Infrastructure Financing - Future Strategies to Meet Capital Needs

By Stan Finkelstein, Chair, Washington State Public Works Board

While in recent weeks much attention has been directed at the collapse of the Skagit River Bridge on Interstate-5, that event is symptomatic of far greater infrastructure deficiencies confronting state and local governments.

As most local officials are well aware, the past 5 years have been challenging. Declining sales tax and other revenues coupled with increasing fuel and health care costs have significantly diminished the ability of many jurisdictions to sustain ongoing services. Lay-offs; furloughs, shortened work weeks, tax and fee increases, and deferred maintenance of their capital systems have characterized governmental responses to the economic decline. Now, five years after the beginning of the most prolonged and severe economic downturn since the Great Depression, the time has come to assess the consequences of those decisions.

Consequences

To the average voter the impact of reduced state and local revenues and resultant cutbacks in services has been almost invisible. Most citizens are not social service dependent, nor do they recognize the impacts on K-12 education or other areas where services have been reduced. Unless they are paying tuition at one of the state's higher education facilities they're unmindful of the double-digit increases in tuition rates during the past several years.

Irrespective, of the impacts on ongoing state and local services, there is one area where all of the citizenry is ultimately vulnerable and that is in the area of infrastructure. Many local governments have sacrificed the necessary maintenance, repair, and rehabilitation of their public infrastructure systems in favor of maintaining ongoing services. Ultimately, there may be a steep cost associated with those decisions.

The Conditions of our Infrastructure

Recent studies have indicated that Washington State local governments face a mega-billion dollar shortfall in meeting their critical water and sewer system and roadway needs not to mention parks, schools, fire stations, and other public facilities, including bridges. A recent study by the American Society of Civil Engineers (ASCE) identified over $15 billion just in immediate drinking water and wastewater needs, not to mention the fact that there are 366 structurally deficient bridges and more than a fifth are functionally obsolete; and that 67% of our roadways are of poor or mediocre quality. In its national Report Card on infrastructure, ASCE graded Washington as a "C". The reality is that we as a society are falling increasingly behind in our ability to endow the next generation with at least as high a quality of public capital as that which we inherited. That study affirms the findings of previous studies indicating significant deficiencies in state and local government infrastructure systems.

Addressing Infrastructure Needs: Making Choices

As counties, cities, and special purpose district officials begin the process of developing their 2014 budget, they should all co-equally prioritize capital and operating expenditures. In addressing their infrastructure needs they should:

1. Take advantage of currently low tax exempt bond rates and still modest construction costs to initiate necessary projects, before conditions become less favorable.
2. Modestly increase utility rates to begin to fund depreciation so as to have some resources available when replacement is necessary.
3. Initiate a rate setting strategy for utilities whereby rates are increased annually to reflect inflation, and to build up reserves.
4. Reduce the maturity of future bond issues below the useful life of the asset so as to establish a replacement reserve.
5. Aggressively pursue all federal, state, and other external funding of capital improvements.
6. Finally, commit a portion of existing and ongoing revenues for infrastructure.

Leadership and Vision

The above strategies are not easy. They require elected officials to have a vision for the future and to exercise the leadership necessary to convince their colleagues that setting resources aside to address long-term capital needs must be a priority. Oftentimes, especially following tough budget periods it is difficult to fund capital needs as opposed to reestablishing diminished services. The governing authority must develop a shared vision as to how to best serve the long-term needs of their constituency and to make those choices necessary to reach that vision. Finally, it will take the collective leadership of both the elected and the appointed officials to communicate to the citizenry that some sacrifices may be necessary to best serve their ongoing needs.