CHICAGO, May 9 /PRNewswire-USNewswire/ -- The United States' relatively
low investment in virtually all aspects of mobility-related infrastructure
-- airports, public transit, railway systems, roads and bridges -- is an
"emerging crisis" that will compromise the ability of the nation's cities
to compete globally, according to a new report co-published by the Urban
Land Institute and Ernst & Young.
Infrastructure 2007: A Global Perspective offers a comprehensive look
at the status of current and planned infrastructure investment and
development in a variety of categories in countries worldwide, with a
particular focus on the United States, China, Japan, India, and Europe. The
first of its kind, the report discusses the evolving infrastructure market,
including private and combination public-private systems for funding,
construction, operations and management.
"America is more of a follower and no longer a world leader when it
comes to infrastructure," the report states. "Other countries marshal
vanguard strategies and provide the contemporary lessons for developing
best practices in public/private finance, intermodal transport, congestion
pricing and high- speed rail...Too often (in the U.S.), projects focus on
restoration rather than rethinking the model and finding possible
efficiencies...There is a tendency to invest in the infrastructure we have
instead of the infrastructure we will need."
The varied attitudes toward and approaches to infrastructure investment
are reflected in different data provided in the report, such as: 1) Japan
has 2,000 kilometers of high-speed rail and is building about 300 more
kilometers by 2020; China is planning to build more than 2,500 kilometers
of high-speed rail by 2020; the U.S. has about 300 kilometers, but is
building none. 2) As of 2000, there were more than 750 cars per 1,000
people in the U.S.; in the U.K., just over 500 cars per 1,000 people; in
China, less than 50 per 1,000 (although this number is rising, it still is
far less than the U.S.). 3) Two of the ten most expensive infrastructure
projects worldwide involving private investment are in France; the third
most expensive is in the United States; none are in China.
The report, first released this week at the ULI's Spring Council Forum
in Chicago, is being presented to ULI members by ULI Vice Chairman Dale Ann
Reiss, global director of real estate at Ernst & Young in New York City.
According to Reiss, the private sector is going to play a significant role
in what she predicts will be a global movement to build and modernize the
world's infrastructure. She is expecting a fundamental shift in the current
business model that will change the playing field across the board. "One
thing in this report that is crystal clear to a Friedmanian economist like
me is that the private sector -- by virtue of both the capital it controls
and the skill sets it exhibits -- is going to play an increasingly
important role in the effective and efficient development of infrastructure
here in the U.S. and abroad over the next 50 years," says Reiss.
"Public-private partnerships are here to stay and may well be the only
viable way for governments to reach their infrastructure development
Numerous worldwide trends and issues are discussed in the report,
Infrastructure as a competitive imperative --
-- Mature economies with aging infrastructure networks face gargantuan
bills for deferred maintenance on roads, water systems, dams and
electric grids. Retooling costs more than many governments are
willing to pay.
-- China boldly builds new infrastructure to support future generations.
Spurred by a growing economy, India tries to keep pace and replace
third-world transport systems with state-of-the art networks.
-- Australia, the United Kingdom, other countries in Western Europe and
Canada are far ahead of the United States in using private financing
structures to fund improvements. Eastern Europe, still reeling from
communist neglect, requires a major overhaul.
-- In America, a "yawning" budget gap swallows initiatives to fund
maintenance. Prevalent sprawl, poor planning and car dependence pose
ever greater challenges in meeting future needs. Retrofits and
changing public behavior are "wrenchingly" difficult.
Expansion of infrastructure privatization --
-- Infrastructure emerges as a new asset class for investors, with
massive needs attracting large pools of private capital; double-digit
returns are sought, but high single-digit returns are more likely,
particularly for mature assets.
-- Various forms of public-private partnerships allow governments to
retain control, transfer risk, and gain efficiencies from private
-- In Europe, the stage is set for secondary market in which early-in
investment banks sell holdings to longer-term pension funds who gain
confidence in consistent track records for infrastructure investment
-- India tries to lure private investors; meanwhile China is the only
country with the luxury of relying on its booming economic engine to
directly fund vast infrastructure development.
Issues and trends specific to the U.S. --
-- Public skittishness will persist regarding turning over public
franchises to for-profit operators.
-- Homeland security worries will hamstring U.S. airport privatizations,
because the most tested operators have off-shore "pedigrees," raising
a red flag for security officials.
-- Reluctance to raise the federal gas tax threatens the viability of
the Highway Trust Fund, now on course for insolvency by 2009.
Adjusted for inflation, the tax has only one-half the purchasing
power of 1965, undercutting federal contributions to highway repair
and construction. Local sales taxes, property taxes "have nowhere to
go but up" to help fill the gap.
-- Most new U.S. highways will be constructed as toll roads; states will
finance them through bond issues and private concessions.
-- Congestion pricing lanes will gain momentum on urban highways, but
congestion cordons or zones will have extremely limited use.
-- Emerging technologies, such as satellite tracking systems could be
used to charge drivers based on miles traveled on specific roads; but
"Big Brother" hang-ups could impede widespread use.
-- States may consider tolled truck corridors to facilitate movement of
goods, as well as expanding freight rail corridors.
The sobering outlook for U.S. infrastructure systems is reinforced by a
ULI survey of 30 state transportation planning directors included in the
report. Eighty-three percent said that the nation's transportation
infrastructure is not capable of meeting the nation's needs over the next
ten years. The respondents warned that 97 percent of roads, bridges and
tunnels and 88 percent of transit/rail systems will require at least
moderate improvement in the years ahead. An estimated $185 billion in
additional funding will be required for road systems over the next five
years alone, the report notes, stating "The state of deferred maintenance
is so gargantuan nobody knows where to begin...States have been putting off
these issues to fund other needs...People will still use roads until they
can't be used, and as long as the roads work they can put it off."
The report points to privatization, already widely used in Europe and
Australia, as gaining traction in the U.S., particularly in the
construction, management and operation of toll roads, bridges and tunnels.
Investment funds, sponsored by global investment banks, private equity
firms, and institutional money managers are becoming a rapidly expanding
source of private funding. "The global investment pipeline, flush with
cash, eagerly shifts some flows to the United States as Americans begin to
realize the scope of future infrastructure requirements and the size of
funding shortfalls," the report says, noting that 28 states have passed
legislation enabling private market investment in infrastructure. Still,
skepticism over how much control should be shifted to the private sector
has, so far, kept private investment in check, the report notes. For
instance, the survey of transportation planners found that while 37 percent
predicted privatization would be a likely source of future funding, 44
percent said it would be unlikely. Seventy-three percent predicted higher
user fees as a funding source, and 63 percent predicted higher taxes.
Solving the mobility problems in the U.S. will require more than a
greater commitment to infrastructure repair and construction, the report
notes. In addition to revamping funding mechanisms for construction and
operations, long-term solutions must include rethinking land planning
models so they are far less auto-dependent and offer plenty of options for
getting from one place to another. If driving continues to be the only
practical transportation option in many metropolitan areas, no amount of
infrastructure investment will be adequate, the report contends.
"If infrastructure expenditures are comprehensively planned and
integrated with regional land use, the lasting economic benefits can be
enormous, propelling the nation's growth for generations," the report
recommends. "The federal government, working with regions and states, will
need to develop a clear vision for policy and integrate programs that link
costs to use, and which drive efficiencies. Silos must be broken down
between multiple layers of state and local road departments, transit
agencies, planning boards and housing authorities...It's no coincidence
that today's dominant cities, prospering along global economic pathways,
feature sophisticated and integrated infrastructure with multiple nodes of
transit to accommodate high volumes of activity and concentrated
populations. Their infrastructure creates a competitive advantage...The
country needs a new model for how it plans and pays for infrastructure,
including how it plans its communities."
About the Urban Land Institute
The Urban Land Institute (http://www.uli.org) is a nonprofit education
and research institute supported by its members. Its mission is to provide
leadership in the responsible use of land and in creating and sustaining
thriving communities worldwide. Established in 1936, the Institute has more
than 36,000 members representing all aspects of land use.
About Ernst & Young
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to restoring the public's trust in professional services firms and in the
quality of financial reporting. Its 114,000 people in 140 countries pursue
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Ernst & Young and its approach to a variety of business issues can be found
at http://www.ey.com/perspectives. Ernst & Young refers to the global
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SOURCE Urban Land Institute