U.S. infrastructure projects such as roads, railways and airports will probably keep their near- failing “D” grade when the American Society of Civil Engineers issues its next report on public facilities in 2013, according to the group’s president-elect and municipal-bond analysts.
Governments will need to spend an extra $2.2 trillion on capital projects nationwide, up from $1.6 trillion in 2005, the Reston, Virginia-based engineering group said in its 2009 edition of “Report Card for America’s Infrastructure.” State and local governments have sold about $1.3 trillion of debt since 2007 to finance public works rather than re-issue debt at lower interest rates, according to data compiled by Bloomberg.
Eight analysts of infrastructure and the $3.7 trillion municipal market discussed public works for today’s Bloomberg Brief: Municipal Market newsletter.
Greg DiLoreto, president-elect of ASCE:
“We haven’t really invested additional money, so I would be hard-pressed to believe that the grade would improve. Not everything is falling apart -- you can find examples of agencies spending money. But the D represents an overall condition of America’s infrastructure.
The report card isn’t saying we don’t spend money on infrastructure; it’s saying that based on what we spend and the information we get from the public agencies themselves, we should be spending a greater amount. As civil engineers, we feel we are stewards of the infrastructure. It’s what we know best. It’s just like a doctor telling you that you have a heart condition. We’re taking it to the concrete and saying ‘America, you have a mortar and bricks problem with your infrastructure.’”
Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York, which oversees $3.5 billion of assets:
“I do think it’s that bleak. It’s just with old systems, the more you delay taking care of them, the bigger problems you have.
It has to be funded somehow, and issuance is one way. But the cost is overwhelming and finances are tight. Unless there’s a real emergency, it’s easy to defer it a year, and then another. It eventually gets more costly and worse. I lived through it just from the New York City subway system. Growing up there in the 1970s when they neglected it was horrendous. That could happen all over the country.”
Chris Mier, chief municipal strategist in Chicago at Loop Capital Markets, an investment banking and brokerage company:
“They’re closer to being right than to being wrong. Do I believe the infrastructure in the U.S. should get an A or B? No. I’d agree that there are substantial infrastructure needs, and I probably would not give them an F. I would give them a C or D.
The reasons I think so are related to the general state of bridges, some of the older urban sewer systems, highway infrastructure, basic urban roadways, pothole problems, etc. Certain states have outgrown their roadways and need to catch up.”
Justin Hoogendoorn, a Chicago-based managing director at BMO Capital Markets, the investment banking division of Bank of Montreal (BMO):
“If they gave us a D, I have to believe there’s some substance to it. Certainly the U.S. spends a great deal of money on infrastructure and takes it seriously.
The reality is the need is so large and the cost is so large that my response would be: ‘How do you get an A? Is an A possible?’ It may be like one of those teachers who’s not grading on a curve, but just on a scale that’s really too difficult.”
Richard Ciccarone, managing director at McDonnell Investment Management LLC in Oak Brook, Illinois, which oversees about $8 billion in munis:
“I have to take the engineers’ word for it. It’s been in bad shape and in that kind of situation for many years.
If you look at the average age of infrastructure, you’ll find that the number has been tweaking up. The average age of property, plant and equipment has been tweaking up in almost all of the sectors. The other part of it is the resistance to get into addressing any kind of programs that will add to debt loads or tax loads in many parts of the country. There’s a tendency for people not to do the appropriate maintenance, waiting for something to completely break. That brings it to a crisis and makes it more expensive.”
Philip Villaluz, managing director of municipal research in New York for Sterne Agee & Leach Inc., a brokerage firm based in Birmingham, Alabama:
“As far as putting an exact letter grade on that, it depends on the group evaluating the situation. I don’t believe it’s a big secret that U.S. infrastructure is in sore need of repair, maintenance and rehabilitation. The problem isn’t deciding whether repairs need to be done, but rather how to pay for it all.
I would not agree with putting blame on the muni market. The decline in the quality of the U.S. infrastructure has been going on for quite some time, probably for the better part of the last 10 years. The willingness of the federal or state governments to find funding or capital to support those projects has increasingly become difficult as they face higher-priority issues within their own finances.”
David Litvack, senior research analyst at New York-based U.S. Trust, a unit of Bank of America Corp.:
“I can’t comment on the civil engineers’ grade, but I would say maintaining infrastructure is a continuous need.
Municipal and state governments are fairly strapped for cash. There’s been a general unwillingness to spend money on anything but the most essential things. Revenues are growing less quickly than desired and operating expenses are up. We’ve seen that infrastructure has started to deteriorate. Economic growth has to occur in order for governments’ budgets to become a little more flush, and that would cause greater interest in long-term capital investment and infrastructure.”
Eric Friedland, head of municipal credit research at Schroder Investment Management North America, which manages about $2 billion of munis:
“I can’t answer that. Airports are functioning, water systems are treating water, wastewater systems are treating waste. The highways don’t have massive potholes. As a whole, the infrastructure is functioning.
What they’re doing is pointing out that more needs to be spent than is actually being spent. The issue is that in the future, because there’s a lot of deferred maintenance and deferred spending going on by kicking the can down the road, there’s a potential problem. This report may be extreme in saying infrastructure today is failing, but the more important thing is highlighting that if spending doesn’t increase, you’re going to have some more serious problems going forward.”
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