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State and Local Infrastructure Financing, Working Paper 028 Open Access

Our recent report to the National Association of Realtors, State and Local Fiscal Trends and Future Threats, documents the fiscal challenges faced by state and local governments. With a fiscal system designed 70 or 80 years ago and important trends which are typically beyond the control of state and local policy makers, state and local governments find it increasingly difficult to raise the revenues required to provide the level and quality of services demanded. At the same time, demographic and economic trends are increasing the demand for goods and services provided by state and local governments. In this fiscal environment, spending on state and local infrastructure is most vulnerable – particularly spending on operations and maintenance, which is less visible than spending on new capital projects. Infrastructure spending should rank as a high priority for state and local governments. As the National Council on Public Works Improvement concluded in their final report Fragile Foundations, “We must ensure that our highways and subways can move us swiftly and safely; that our homes, farms, and industries are supplied with ample clean water; that we reduce and safely dispose of the increasing volume of poisonous wastes our society generates; and that we provide the structural underpinning for a robust and competitive economy.” State and local governments are the providers of the key infrastructure that keeps our economy competitive and our society functioning and healthy. The purpose of this project is to present a reconnaissance of current state and local infrastructure trends and practices. The project consists of two phases. The first phase presents an overview of state and local infrastructure spending, general financing mechanisms and traditional policy tools for setting spending priorities. The second phase will look at various case studies to provide a more in depth picture of how specific financing mechanisms and management tools are actually implemented by state and local governments. Phase 1 of the project has four distinct sections. The first section reviews actual spending by state and local governments on infrastructure networks. These data come from the Census of Governments published by the U.S. Census Bureau every five years. For the purposes of this study we focus on infrastructure systems important for a strong economy and safe environment. Specifically, we look at seven infrastructure categories: (1) Highways, streets, roads and bridges (2) Air transportation (3) Transit (4) Ports and waterways (5) Solid waste management (6) Sewerage (7) Drinking water. We do not include in this analysis other public infrastructure facilities like hospitals, schools, courts, jails, and other public buildings that are generally regarded as social infrastructure, rather than economic infrastructure. In addition, we also exclude from our definition telecommunications and energy production and distribution networks because they are primarily provided by the private sector, albeit they are regulated by the public sector. While there is always some subjectivity in developing such a definition, our definition of infrastructure follows general practices in this field and is appropriate for our purposes. The second section then reviews recent federal grants to state and local governments for infrastructure purposes. A section that reviews traditional infrastructure financing mechanisms follows that. The next section then summarizes traditional approaches to setting spending priorities for infrastructure projects. The final section summarizes what has been learned from this initial reconnaissance and discusses next steps for Phase 2 of this project.

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