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News : US Economy Last Updated: Nov 5, 2013 - 7:06 AM


Gross capital investment by US public sector at lowest since 1947
By Michael Hennigan, Finfacts founder and editor
Nov 4, 2013 - 7:48 AM

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US Urban Land Institute/ Ernst & Young report [pdf]

Gross capital investment by the US public sector has dropped to just 3.6% of US economic output, the lowest since 1947, compared with a postwar average of 5%, according to figures compiled by the Financial Times, as austerity bites in the world’s largest economy.

With an impasse on entitlement reform in areas such as social security and health, the Republican Party has been successful in reducing investment spending that is in effect an investment for the future.

Both the Democrats and Republicans have kept the federal gasoline tax that is used to maintain the roads network, unchanged since 1993.

The New York Times said last February that the gasoline tax, 18.4 cents a gallon, has been essentially stable since 1993; in inflation-adjusted terms, it’s fallen by 40% since then.

Instead of penalising gasoline use, however, "the Obama administration chose a familiar and politically easier path: raising fuel-efficiency standards for cars and light trucks. The White House said last year that the gas savings would be comparable to lowering the price of gasoline by $1 a gallon by 2025. But it will have no effect on the 230m passenger vehicles now on the road."

The American Society of Civil Engineers said earlier this year:

Once every four years, America’s civil engineers provide a comprehensive assessment of the nation’s major infrastructure categories in ASCE’s Report Card for America’s Infrastructure (Report Card). Using a simple A to F school report card format, the Report Card provides a comprehensive assessment of current infrastructure conditions and needs, both assigning grades and making recommendations for how to raise the grades. An Advisory Council of ASCE members assigns the grades according to the following eight criteria: capacity, condition, funding, future need, operation and maintenance, public safety, resilience, and innovation. Since 1998, the grades have been near failing, averaging only Ds, due to delayed maintenance and underinvestment across most categories."

President Obama said last March:

While our national infrastructure got its best grade in 15 years from the American Society of Civil Engineers' annual report card in 2013, that grade is now a D+ instead of a D. We don’t have to accept that for America -- we can do better. And in a time of tight budgets, we can do it in a way that makes sure taxpayer dollars are spent wisely. Additionally, there are few more important things we can do to create jobs right now, and strengthen our economy than to put people back to work rebuilding America – our roads, bridges, schools, and ports.

In his 2013 State of the Union address, President Obama announced a three-part plan to encourage private investment in American infrastructure that will make our roads, bridges, and ports safer, give our businesses and workers the tools to compete successfully in the global economy, and create thousands of much-needed jobs in cities and towns across the country."

Jason Furman, chairman of President Obama’s council of economic advisers told the FT:

New authority for federal investment in the 2012 fiscal year was $475bn; you look at our proposal for 2014 and it’s $624.8bn. We are proposing a very large increase and that’s because the country is not investing enough in its infrastructure and it’s not investing enough in R&D.”

In recent years the OECD’s (Organization for Economic Cooperation and Development) International Transport Forum, has said that the US spends considerably less than Europe on maintaining its roads network. In 2006 America spent more than twice as much per person as Britain on new construction; but Britain spent 23% more per person maintaining its roads.

One in every five US bridges is classified as “structurally deficient”, requiring significant maintenance, repair or replacement.

The number of miles travelled by cars and trucks has doubled in the past 25 years, but highway lane miles have increased by only 4.4%. Demand for electricity has jumped by about one-quarter but the construction of new transmission facilities has dropped by 30%. The US now ranks 23rd for overall infrastructure quality, according to a World Economic Forum study.

America’s dependence on its cars is reinforced by a shortage of alternative forms of transport. Europe’s large economies and Japan routinely spend more than America on rail investments, in absolute not just relative terms, despite much smaller populations and land areas.

The Economist said in 2011 that the cost of car ownership in Germany is 50% higher than it is in America, thanks to higher taxes on cars and petrol and higher fees on drivers’ licences. The result is a more sustainably funded transport system. In 2006 German road fees brought in 2.6 times the money spent building and maintaining roads. American road taxes collected at the federal, state and local level covered just 72% of the money spent on highways that year, according to the Brookings Institution, a think-tank.

The Carnegie Endowment said in a report that the United States is one of only a handful of countries in the world where revenues raised to support the federal transportation system do not cover costs. Revenues represent just 62% of federal surface transportation expenditures, while all other members of the OECD group of  34 mainly developed economies, more than cover 100% of their transportation expenditures through user taxes - - and sometimes several times over.

The report also says that oil represents 94% of transportation fuels and transportation is responsible for nearly 75% US oil consumption.

American Society of Civil Engineers (ASCE) estimate in a report (brief registration) that in order to bring the nation’s surface transportation infrastructure up to tolerable levels, policymakers would need to invest approximately $1.7trn between now and 2020 in the nation’s highways and transit systems.  The US is currently on track to spend a portion of that - - $877bn - - during the same timeframe. The infrastructure funding gap equals $846bn over 9 years or $94bn per year.

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