The Future Importance of Local Infrastructure Funding

The author of this post, Nathaniel Hood, is a Strong Towns partner. In addition to contributing to this site, you can read Nate's work at his blog, Thoughts on the Urban Environment, and at the new Minnesota-based transportation site Streets.MN. You can also follow him on Twitter.

About a decade ago, Saturday Night Live did a skit that epitomized the spirit of the late 1990s. In a mock 2000 Presidential debate, Al Gore (played by Darrell Hammond) responds to each question in an exquisitely monotone voice saying “lockbox”. Upon each utterance, laughter and applause erupted. Soon enough, the word ‘lockbox’ ceased being an idea worthy of consideration and became something synonymous absurdity.

The SNL skit is unquestionably funny, but our cultural write-off of the ‘lockbox’ is not. For those younger than myself and unfamiliar with this ‘lockbox’ concept, let me explain. In 2000, then Vice-President Al Gore proposed this bizarre idea: the government should save money.

The ‘lockbox’ concept didn’t vibe in the era of tech market booms and the inflated housing fiasco. The idea that when the government runs a surplus, it should save money for future obligations just didn’t seem all that important.

Now, fast-forward twelve years to a much different existence and add a Strong Towns flare. It’s not just that we’ve invested in an inefficient infrastructure system with a low return on investment - it’s also how we’ve decided to acquire the money we’ve spent on this is inefficient infrastructure system.

The United States funds infrastructure largely through debt. This means that a $10 million road is not a $10 million road as associated costs are incurred through interest and other debt service payments. Chuck put it best: “Our current approach to infrastructure spending is impoverishing us as a country.”

The rudimentary idea of saving money for a rainy day (or creating a ‘lockbox’) has completely eluded us at the local level. We’ve ignored the simple principles of finance that parents attempt to instill in their growing children: save money and steer clear of the pitfalls of debt.

So, a local government wants to pursue a straightforward road project. Today, they can do it through a handful of ways. Most all of them require some form of debt. Depending on the road and its jurisdiction, cities can apply for Federal or State aid grants through various agencies, levy nearby property owners and developers, or raise the money locally through the issuing of bonds.

Even in the most localized and conservative of these situations, one where adjacent property owners or developers are charged for the “improvements,” doesn’t typically cover the full costs of the design, construction and maintenance. The rest is financed through debt from either the local, state or federal level, or some combination of the three (This is well-documented in the Strong Towns Curbside Chat Companion Booklet).

If communities want to be resilient, they’ll need to start making plans to transition away from traditional infrastructure financing mechanisms. Why? Because it rolls downhill: the Federal government cuts their budget by bleeding the States. The States pass those cuts down to the local level. This happened in Minnesota; local government aid was slashed and community balance sheets instantly became lopsided.

If, and when, the Federal or state government turns off the faucet, how will local governments pay for infrastructure? Under the current system, local governments won’t be able to. They have their hands tied.

In Minnesota, local governments can’t legally raise sales tax for an ambiguous future infrastructure projects or even put away money into a ‘lockbox’ savings account for long-term maintenance obligations. And, even if they could - it would need to be approved by the State legislature. As if to say, that a House of Representatives member from Fergus Falls should have any say whatsoever in the Mankato City Council’s decision, and subsequent approved community-wide referendum, to (for example) approve a .15 percent sales tax increase on alcohol (or gas, clothes, etc.) to support a small-scale local infrastructure project.

We can’t maintain the local infrastructure we have today under our current framework. If we want anything to change, we have to allow communities to get creative. As alarming (or funny) as it might sound, we need to allow cities and towns to have a ‘lockbox’. There are other options out there, but the most plain, simple, and uncomplicated way we can start doing this is through savings. Yes, that bizarre idea of setting money aside for the benefit of future generations.

This time around, instead of ‘lockbox’ – how about we go with something less Al Gore-esque? May I suggest local infrastructure bank?

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