A guide to making infrastructure decisions impartially, rationally, and sensibly.
A colleague recommended a Brooking Institution paper and it is a great read. Here are some extracts (emphasis and formatting added) from a recent (February 2017) paper from The Hamilton Project at the Brookings Institution: If you build it: A guide to the economics of infrastructure investment By Diane Whitmore Schanzenbach, Ryan Nunn, and Greg Nantz.
America’s infrastructure demands increased attention. … As policy makers decide on the best ways to approach the problem, it will be important for them to consider basic questions about what projects should be undertaken, who should conduct the projects, and how they should be funded and financed.
- What – Projects Should Be Selected?
- … do the investment’s expected benefits exceed its costs?
- Count non-pecuniary benefits.
- Who – Assign responsibility for infrastructure appropriately.
- Federal government to fund and/or finance investments in part or in full, sharing with states and municipalities the power to select and implement particular projects. An example of this approach is the Transportation Investment Generating Economic Recovery (TIGER) competitive grant process—now in its eighth round since initiated in 2009—which requires a cost-benefit analysis of potential projects.
- The application of careful cost-benefit analysis, insulated from political pressure where possible, is of central importance.
- One option that would further insulate infrastructure investments from the political process is an infrastructure bank.
- Broadly speaking, its mission would be to provide public loans for infrastructure projects, typically as a supplement to larger quantities of private capital (Galston and Davis 2012; Kahn and Levinson 2011). Infrastructure banks already exist in a majority of the states (though often in a fairly limited role) and in the European Union. In the formulation suggested by Galston and Davis (2012), a national infrastructure bank would be set up as a government owned corporation (similar to the structure used for the Federal Deposit Insurance Corporation, for example), with a governing board selected by Congress and the president. The bank’s staff would in principle evaluate project proposals and make loan decisions impartially, using cost-benefit analysis.
- How – Should Infrastructure Investments Be Paid for?
- No one approach to paying for infrastructure is clearly superior under all circumstances. Each method has its advantages and disadvantages, both political and economic.
- Implement user fees when possible; otherwise, fund with taxes.
- Use conventional government debt finance as the default approach to financing.
- Explore the use of PPPs when it is important to coordinate design, construction, financing, operation, and maintenance of infrastructure.