The city budget is set, how do you decide what programs to spend it on? Are parks better than transit? The answer is, not to sound too much like an economist, it depends. There may be winning programs in any and all of the departments. In addition, the type of benefits in one program may align better with the city’s objectives or with certain stakeholder groups that another.
There is certainly evidence of large productivity gains from public infrastructure investments. Research has shown that well designed infrastructure investments can also provide significant positive spillovers such as to property value (reflecting an improvement in living standards or quality of life), economic development, energy efficiency, public health, and the environment. This is why we are advocating for a triple bottom line SROI approach to atriplugment any budget prioritization discussion.
That said, even a casual review reveals that not all infrastructure projects are worth the investment (either from a financial or a triple bottom line perspective). The economic returns on specific projects do vary widely. Research evidence and our project experience suggests that for a large capital plan, a relatively large share of net benefits can come from a small number of projects.
“The literature supports two conclusions: First, public spending on infrastructure often produces positive economic returns, and second, there is significant variation—both in the average returns and in the range of returns among projects … Second, the research suggests that the returns on the initial phase of a system of public investments … can be large but that the economic payoff declines as the system grows.”Orszag, R. P. (2008). Issues and Options in Infrastructure Investment. Congressional Budget Office.
While there is literature on infrastructure’s return in aggregate to the overall economy, there is little on returns by infrastructure type such as transportation, parks, or water. The most cited survey of the literature says “it is surprising how few careful calculations of rates of return are available for infrastructure investment”, and,:
“It is fine to disaggregate into particular categories of infrastructure capital, such as maintenance and new construction, but it would be far more useful to give particular rates of return – that on road maintenance in New York and Los Angeles, on construction in San Francisco and Chicago and so forth. With all the pages written on infrastructure investment one is struck by how little there is of this sort of truly disaggregated information” Gramlich, E. M. (1994). Infrastructure investment: A review essay. Journal of economic literature, 1176-1196.
The only evidence is from individual project analyses that may not be comparable in their data input or methodology. When consistent methodology and data is applied to disparate projects the only consistent conclusion I feel it is fair to draw is that sustainable returns on individual projects vary and there are no consistent winners by type of infrastructure, size of project, new versus maintain, or location.
What is required is what we are proposing, similar to the case for a national infrastructure bank below:
“a framework to analytically examine potential infrastructure projects using cost-benefit analysis, and would evaluate the distributional impact of both the costs and benefits of each project. Of course, not all costs and benefits from infrastructure projects can be quantified, but an effort should be made to quantify those that can be quantified and to take account of any additional benefits and costs to society. A rigorous analytic process would result in support for projects that yield the greatest returns to society, and would avoid investing taxpayer dollars in projects where total costs exceed total societal benefits.” An Economic Analysis Of Infrastructure Investment, A Report Prepared By The Department Of The Treasury, With The Council Of Economic Advisers, October 11, 2010