Public sector dominates Interurban "older" systems (canals, highways) Public sector dominates Interurban Communications, airlines Greater chance of profits Strong private role SOURCE: Apogee Research (1986b)
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From page 315... ...
Many private infrastructure projects involve indirect public financial support. For example, tax-exempt industrial development bonds provide interest rates below those available to other corporate borrowers.
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From page 316... ...
Rubir; State and Local Versus Federal The existing division of responsibility among local, state, and federal governments derives largely from past history and political forces and only partly from a logical examination of the distribution of benefits and of financial and operational capabilities. Beyond those areas of clear, overriding national interest- interstate highways, the network of inland waterways and canals, and the ear traffic control systems federal involvement depends on the importance of externalities and the strength of arguments to relieve local fiscal pressures.8 For example, some federal role is called for in water and air pollution, a recognition of which has resulted in the Environmental Protection Agency (EPA)
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From page 317... ...
Table 2 summarizes how the current federal role varies across the five development stages and each of the major urban public works infrastructure "modes." The federal government plays a significant role in financing almost every area of infrastructure except solid waste and water supply. State and local governments dominate the
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From page 318... ...
Private involvement in other public infrastructure sectors, such as wastewater treatment, airports, and transit, is limited to 2 or 3 percent of spending. Of course, with the exception of mass transit, corporations and individuals provide most transportation rolling stock- such as buses, trains, cars, and airplanes.
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From page 319... ...
Federal grants for wastewater treatment and mass transit did not start until the 1960s, and the first federal aid for intercity transit rail passenger service was given in the 1970s. The federal highway program represented an important landmark that, nearly 70 years later, still forms the basic mode!
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From page 320... ...
since 1958 to add extra storage capacity for public water supplies to ongoing water resources development projects. Wastewater Treatment Federal support for the construction of municipal wastewater treatment facilities now totals $3 billion a year.
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From page 321... ...
As public awareness and concern over water pollution escalated, federal spending for wastewater treatment rose dramatically. The rationale for federal involvement in local wastewater treatment derives from the public aspect of clean water.
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From page 322... ...
of capital costs for large airports but are quite significant for air fields that cater to general aviation. User taxes finance federal capital spending on airports and air traffic control, as well as a portion of Federal Aviation Administration operating expenditures (National Council on Public Works Improvement, 1987a)
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From page 323... ...
as well as its two major components: capital and operations (Apogee Research, 19863~. Total public spending on infrastructure has grown steadily over the past 25 years, increasing by more than 50 percent even when measured In constant dollars.
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From page 324... ...
a distant second. Airports and wastewater treatment plants accounted for only 4 percent and 7 percent, respectively, of total government outlays for public t2Spending trends generally refer to all public works infrastructure.
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From page 325... ...
Spending by ferret of Government Over the past quarter-century, local spending has driven total government outlays, with short-term peaks and valleys a result of similarly short-term bursts of federal spending. This pattern has resulted from steadily increasing local operating expenditures combined with spikes of federal capital outlays, which were primarily associated with the highway program in the 1960s, the wastewater l
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From page 326... ...
Between 198~1984 state contributions remained relatively steady, but local public works outlays grew rapidly to compensate for an equally rapid reduction in federal spending. Local utility spending water supply, wastewater treatment, solid waste, and transit—accounted for the major increase in the local government share of outlays.
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From page 327... ...
have been built since the mid1970s, maintenance requirements for existing roadways have steadily increased as roadway stock has aged and vehicle miles traveled have continued to grow. Mass Transit Total public spending for mass transit increased the fastest of t3All spending is expressed in 1984 dollars in this section.
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From page 328... ...
Rabin 22 20 - I\ / 18 u, ~ 17 8 O 14 13 a _ 12 m 11 16 is 10 9 8 7 _ ~ ~ · Federal Capital Outlays Hi_ _\ · State and LocalCapital Outlays \/ ~ ~ at/ · State and Local Operating Outlays Y 1 1 1 1 1 1 1 1 1 1 1 1 1 ~ 1 1 1 1 1 1 1 1 1 1 1 1960 1963 1966 1969 1972 1975 1978 1981 1984 Fiscal Years FIGURE 3 Highway spending by level of government and by object. SOURCE: See Figure 1.
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From page 329... ...
1975 1978 1981 1984 FIGURE 5 Capital outlays for mass transit by all levels of government. SOURCE: See Figure 1.
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From page 330... ...
After federal grants peaked in 1977 and declined rapidly through 1984, nonfederal capital spending picked up again, although not as rapidly as federal spending had fallen off. As a result, total public spending has dropped slightly because increased local operating outlays have failed to offset the reduction in federal grants.
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From page 331... ...
SOURCE: See Figure 1. 10 9_ In O 6 5 o ~ 4 - 3 2 o 87— 1960 1963 1966 1969 1972 Fiscal Year _ State and Local Capital Outlays |~l State and Local Operating 1975 1978 1981 1984 FIGURE 7 State and local capital and operating outlays for wastewater treatment.
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From page 332... ...
Airports Public spending for airportst4 and airways grew at a very fast republic spending for airports includes the Federal Aviation Administration's capital and operating outlays for the nation's air traffic control system as well as federal grants and nonfederal direct spending to build, operate, and maintain the nation's airports.
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From page 333... ...
Much of this increase was due to equally rapid spending by state and local governments (to build new and expand existing airports) and by the federal government (to modernize the air traffic control system)
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From page 334... ...
. In the postwar years through about 1970, new state and local capital structures were built, forcing a decline in their average age.
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From page 335... ...
This sudden increase was due. primarily to sizable federal wastewater treatment and mass transit grants.
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From page 336... ...
. Federal wastewater treatment grants peaked in 1977, both in dollar terms and as a percentage of nonfederal capital spending.
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From page 337... ...
~ Federal grant contributions to total state and local capital outlays for airports have ranged widely but averaged about 30 percent. Federal capital grants contributed only 1~20 percent Off the total construction costs of major airports and 70-80 percent of the costs of small airports.
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From page 338... ...
Rubirz Trends in the Use of Own-Source Funds to Finance Public Works State and local own-source funds include tax receipts, user fees collected from government-owned or government-run enterprises, and other special charges assessed periodically. These sources generally fund current government operations, but in special cases they directly fund public works construction through "enterprise funds." An enterprise fund is a capital management technique that is used to finance the capital expansion of a particular public works system out of fees paid by users of that system.
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From page 339... ...
Interestingly, this 5 percent annual rate of growth in own-source revenues compares closely with the 4 percent annual growth rate in state and local operating expenditures for public works (Apogee Research, 19866~. Trends by Source Between 1960-1984 user fees and other user-based revenue sources accounted for an increasingly larger share of total state and local own-source revenues.
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From page 340... ...
Engineering-Based Mode} An engineering-based needs assessment is the typical first step in evaluating the adequacy of public works (Apogee Research, 1986a)
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From page 341... ...
are often a key rationale for government involvement. to Rate of return is closely related to a number of other techniques and concepts, including some in regular use by the public sector.
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From page 342... ...
Thus, the goal is to find those financial and organizational incentives that, along with adequate data, will encourage actions that support an effective infrastructure. Many of the options presented in the next section might be characterized as capital management, even though they have been debated for years (Congressional Budget Office, 1986~.
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From page 343... ...
. Indeed, an analysis of recent state and local spending trends for public works infrastructure shows a shift away from capital spending and toward what the data classify as operations.
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From page 344... ...
These high ratios of federal to nonfederal dollars have a history of encouraging capital-intensive projects. For example, a statistical analysis of wastewater treatment plants found that dropping the basic federal matching rate from 75 percent to 55 percent would reduce the overall costs of secondary treatment plants by some 30 percent (Congressional Budget Office, 1985a)
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From page 345... ...
Paper prepared for the National Council on Public Works Improvement. Apogee Research, Inc., Bethesda, Md.
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From page 346... ...
Washington, D.C.: National Council on Public Works Improvement. 1987b Wastewater Treatment.
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From page 347... ...
Skrotski Associates 1983 Economics of Completing the Interstate Highway System. Cor~gres~iorzal Record, 98th Congress, First Session, 1983, Vol.
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