David G. Mongan, P.E.
President, American Society of Civil Engineers
before the Committee on Ways and Means
U.S. House of Representatives
Hearing on Economic Recovery, Job Creation and Investment In America
October 29, 2008
Good Morning Mr. Chairman and members of the Committee. I am David Mongan and I am pleased to testify on the issues of economic recovery, job creation and investment in America. I am here today in my capacity as the President of the American Society of Civil Engineers (ASCE).
ASCE was founded in 1852 and is the country's oldest national civil engineering organization. It represents more than 146,000 civil engineers individually in private practice, government, industry, and academia who are dedicated to the advancement of the science and profession of civil engineering. ASCE is a non-profit educational and professional society organized under Part 1.501(c) (3) of the Internal Revenue Code.
In my professional life, I am President of Whitney, Bailey, Cox & Magnani, LLC, in Baltimore, Md., an architectural/engineering/construction firm providing professional services in highway and bridge engineering, architectural design of institutional, commercial and industrial buildings, transportation planning, environmental engineering, land development and site engineering, landscape architecture, design of waterfront and marine-related facilities, construction inspection, and field surveying.
II. NEED FOR ECONOMIC RECOVERY
For a variety of reasons well known to this Committee, the nation faces severe economic hardship in the coming months. Many economists already believe that the nation is in a recession. For example, the Congressional Budget Office (CBO) predicts that the country’s real gross domestic product will decline noticeably in 2009. The CBO estimates that unemployment will exceed six percent next year nationally; in many parts of the country the job loss is predicted to be far steeper.
This is grim news. It is clear that Congress and the President will have to work quickly to soften the worst of the slowdown. Just last week, Ben Bernanke, Chairman of the Federal Reserve Board, testified before the House Budget Committee that further economic recovery legislation probably is required.
“With the [economic] outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package is unclear,” Mr. Bernanke said. “With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate. Any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak.” ASCE concurs in this judgment. We support efforts to pass legislation to promote a national economic recovery in a time of financial distress.
Such an action would serve the dual purpose of reviving the nation’s economy and the nation’s infrastructure. Currently, much is being written about the relationship between infrastructure investment and job creation. In April of this year, the U.S. Department of Transportation (DOT) reported every $1 billion of federal highway investment (including the accompanying state match) supports 34,779 jobs. It is important to note the total number of jobs supported by highway investment-including construction-related jobs and dependent industries - rose about 12.5 percent from 1.65 million jobs in 1996 to 2.13 million jobs in 2007 as a result of increased highway investment from all levels of government.
Additionally, these jobs would be created quickly as federal, state and local governments have numerous projects in a number of infrastructure categories ready to go. In the areas discussed later in this testimony, a large number of infrastructure improvement projects have been indentified and lack only the funding to proceed.
These investments produce different types of jobs -- direct, indirect and induced. Direct jobs are construction jobs. Indirect jobs are created in industries that support the building of infrastructure -- asphalt, concrete, steel, engineers, and designers. Finally, there are the induced jobs, the stores, gas stations, and restaurants that follow once the infrastructure is built.
III. NEED FOR INFRASTRUCTURE INVESTMENTS
As an initial matter, we firmly believe that any economic recovery legislation should contain significant new funding for many of the nation’s aging infrastructure systems, which are the indispensable lifelines of our economy. The nation’s surface transportation systems, waste-water treatment facilities, waterways, airports and schools are all in need of repair and updates. We recommend $40.7 billion in infrastructure spending as part of any economic recovery legislation.
Three years ago, ASCE’s 2005 Report Card for America’s Infrastructure gave an overall grade of “D” to 15 critical infrastructure systems. We said then that it would take an estimated $1.6 trillion to upgrade the existing infrastructure. Little has changed in the three years since we handed out that dismal grade, and establishing a long-term plan to finance the development and maintenance of our infrastructure remains a pressing national priority. This nation continues to under-invest in infrastructure at the national level. Earlier this year, the CBO reported that the total of all federal spending for infrastructure as a share of all federal spending has steadily declined over the last 30 years.
The dangers of the nation’s crumbling infrastructure to our economic health are as great as those posed by the current financial crisis. The nation’s infrastructure is the foundation on which our economy stands. Without a modern, functioning system of highways, bridges, mass-transit, drinking-water systems, sewage systems, levees, dams, school and other elements of the infrastructure, economic recovery will be impossible. Simply put, without proper investment and attention to these networks, our nation’s economic health, competitive advantage, and quality of life are at risk. Below we cite only a few of the more immediate infrastructure investment needs.
A. Surface Transportation System
The CBO recently estimated that America’s investment in surface transportation infrastructure by all levels of government in 2004 was $191 billion (in 2006 dollars), or 1.5 percent of gross domestic product (GDP).
The federal government provided about one-quarter of those funds, and states and localities provided the rest. Those funds were split about equally between spending for capital projects and operation and maintenance. Most of that spending was for roads. In comparison, the Chinese government invested an estimated 2.5 percent of GDP in highway construction in 2001, according to the American Road and Transportation Builders Association.
The National Surface Transportation Policy and Revenue Study Commission concluded this year: “We need to invest at least $225 billion annually in capital improvements from all sources for the next 50 years to upgrade our existing system to a state of good repair and create a more advanced surface transportation system to sustain and ensure strong economic growth for our families. We are spending less than 40 percent of this amount today.”
In 2007, the Department of Transportation (DOT) reported that the cost to maintain the nation’s highways would require an annual investment of $78.8 billion in 2004 dollars by all levels of government. Even at this level, however, congestion would worsen, according to the report, because it would finance too little new highway capacity. The U.S. DOT report calculates an annual investment of $89.7 billion in 2004 dollars would be required to achieve this policy goal. Most of the additional $11 billion investment each year would be for new capacity.
The DOT report, however, may understate the need. The American Road and Transportation Builders Association believes that federal highway funding in the next surface transportation bill would have to start at $54.5 billion in FY 2010 and grow to $61.5 billion by FY 2015 to provide the federal share of the annual highway investment needed to maintain both physical conditions and operating performance.
Additionally, the DOT reported that there are $15.8 billion in capital needs to maintain the nation’s public transit systems in their present condition. The need increases to $21.8 billion if funds are authorized for transit improvements.
B. Wastewater Treatment Systems
In January, 2008 the Environmental Protection Agency (EPA) reported that we must invest at least $202.5 billion just to prevent combined sewer overflows and sanitary sewer overflows at the nation’s 16,000 publicly owned wastewater treatment works.
In 2002, the EPA estimated that the projected gap in what is spent on sewage treatment systems and what is needed was between $331 billion and $450 billion by 2019.
C. Waterways Infrastructure
The U.S. Army Corps of Engineers operates and maintains 240 locks at 195 locations along 12,000 miles of inland waterways. The average lock on these waterways is 53 years old—past the 50-year service life.
The average cost to replace a lock is $600 million, if we were to replace just half of the 240 locks that are known to be beyond their design life, we would need to spend $72 billion. To rehabilitate the other half of the system would cost another $30 billion. The total figure is more than $100 billion just to bring our antiquated waterways up to modern required conditions. At the annual rate of spending of $180 million in the administration’s budget proposal for FY 2009, it would take the Corps 20 years simply to fund all the inland waterways projects authorized in the Water Resources Development Act of 2007 (WRDA).
In February of the 2008, the House Transportation Committee indentified $17.5 billion a year in airport capital needs. Funding is badly needed if we are to avoid costly delays in the future.
The nation’s drinking-water treatment systems face an annual shortfall of $11 billion to replace aging facilities that are near the end of their useful life and to comply with existing and future federal water regulations. The shortfall does not account for any growth in the demand for drinking-water over the next 20 years.
In 2005, we estimated that $10.1 billion is needed by 2019 to address all critical non-federal dams, dams which pose a direct risk to human life should they fail.
The ASCE 2005 Report Card for America’s Infrastructure gave the nation’s schools a D. The last detailed report from the Department of Education stated in 1999 that $127 billion a year was needed to bring facilities into good condition. Too many of America’s children go to school in overcrowded buildings with leaky roofs, faulty electrical systems, and outdated technology, all of which compromise their ability to achieve, succeed, and develop the educational skills necessary for the workforce of the 21st Century.
IV. INVESTMENT PROPOSALS
A. Surface Transportation System
Recovery legislation should provide $18 billion for necessary reconstruction projects for the nation’s highway systems. A number of state departments of transportation polled by theAmerican Association of State Highway Officials earlier this year identified more than 3,000 highway projects totaling approximately $18 billion that could be implemented 30 to 90 days after enactment of federal economic recovery legislation.
There are $4.6 billion worth of transit projects ready to begin construction today, according to the American Public Transit Association (APTA). Congress also has authorized another $800 million in projects to avoid immediate service cuts throughout the country. We recommend that Congress provide $5.4 billion for transit projects as part of the economic recovery legislation.
B. Wastewater Systems
Congress should authorize $6.5 billion for the repair and construction of publicly owned sewage treatment works (POTWs). There are between $3 billion and $10 billion worth of upgrades for publicly owned treatment works now on the drawing boards. Construction could begin within weeks if Congress provides the required assistance. Under the program that passed the House in September (H.R. 7110), the EPA would have had the discretion to use only one and a half percent of the $6.5 billion in the bill (approximately $100 million) in the form of grants. Any new funds should be distributed primarily in the form of grants or negative-interest loans for ready-to-go POTW projects based on the local community’s economic situation.
C. Waterways Infrastructure Repairs Pending
The U.S. Army Corps of Engineers has an enormous amount of infrastructure work that needs tending. We estimate that the Corps requires approximately $7 billion in new funding to:
• Substantially reduce the backlog of critical maintenance and repairs at an estimated 360 multiple purpose flood-control, hydropower, recreation, water-supply, and navigation projects and upgrade recreation facilities.
• Improve the safety of several high-risk dams.
• Restore and improve hydropower plants to meet an industry standard 98 percent plant availability.
• Recapitalize the oldest and most at-risk projects on the nation’s 12,000 miles of inland waterways.
• Fully dredge to their authorized depth the nation's 296 highest use, deep-draft commercial ports. These ports manage approximately 2.6 billion tons or 94 percent of the nation’s commercial import and export commerce.
• Fully dredge inland waterways to their authorized depth and width to ensure that the approximately 750 million tons of commercial goods that flow through these works annually reach their intended markets. Among the industries most affected by the aging waterways are agricultural exports and all bulk commodities, including iron ore for domestic steel plants, coal for power plants, and fertilizer as well as bulk road construction materials and others.
• Repair and upgrade critical coastal protection projects that defend key population centers from natural disasters.
Congress should authorize $600 million for the Airport Improvement Program. The Federal Aviation Administration has reported it could use that amount for "ready-to-go" projects. The types of projects include safety and security projects such as runway improvements, runway lighting, signage improvements, security enhancements, etc.
We recommend that Congress provide $1 billion in new financial aid to the nation’s drinkingwater treatment systems to begin critically needed upgrades.
We recommend that the economic recovery package contain $200 million for the dams in greatest need of repair.
G. Needed School Repairs
Congress should consider a $2 billion emergency public school renovation and repair program to help states meet the school facility needs of local communities by providing resources to repair, renovate, and modernize America’s schools. Equally important, its enactment will stimulate the creation of thousands of new jobs in construction-related services. It is estimated that $2 billion for this purpose would be sufficient to create an estimated 32,300 jobs.
While there are many other worthwhile infrastructure programs that concern us deeply, ASCE believes that the list above is a badly needed beginning to the problem of renewing our economy and preserving public health, safety, and welfare through a concentrated federal reinvestment in America’s failing infrastructure.
V. LONG TERM SOLUTIONS TO THE INFRASTRUCTURE CRISIS
A. National Infrastructure Bank
The National Infrastructure Bank Act of 2007 (S. 1926) would begin to address a problem that is rapidly approaching crisis levels—the physical deterioration of the nation’s major public works systems. It would prime the pump to begin meeting the staggering investment needs for our infrastructure.
Briefly, the legislation would establish a National Infrastructure Bank. The Bank would be an independent body designed to evaluate and finance “capacity-building” infrastructure projects of substantial regional and national significance.
Eligible infrastructure projects would be limited to publicly owned mass transit systems, public housing, roads, bridges, drinking-water systems, and sewage-treatment systems.
Sponsors— states, cities, counties, tribes, or an infrastructure agency such as a transit or wastewater treatment agency, or a consortium of these entities—would propose infrastructure projects for the bank to fund. To be eligible, the projects would need a minimum federal investment of $75 million.
We believe a National Infrastructure Bank is essential to beginning the long-term effort to maintain or replace economically vital infrastructure systems across the nation. This nation cannot afford to wait much longer to invest significant sums in its infrastructure.
B. Federal Capital Budget
ASCE supports the establishment of a federal multi-year capital budget for public works infrastructure construction and rehabilitation. This budget would be similar to those used by state and local governments. The capital budget must be separated from non-capital federal expenditures. The current budgeting process at the federal government level has a short-term, one- to two-year, focus. Infrastructure, by its very nature, is a long-term investment.
The current federal budget process does not differentiate between expenditures for current consumption and long-term assets. This causes major inefficiencies in the planning, design and construction process for long-term investments. A federal capital budget could create a mechanism to help reduce the constant conflict between short-term and long-term needs. It also would help increase public awareness of the problems and needs facing this country's physical infrastructure.
Without long-term financial assurance, the ability of the federal, state, and local governments to do effective infrastructure investment planning is constrained severely.
C. Public-Private Partnerships
We need to say a few words about the use of public-private partnerships (PPPs) in providing financial assistance to U.S. infrastructure. PPPs are contractual relationships between public and private sectors in infrastructure development. They have been defined as “a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”
ASCE recognizes PPPs as one of many methods of financing infrastructure improvements. ASCE supports the use of PPPs only when the public interest is protected and the following criteria are met:
• Any public revenue derived from PPPs must be dedicated exclusively to comparable infrastructure facilities in the state or locality where the project is based.
• PPP contracts must include performance criteria that address long-term viability, lifecycle costs, and residual value.
• Transparency must be a key element in all aspects of contract development, including all terms and conditions in the contract. There should be public participation and compliance
• The selection of professional engineers as consultants and subcontractors by federal, state, and local agencies should be based solely on the qualifications of the firm. ASCE supports the development of criteria by governing agencies to protect the public interest. Examples of criteria include input from affected individuals and communities, effectiveness, accountability, transparency, equity, public access, consumer rights, safety and security, sustainability, long-term ownership, and reasonable rate of return.
D. Other Financing Options
In addition, ASCE supports the following financing options.
• User fees (such as a motor fuel sales tax) indexed to the Consumer Price Index.
• Appropriations from general treasury funds, issuance of revenue bonds, and tax-exempt financing at state and local levels.
• Trust funds or alternative reliable funding sources established at the local, state and regional levels, including use of sales tax, impact fees, vehicle registration fees, toll revenues, and mileage based user fees be developed to augment allocations from federal trust funds, general treasuries funds and bonds.
• State infrastructure banks, bonding and other innovative financing mechanisms as appropriate for the leveraging of available transportation program dollars, but not in excess of, or as a means to supplant user fee increases.
• The use of budgetary firewalls to eliminate the diversion of user revenues for noninfrastructure purposes.
VI. 3% Government Withholding
Another burden that will soon be placed on the nation’s infrastructure will go into effect in 2011, when a federal mandate that federal, state, and local governments withhold 3 percent from payments for goods and services activates. Section 511 of the Tax Increase Prevention and Reconciliation Act (PL 109-222) will add millions to the cost of the nation’s infrastructure as engineering firms, construction companies and governments at all levels struggle to absorb the added cost of doing business. Compliance will reduce cash assets that are used to pay company employees and other day-to-day expenses. Many construction projects profits are not realized until the end of a multiyear contract. Despite this, contractors will have had three percent withheld throughout the life of the contract. We strongly urge Congress to repeal Section 511 before it goes in to effect in 2011.
Thank you for the opportunity for the American Society of Civil Engineers to share our views. We look forward to working with the Ways and Means Committee in efforts to address these serious concerns. I would be happy to answer any questions you may have.