Jim Colby, Portfolio Manager and Strategist, Municipal Bonds
June 13, 2018
On August 1, 2007, as the evening rush hour traffic crawled along Interstate 35W in Minneapolis, Minnesota, the unthinkable happened: the Interstate 35W bridge collapsed into the Mississippi River 64 feet below, killing 13 people and injuring 145.1
Nearly ten years later on February 7, 2017 in Oroville, California, officials evacuated more than 180,000 people after severe erosion on the Oroville Dam—the tallest dam in the U.S.—necessitated emergency releases of Lake Oroville water to avoid catastrophic floods.2 Although a decade apart and in different regions of the country, these events are symptomatic of the slow-motion crisis in American infrastructure that has been unfolding and continues to the present day.
The American Society of Civil Engineers’ 2017 Infrastructure Report Card gave the U.S. a D+, finding nearly 1 in 10 bridges “structurally deficient,” including the bridge that collapsed in Minnesota.3 17% of dams are deemed a “high hazard potential,”4 while U.S. transit systems face a huge rehabilitation backlog to the tune of $90 billion.5 The picture is similarly dismal in other categories such as energy resiliency, ports, rail, and schools.6
American Bridges Are Falling Apart
Source: U.S. Department of Transportation Federal Highway Administration. Data as of 12/31/2017.
As a candidate, President Trump famously promised a $1 trillion infrastructure plan, and the White House mentioned figures as high as $1.5 trillion after he took office. When unveiled in February, the administration’s plan called for only $200 billion in federal spending over the upcoming decade, offloading much of the remaining costs to states, local governments, and the private sector in the form of public-private partnerships.7
Despite the urgency of the crumbling infrastructure and the lack of federal funding, state and local infrastructure spending have not increased to address this issue. The opposite is the case: state and local spending on infrastructure as a share of GDP is actually at a 30-year low.8
This historically low state spending is occurring at a time of very low interest rates and anticipated rate hikes by the Fed, which ordinarily should provide strong incentives for states to lock in low rates while they still can to finance infrastructure projects. According to Moody’s, although most states have plenty of room to run up their debts (with the notable exception of Illinois), they are choosing not to do so, exercising an unusual amount of fiscal restraint, especially given the infrastructure crisis.9
This marked reticence of states to borrow could point to a fundamentally more fragile economic picture than the stock market, the Federal Reserve’s comments, or recent headlines seem to indicate. In spite of strong incentives to borrow and finance badly-needed infrastructure projects, states are—broadly speaking—taking a very conservative approach. They do not appear ready or willing to take on more debt, nor do they wish to boost taxes—none of which bodes particularly well for the future of American infrastructure.
1 NPR. “10 Years After Bridge Collapse, America Is Still Crumbling.” Aug. 1, 2017
2 California Department of Water Resources
3 NPR. “10 Years After Bridge Collapse, America Is Still Crumbling.” Aug. 1, 2017
4 2017 Infrastructure Report Card
7 The Washington Post. “Trump’s big infrastructure plan has a lot of detail on everything but how to pay for it.” Feb. 11, 2018
8 Denter on Budget and Policy Priorities
9 Moody’s. “Moody's: Slow Growth in US State Debt Continues for Fifth Straight Year.” Apr. 24, 2018.
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Portfolio Manager and Strategist, Municipal Bonds
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