It's Time for States to Invest in Infrastructure

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February 23, 2016
It’s Time for States to Invest in Infrastructure
By Elizabeth C. McNichol
Reversing the decline in state investment in transportation, public buildings, water treatment
systems, and other forms of vital infrastructure is key to creating good jobs and promoting full
economic recovery — and this is an especially good time for states to do it.
The condition of roads, bridges, schools, water treatment plants, and other physical assets greatly
influences the economy’s ability to function and grow. Commerce requires well-maintained roads,
railroads, airports, and ports so that manufacturers can obtain raw materials and parts, and deliver
finished products to consumers. Growing communities rely on well-functioning water and sewer
systems. State-of-the art schools free from crowding and safety hazards improve educational
opportunities for future workers. Every state needs infrastructure improvements that have potential
to pay off economically in private sector investment and job growth.
But rather than identifying and making the infrastructure investments that provide the foundation
for a strong economy, many states are cutting taxes and offering corporate subsidies in a misguided
approach to boosting economic growth. Tax cuts will spur little to no economic growth and take
money away from schools, universities, and other public investments essential to producing the
talented workforce that businesses need.
1
This pattern of neglect of infrastructure by states — the
primary stewards (along with their local government partners) of the nation’s infrastructure — has
serious consequences for the nation’s growth and quality of life as roads crumble, school buildings
become obsolete, and outdated facilities jeopardize public health.
States should address unmet infrastructure needs now for several reasons:
 The investment will improve state economies, now and in the future. Higher-quality and
more efficient infrastructure will boost productivity in states that make the needed
investments, lifting long-term economic growth and wages. In the short term, even though
employment is recovering, millions of Americans are working less than they would like and
making less than it takes to get by. Key infrastructure investments would provide immediate
job opportunities.
1
For example, see: Michael Leachman and Michael Mazerov, “State Personal Income Tax Cuts: Still a Poor Strategy for
Economic Growth,” Center on Budget and Policy Priorities, updated May 14, 2015,
http://www.cbpp.org/research/state-budget-and-tax/state-personal-income-tax-cuts-still-a-poor-strategy-for-economic.

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 Opportunities to finance infrastructure investment abound. States often pay for building new
schools, roads, airports, water treatment facilities, and the like using debt, a sound practice for
financing infrastructure that can serve generations. Today’s historically low interest rates are
especially favorable to such borrowing, and state and local debt is below pre-recession levels.
States also have many other revenue sources available including user fees like tolls as well as
federal grants.
 States are in a better position to afford these investments than they’ve been in several years.
The nation’s economy has slowly recovered from the Great Recession, finally lifting state
revenues above pre-recession levels, better enabling states on average to afford infrastructure
investments. But in many states, revenues aren’t sufficient to adequately cover the costs of
needed services such as education and health care, and still make the necessary infrastructure
investments. These states will need to consider tax increases to preserve public capital that is
crucial to long-term economic growth while meeting other needs.
A number of states have recognized the historic opportunity and need for infrastructure
investments. For example, Connecticut and Washington are in the early stages of multi-year
transportation improvement initiatives. Last year, in more than ten states, including Idaho and
Georgia, gas tax increases funded road construction.
But overall, states are cutting infrastructure spending as a share of the economy, the opposite of
what is needed. Spending by state and local governments on all types of capital dropped from its
high of 3 percent of the nation’s Gross Domestic Product (GDP) in the late 1960s to less than 2
percent in 2014. Falling federal spending on infrastructure is exacerbating the problem.
States must turn their attention back to the type of infrastructure investments that will boost
productivity, support business growth, create jobs, provide a healthier environment, and improve
opportunities for all of their residents. The specific investments needed will differ from state to
state depending on factors like the condition of the existing infrastructure and the mix of industries
in the region, but states continue to ignore needed investments at the country’s peril.
Investment in Public Infrastructure Is Falling, With Real Consequences
In the decades after World War II, the United States built an interstate highway system, hundreds
of airports, a massive network of waterworks, expanded port facilities, and other infrastructure that
significantly boosted the country’s economic output. Much of this infrastructure is in dire need of
repair. In addition, better functioning infrastructure, including more efficient public transit systems
and more environmentally friendly water and sewer systems, could boost economic growth and
quality of life. Despite these needs, governments at all levels are failing to make the improvements
that the nation’s roads, bridges, and other infrastructure need.

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The Nation’s Infrastructure Needs Improvement
Across the United States, years of neglect have resulted in crumbling roads, bridges in need of
repair, inadequate public transport, outdated school buildings, and other critical infrastructure needs.
In its most recent report card on the condition of America’s infrastructure, the American Society
of Civil Engineers (ASCE) gave U.S. infrastructure a D+ or “poor” rating. The engineers estimated
the cost of bringing America’s infrastructure to a state of good repair (a grade of B) by 2020 at $3.6
trillion, of which only about 55 percent has been committed.
2
Improving roads and bridges alone
would require almost $850 billion more than states, localities, and the federal government have
allocated. Schools need another $270 billion beyond what’s been invested. (See Figure 1 and Table
2 in the Appendix.)
FIGURE 1
2
2013 Report Card for America’s Infrastructure, American Society of Civil Engineers, March 2013,
http://www.infrastructurereportcard.org/.

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Other studies have supported and built on the
ASCE findings. For instance, America’s
drinking water treatment and distribution
systems need $384 billion in investments over
the next 20 years, according to the
Environmental Protection Agency.
3
Over half
of America’s public schools need to be repaired,
renovated, or modernized according to a U.S.
Department of Education survey.
4
And almost
20 percent of the country’s roads are in poor
condition, according to the Federal Highway
Administration’s most recent survey.
5
These needs vary significantly by state because
of differences in size, congestion, and age of
existing infrastructure. For example, 41 percent
of the roads in Rhode Island are in poor
condition, while only 11 percent of roads in
North Carolina are, according to ASCE. Illinois
needs $19 billion to improve its drinking water
treatment facilities while Georgia — with a
population similar to Illinois — needs about half
that. The ASCE report card also includes
information on state infrastructure needs and investment.
6
State and Local Governments Are the Primary Stewards of the Country’s
Infrastructure
State and local governments are the stewards of most of the country’s public capital.
3
Drinking Water Infrastructure Needs Survey and Assessment, U.S. Environmental Protection Agency, April 2013.
4
Condition of America’s Public School facilities: 2012-13, U.S. Department of Education, NCES 2014-022, March 2014.
5
U.S. Department of Transportation, Office of the Assistant Secretary for Research and Technology, Bureau of
Transportation Statistics, State Transportation Statistics 2015, Table 1-7,
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/state_transportation_statistics/state_transportatio
n_statistics_2015/chapter-1/table1_7.
6
American Society of Civil Engineers, 2013. State-specific report cards are also prepared but the release schedule varies.
The “Sources” for the state information on the ASCE website include links to state-by-state data from various sources.
http://www.infrastructurereportcard.org/a/#p/state-facts/sources
FIGURE 2

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They own over 90 percent of non-defense public infrastructure assets,
7
and although the federal
government assists in the building and maintenance of these assets, state and local governments pay
75 percent of the cost of maintaining and improving them.
8
(See Figure 2.)
States and localities spend the vast majority of their capital dollars — 9 out of 10 — on key
building blocks of a state’s economy: schools, transportation, and drinking water treatment and
distribution. (See Table 1.)
TABLE 1
State and Local Governments Account for Nearly 75% of Public Infrastructure
Spending (Billions, 2004)
Public
Federal
State and Local
Private
Schools
$0.4
$75.5
$23.8
Highways
30.2
36.5
n/a
Drinking Water
2.6
25.4
n/a
Mass Transit
7.6
8.0
0.0
Energy
1.7
7.7
69.0
Telecommunications
3.9
n/a
68.6
Other
16.1
17.2
12.1
Total
$62.5
$170.3
$173.5
Source: Congressional Budget Office, 2008
Not surprisingly, current investment varies significantly by state. Figure 3 shows the portion of
total state spending devoted to capital spending in 2013. Several large states with small populations
— Alaska, North Dakota, and South Dakota — spent over 10 percent of their budget on capital
expenses. At the other end of the spectrum, three states — California, Michigan, and Vermont —
spent less than 4 percent.
The share of a state’s budget devoted to capital spending can vary based on factors like the size
and population density of a state or the age of existing infrastructure. But some differences result
from the willingness of the state to identify and fund needed investments. Overall, investments
have been declining as needs have risen.
7
CBPP calculations of Bureau of Economic Analysis data on Fixed Assets, 2014.
8
Statement of Peter R. Orszag, Director, Congressional Budget Office before the Committee on Finance, United States
Senate, “Investing in Infrastructure,” July 10, 2008; CBPP calculations of data in Table 1.

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FIGURE 3

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How States Pay for Infrastructure Projects
States pay for public buildings, facilities, roads, and other infrastructure somewhat differently than
they fund other types of spending. For example, they use debt more frequently and often rely on
user fees like tolls to fund infrastructure. In addition, the federal government provides grants for
roads, transit, and other infrastructure. But state revenues are required, regardless of funding
method that’s used. Borrowing must be repaid and federal grants often require matching funds.
Borrowing. There are sound reasons why states and localities borrow to pay for infrastructure,
rather than use annual tax collections and other revenues. Public buildings, roads, and bridges
are used for decades but entail large upfront costs; borrowing enables the state to spread out
those costs. As a result, taxpayers who will use the infrastructure in the future help pay for it,
which promotes intergenerational equity. Borrowing also makes infrastructure projects more
affordable by reducing the pressure on a state’s budget in any given year. On average, states
finance 30 percent of their capital spending with bond proceeds.
Some states either by law or by tradition do not usually issue general obligation bonds for
infrastructure or other spending. Twenty-two states report that they maintain a formal or informal
policy of funding infrastructure on a pay-as-you-go basis, according to a recent National
Association of State Budget Officers (NASBO) survey. This means they look exclusively or primarily
to cash on hand from taxes, fees, grants, or other sources to pay for capital projects. Bond
proceeds make up less than 10 percent of funding for capital projects in 19 states.a
Taxes and Fees. On average, states finance only a small share (6 percent) of infrastructure with
general fund taxes (typically sales or income taxes not designated for specific purposes).

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However, this practice varies by state. States that shy away from borrowing for infrastructure
projects depend much more heavily on general fund taxes to pay for building and maintaining
infrastructure. General fund spending makes up more than 20 percent of funding for capital
projects in seven states — Alaska, Colorado, Indiana, Missouri, New Jersey, North Dakota, and
Wyoming.b
More typically, the general fund share is small and other state funds make up over a third of
funding for capital projects. This includes taxes designated for infrastructure such as gas taxes or
user fees like tolls, water and sewer fees, or facility entry fees.
Grants. The federal government is an active partner with states in building and maintaining
infrastructure. States use federal grants to pay for some 30 percent of their infrastructure
spending. The federal government provides grants for road and public transit projects, for utilities,
and a host of other capital expenditures.
Public/Private Partnerships. In addition, the private sector sometimes partners with states and
localities to jointly fund a needed infrastructure project. Or, in some cases, the private sector
builds or maintains a road or a public facility in return for collecting tolls or other user fees
associated with the facility. (Any state spending related to public/private partnerships is not
identified separately by NASBO in the chart above.)
a) National Association of State Budget Officers, “Capital Budgeting in the States,” Spring 2014.
b) National Association of State Budget Officers, “State Expenditure Report,” 2015.
Infrastructure Spending Is Down Across Government
Federal infrastructure investment has fallen by half ― from 1 percent to 0.5 percent of GDP ―
over the last 35 years, leaving more of the task to state and local governments.
9
For example, federal
spending on transportation and water infrastructure has fallen in real terms since 2003, and the
federal gas tax has not been increased since 1992. The recently passed five-year federal
transportation bill falls short of providing the amount needed to maintain and expand the nation’s
road system. And even the new investments in that bill will be at risk in future years because they
are paid for with cuts in other parts of the budget, rather than an increase in the gas tax.
9
Jared Bernstein, “I (mostly) like Hillary’s Infrastructure Plan,” Washington Post, December 2, 2015.

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FIGURE 4
In the 1990s, when the economy was particularly strong, states and localities increased their
investments. But this trend ended after the turn of the century, except for a temporary boost fueled
by federal infrastructure funding to states and localities from the 2009 Recovery Act. Spending by
state and local governments on all types of capital fell from 2.4 percent of GDP in the early 2000s to
1.9 percent in 2014.
10
(See Figure 4.)
Total capital spending as a share of state GDP fell in all but five states and the District of
Columbia between 2002 and 2013, with the largest drops in Nevada, Florida, and Michigan. These
states’ revenues were hit particularly hard by the Great Recession, resulting in cuts in all parts of the
budget, especially after the federal Recovery Act funds were depleted. But capital spending has not
bounced back in these states — or most others — even as the economy has recovered. (See Figure
5.)
10
CBPP analysis of Census Government of Finances and Bureau of Economic Analysis data.

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FIGURE 5
Investment in Public Infrastructure Fuels Economic Growth
The condition of roads, bridges, schools, water treatment plants, and other physical assets greatly
affects the economy’s ability to function and grow. Commerce requires well-maintained roads,

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railroads, airports, and ports so that manufacturers can obtain raw materials and parts, and deliver
finished products to consumers. Improving many types of public infrastructure boosts the
productivity of businesses by reducing their costs. Growing communities rely on well-functioning
water and sewer systems. State-of-the art schools free from crowding and safety hazards improve
educational opportunities for future workers. Better roads and public transit make it feasible (or
more efficient) for workers to get from their home communities to more of the places where the
jobs are. Carefully targeted initiatives to maintain and improve public infrastructure boosts a state’s
long-term productivity, resulting in more economic growth and higher-wage jobs. In the short-term,
under the right conditions – including the current ones – public infrastructure investments also can
create needed jobs.
Well-Targeted Public Investment in Infrastructure Improves
Private Productivity, Research Shows
Recent research has found that infrastructure investments generally result in a more productive
economy, which typically means higher wages and a better quality of life.
The interactions between public infrastructure investments and private sector growth are,
however, highly complex and difficult to quantify. A groundbreaking 1989 analysis by economist
David Aschauer of the country’s economic and public infrastructure growth between 1949 and 1985
found that a 10 percent increase in public sector capital stock (such as roads, transit, and public
buildings) increased productivity growth by almost 4 percent.
11
Some researchers, skeptical of this
finding, conducted studies using different data sets and methods. These initial reports found
considerably smaller effects than the early work or no effect at all.
12
Many subsequent studies of this question have been conducted using U.S. and international data.
On balance, studies conducted between the late 1990s and 2007 tended to confirm a relationship
between public infrastructure investment and economic growth. “…Although not all studies find a
growth-enhancing effect of public capital, there is more of a consensus in the recent literature than
in the older literature…” a 2007 survey of over 75 studies of the relationship concluded.
13
The search for ways to restore economic growth following the 2008 recession prompted
additional research on this topic. Many of these more recent studies found that spending on public
infrastructure has a positive and statistically significant effect on productivity and, thus, economic
growth.
14
Although the magnitude of the effects found in individual studies differed, the general
11
David Aschauer, “Is Public Expenditure Productive?” Journal of Monetary Economics, Vol. 23, 177-200, 1989.
12
See for example: Alicia Munnell, “Infrastructure investment and economic growth,” Journal of Economic Perspectives, Vol
6 (4), 189-98 1992; and Douglas Holtz-Eakin, “Public-Sector Capital and the Productivity Puzzle,” The Review of Economics
and Statistics, Vol. 76 (1), 12-21; and Teresa Garcia-Mila, Therese McGuire, and Robert Porter, The Effect of Public
Capital in State-Level Production Functions reconsidered, Review of Economics and Statistics, Vol 78 (1), 177-180.
13
Ward Romp and Jakob de Haan, “Public Capital and Economic Growth: A Critical Survey,” Perspektiven der
Wirtschartspolitik, Vol. 8, 6-52, 2007.
14
James Heintz, “The impact of public capital on the U.S. private economy: new evidence and analysis,” International
Review of Applied Economics, Vol 24(5), 619-632, 2010. Also see Jeffrey Thompson, “Prioritizing Approaches to Economic

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findings of the most recent studies is that an increase in the value of existing current capital stock
(roads, bridges, and other infrastructure) would increase productivity growth. The effects are about
half as large as those Aschauer initially estimated.
15
Economists prepared a number of estimates of the impact of an additional dollar of infrastructure
spending on GDP growth in 2008 during the debate over a federal fiscal stimulus package. These
estimates found that in the depths of the Great Recession, a dollar in infrastructure investment
would result in $1.50 in GDP growth, according to the Council of Economic Advisers.
16
Similarly,
Moody’s, a leading private econometric firm, estimated the effect at $1.60.
17
The Congressional
Budget Office found that that the impact ranged from a low estimate of $1.00 to 2.50.
18
This impact will be less but likely still positive during a time of economic growth, when there is
still some slack in the labor market ― as in the economy now. Moody’s estimated that as of the
beginning of 2015, after a number of years of economic recovery, an additional dollar of
infrastructure investment would increase GDP by $0.86. That effect shrinks the closer the economy
is to full employment.
Other key points for state policymakers to keep in mind include:
 A portion of the economic benefits may spill over into neighboring states. The majority
of the studies of the effects of infrastructure investment focus on national spending, but some
have looked specifically at the effect of infrastructure spending in U.S. states or cities.
19
Generally, the effect of state infrastructure spending on economic growth was found to be
different — often somewhat smaller — than the effect of federal spending because of
something called the “spillover” effect. That is, the benefits of improving the roads or other
infrastructure of one state may spill over to neighboring states and improve commerce in both
states. Because of the spillover effect, state investments have a larger impact on national
economic growth than on growth in the individual state making the investment. And,
Development in New England: Skills, Infrastructure, and Tax Incentives,” Political Economy Research Institute,
University of Massachusetts, Amherst, August 2010 for a summary of recent articles.
15
Thompson, 2010. Some of the differing results can be explained by the different econometric methods used, but
much of this variation likely results from the fact that these studies focused on different geographic regions, different
types of infrastructure, or different levels of government.
16
Christina Romer and Jared Bernstein, “The Job Impact of The American Recovery and Reinvestment Plan,” Council
of Economic Advisers, January 9, 2009.
17
Moody’s Analytics, cited in Alan S. Blinder and Mark Zandi, “The Financial Crisis: Lessons for the Next One,” Center
on Budget and Policy Priorities, October 15, 2015, http://www.cbpp.org/research/economy/the-financial-crisis-
lessons-for-the-next-one.
18
Congressional Budget Office, “Estimated Impact of the American Recovery and Reinvestment Act on Employment
and Economic Output,” April 2010-June 2010.
19
For example, Donald Bruce, et al., “Road to Ruin? A Spatial Analysis of State Highway Spending,” Public Budgeting &
Finance, Winter 2007, 66-85; Andrew Haughwout, “Public Infrastructure Investments, Productivity and Welfare in Fixed
Geographic Areas,” Journal of Public Economics, Vol. 83, 2002, 405-425; and Alicia Munnell, “Infrastructure investment and
economics growth,” Journal of Economic Perspectives, Vol. 6, No. 4, 1992, 189-98.

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somewhat paradoxically, failing to account for these spillover effects in economic models can
lead to an artificially low estimate of the overall effect of state capital spending.
20
 The size of the impact may vary by region. Not surprisingly, a number of studies on the
differences among countries find that the largest positive effects occur in places where the
quality and quality of infrastructure lags.
21
The same would hold true within the United States.
Regions that have underinvested in infrastructure historically are thus ones where increased
investments could have the largest payoffs.
 States need to evaluate the tradeoffs. State policymakers will need to prioritize
infrastructure projects and weigh their value against other state needs. Since states generally
have so underinvested in their infrastructure, there’s little question that they can identify
affordable projects that will boost productivity over time.
22
At the same time, many states
have also neglected to invest properly in their residents’ education, health, and quality of life.
In some cases, states will need to raise revenue to meet these various needs, and all states will
need to evaluate the tradeoffs involved in choosing various investments over others. In
addition, some revenue sources often used to finance infrastructure, such as tolls, fall more
heavily on low-income taxpayers. States may choose to avoid these sorts of financing options
for this reason, or consider ways to offset the negative effects such as by enacting or
expanding targeted tax credits like the Earned Income Tax Credit.
Public Infrastructure Investment Can Spur Job Growth
Under the right conditions, investment in infrastructure boosts employment as soon as building
begins, with large public construction projects generating hundreds of well-paying jobs. Many of the
new jobs last only as long as the project is being constructed, but for major projects they can last for
multiple years. Plus, other jobs will be needed to maintain the structures once they have been built,
extending the project’s job-creation impact.
This job creation has the greatest impact on state economies when, as there is now, there’s slack in
the economy and unemployed or underemployed workers are available to fill these jobs. The Labor
Department’s most comprehensive measure of unemployment — which includes people who want
to work but are discouraged from looking and those working part-time because they can’t find full
20
Jeffrey P. Cohen, and Catherine Morrison Paul, “Public Infrastructure Investment, Interstate Spillovers, and
Manufacturing Costs,” The Review of Economics and Statistics, Vol. 86, No. 2, 2004, 551-560.
21
Romp and de Haan, 2007.
22
The value to a state of different types of infrastructure investment will vary based on many factors including the
expected impact on economic growth but this can be difficult to quantify. For example, a number of studies find that
spending on transportation is effective at boosting economic growth and include estimates of the impact of a dollar of
increased spending on GDP growth. But the magnitude of the effects of investment in other specific types of
infrastructure is less clear, results are more mixed, and magnitudes vary. One explanation for the lack of consensus is
that it is more difficult to measure the quality of educational or health care facilities, for example. In addition, these sorts
of investments’ benefits may be difficult to quantify because they occur years in the future or because improvements in
quality of life or the environment are less tangible.

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time jobs — remains at 9.9 percent, above pre-recession levels. The jobs created, mainly in fields
like construction, tend to pay middle or high wages so they can boost workers’ standard of living.
23
When there are readily available workers, projects that bring an influx of new money into a state
because they are funded with federal dollars or through borrowing ― as most state infrastructure
projects are ― can be particularly effective at boosting employment and earnings. On the other
hand, if the state raises taxes or cuts other spending to pay for some or all of the project at the
outset, the impact on a state’s employment would be smaller but likely still positive, especially if the
taxes raised are those paid by high-income individuals or businesses. If their taxes were lower,
businesses or individuals might otherwise save that money or spend it outside the state. But if these
dollars are instead used to pay for a public construction project, a significant portion goes to in-state
workers, improving the local economy as workers spend their paychecks in the area. Materials and
equipment purchased from in-state companies would have a similar effect.
State infrastructure projects may leverage private funds as well, adding to the economic benefits.
(See the discussion of the various funding methods in the box above.)
Investment in Public Infrastructure Can Improve a State’s Quality of Life, the
Environment, and Opportunity
On top of the economic benefits, well-designed investments in parks, libraries, schools, and better
roads and public transit can improve residents’ quality of life. There are also a host of ways to
improve the country’s environment with investments in “green” technology for waste treatment,
energy production, and public transit.
Improved Quality of Life
New and improved public amenities can bring less tangible but very real benefits to state
residents. For example, a community is improved in ways that may be difficult to measure when
children are taught in up-to-date and uncrowded schools that provide the latest technology as well as
good athletic and arts facilities. These sorts of investments can expand the opportunities available to
children and enhance their learning experiences.
24
An area’s quality of life also increases when
people have easy access to modern libraries and well-designed and maintained parks. And well-
maintained roads, bridges, and public transit that make commutes smoother improve both
commerce and quality of life.
23
Josh Bivens, “The Short and Long Term Impact of Infrastructure Investments on Employment and Economic
Activity in the U.S. Economy,” Economic Policy Institute, July 1, 2014.
24
“Impact of Inadequate School Buildings on Learning,” U.S. Department of Education, April 3, 2000,
http://www2.ed.gov/offices/OESE/archives/inits/construction/impact2.html; “Green Schools Are Better for
Learning,” Center for Green Schools, June 30, 2015, http://www.centerforgreenschools.org/green-schools-are-better-
learning.

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A Better Environment
Many types of public infrastructure play a major role in maintaining and improving the country’s
environment. Fully one-quarter of the country’s non-defense public capital directly affects the
environment, with water and sewer plants, conservation and recreation facilities, and power plants
making up 11 percent, 6.5 percent, and 3 percent of non-defense public capital, respectively.
Transportation other than roads accounts for another 6.5 percent of non-defense public capital.
25
States can improve their local and regional environment by carefully designing new power plants,
public transit, and water and sewer treatment facilities. These benefits to the state and region are
very real even if they do not always show up in typical measurements of economic growth and
productivity that are studied in the research on the impact of infrastructure. A cleaner environment
can improve the health of residents and increase quality of life by providing places for recreation and
wildlife.
Improved Opportunity for All
A major reason for public (as opposed to private) investment in infrastructure is to ensure that
people of all income levels have access to amenities like good roads, schools, and hospitals. When
an investment’s benefits are so spread out over time and place that it is not feasible to profit from
them, the private sector cannot be relied upon to provide those investments. Rather, it is up to
government at all levels to ensure equal access.
But even when the public sector plays the leading role in providing for an asset such as
elementary and secondary schools, inequities can arise. For example, a higher percentage of public
schools in poor areas are in need of repair than those in the wealthiest places. (See Figure 6.) Part
of the reason for this is that schools are often funded by local property taxes and property values are
lower in poor areas.
In addition, poorer areas are often home to outdated infrastructure beyond schools. For example,
aging lead water pipes are much more common in the lowest-income neighborhoods or cities. This
brings the potential for dire health problems and the associated health and economic costs, as the
experience of Flint, Michigan, has demonstrated.
26
Increased investment by states that is targeted to
low-income areas can help address these problems.
25
James Heintz, “The impact of public capital on the U.S. private economy: new evidence and analysis,” International
Review of Applied Economics, Vol. 24, No. 5, 2010, 619-632.
26
Abby Goodnough, Monica Davey, and Mitch Smith, “When the Water Turned Brown,” New York Times, January 23,
2016, http://www.nytimes.com/2016/01/24/us/when-the-water-turned-brown.html?_r=0.

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16
FIGURE 6
It’s Time for States to Invest More in Infrastructure
With the memory of the Great Recession still fresh, some states and localities are hesitant to take
on more debt, despite their extensive infrastructure needs. That’s a mistake, in part because
conditions for borrowing have rarely been better.
 States’ and localities’ current interest costs are low. Interest payments on debt averaged
just 4 percent of current spending in 2013, the lowest level since Census began tracking this
data in 1977. Interest payments made up less than 5 percent of state and local spending in all
but nine states.
27
 Total state and local debt is below pre-recession levels. Measured as a share of the
economy, state and local debt has fallen since 2009 and is below pre-recession levels. If
borrowing returned to pre-recession levels as a share of the economy, an additional $400
billion would be available, with which states and localities could address infrastructure
needs. (For comparison, the aggregate value of all bonds issued for school construction and
rehabilitation between 2003 and 2012 was $514 billion.)
 Borrowing is inexpensive. The Federal Reserve has kept the short-term interest rate that
banks charge to borrow from each other very low. This, in turn, has kept the interest rates
charged for other types of loans, including bonds purchased from state and local
27
CBPP calculations of Census of Government Finances data.

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17
governments, low as well.
28
Although the Federal Reserve has begun raising short-term
interest rates the Congressional Budget Office projects that interest rates will rise only
slowly.
29
 The federal government subsidizes state and local borrowing. The federal government
provides that interest from investments in state and local government bonds are exempt from
federal income taxes. The federal tax exemption effectively subsidizes state and local
infrastructure projects, since states and localities otherwise would need to pay bond investors
a higher interest rate. While Congress may consider in the near future a tax reform package
that alters somewhat this tax exemption, it is highly likely that the federal government will
continue to provide substantial subsidies for state and local bond investments.
State economies are finally recovering from the Great Recession. As the nation’s economy has
slowly recovered, overall state revenues have exceeded their pre-recession levels, better enabling
states on average to afford infrastructure investments. But in many states revenues still aren’t
sufficient to adequately cover the costs of needed services such education, health care, and
infrastructure investments so some states will need to consider tax increases to preserve the public
capital that is crucial to long-term economic growth. And revenue collections remain below
historic averages as a share of the economy in many states, suggesting that there is room for tax
increases for important investments in roads, public transit, schools, and other infrastructure.
28
For further discussion of state debt, see: “Policy Basics: State and Local Borrowing,” Center on Budget and Policy
Priorities, January 15, 2015, http://www.cbpp.org/research/policy-basics-state-and-local-borrowing.
29
Congressional Budget Office, “The Budget and Economic Outlook, 2016-2026,” January 25, 2016,
https://www.cbo.gov/publication/51129.

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18
APPENDIX
TABLE 2
Cumulative Infrastructure Needs By System Based On Current Trends Extended to
2020 (Dollars in 2010 Billions)
Infrastructure Systems
Total Needs
Estimated
Funding
Funding Gap
Roads, Bridges, & Transit1
$1,723
$877
$846
Electricity1
$736
$629
$107
Schools2
$391
$120
$271
Public Parks & Recreation3
$238
$134
$104
Airports1,4
$134
$95
$39
Dams, Levees, Waterways & Ports1,5,6
$131
$28
$103
Water & Wastewater7
$126
$42
$84
Rail8
$100
$89
$11
Hazardous & Solid Waste7
$56
$10
$46
Total
$3,635
$2,024
$1,611
Yearly Investment Needed
$454
$253
$201
Source: American Society of Civil Engineers 2013 Report Card for American Infrastructure
1 Data taken from ASCE Failure to Act Series published 2011-13.
2 These numbers are based on the last available national data collection and brought to current market dollars
3 Total needs and funded included all costs associated with Parks and Recreation. Funding gap is capital needs only.
4 Airport needs and gaps include anticipated cost of NextGen: $20 billion by 2020 and $40 billion by 2040.
5 Total needs number is based on discussions with the National Committee on Levee Safety
6 Total needs are federal and non-federal high hazard dams.
7 Funding only includes publicly funded remediation, not funds from private sector.
8 These numbers are based on market projection and current investment trends.

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19
TABLE 3
State and Local Capital Spending by State Since 2000 as Percent of Gross Domestic Product
2000
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Alabama
2.60%
2.67%
2.44%
2.58%
2.49%
2.35%
2.39%
2.87%
2.39%
2.18%
2.17%
2.20%
Alaska
4.70%
4.89%
3.87%
3.57%
3.37%
3.48%
3.71%
5.01%
4.38%
3.67%
3.56%
4.11%
Arizona
2.59%
2.91%
2.79%
2.63%
2.73%
2.98%
3.60%
3.57%
2.76%
2.36%
2.14%
2.26%
Arkansas
1.88%
2.21%
2.16%
1.86%
1.94%
2.16%
2.13%
2.02%
2.12%
2.14%
2.13%
2.09%
California
1.82%
2.00%
2.26%
2.14%
2.24%
2.30%
2.38%
2.51%
2.36%
2.14%
2.09%
1.93%
Colorado
2.24%
2.73%
2.81%
2.33%
2.20%
2.58%
2.34%
2.42%
2.39%
2.21%
1.97%
2.01%
Connecticut
1.38%
1.70%
1.28%
1.21%
1.34%
1.24%
1.36%
1.34%
1.36%
1.41%
1.58%
1.49%
Delaware
1.46%
1.74%
1.63%
1.98%
2.00%
1.90%
2.13%
1.98%
1.81%
1.80%
1.92%
1.85%
DC
1.64%
2.48%
1.64%
1.59%
2.16%
2.06%
2.69%
1.82%
2.11%
2.12%
2.11%
2.51%
Florida
2.61%
2.89%
2.80%
2.64%
2.59%
3.15%
3.38%
3.26%
2.75%
2.40%
2.06%
1.86%
Georgia
2.34%
2.67%
2.42%
2.23%
2.24%
3.22%
2.80%
2.80%
2.46%
2.07%
2.00%
1.86%
Hawaii
2.51%
2.49%
1.75%
1.68%
1.40%
1.82%
2.05%
2.46%
2.51%
2.34%
2.67%
2.39%
Idaho
2.09%
2.28%
2.43%
2.27%
2.06%
2.18%
2.27%
2.73%
2.55%
2.13%
1.93%
1.80%
Illinois
1.92%
2.46%
1.98%
1.82%
1.74%
2.08%
2.02%
2.29%
2.15%
1.91%
1.79%
1.80%
Indiana
1.97%
1.91%
1.80%
1.86%
1.88%
1.87%
2.11%
2.46%
2.00%
1.89%
2.00%
1.67%
Iowa
2.52%
2.69%
2.33%
2.41%
2.47%
2.47%
2.42%
3.07%
3.03%
2.98%
3.10%
2.68%
Kansas
2.00%
2.01%
2.39%
2.20%
2.29%
2.20%
2.25%
2.97%
2.77%
2.36%
2.02%
1.96%
Kentucky
2.49%
2.29%
2.10%
1.79%
2.06%
2.45%
2.73%
2.52%
2.63%
2.41%
2.44%
2.13%
Louisiana
2.11%
2.06%
1.97%
1.74%
2.07%
2.04%
2.51%
2.92%
2.63%
2.59%
2.49%
2.25%
Maine
1.64%
1.80%
1.95%
1.60%
1.68%
1.54%
1.42%
1.46%
1.67%
1.95%
1.87%
1.76%
Maryland
1.90%
2.02%
1.43%
1.62%
1.68%
1.60%
1.58%
1.56%
1.61%
1.51%
2.07%
1.33%
Massachusetts
2.19%
2.20%
1.85%
1.56%
1.52%
1.52%
1.45%
1.56%
1.53%
1.54%
1.70%
1.67%
Michigan
1.98%
2.13%
1.88%
1.81%
1.69%
1.61%
1.73%
1.63%
1.64%
1.57%
1.43%
1.30%
Minnesota
2.41%
2.69%
2.17%
2.11%
2.11%
2.17%
2.47%
2.44%
2.20%
1.92%
1.92%
2.02%
Mississippi
2.95%
2.57%
2.33%
2.14%
2.74%
3.04%
2.99%
2.95%
3.07%
3.03%
2.95%
2.48%
Missouri
1.98%
2.20%
1.98%
1.77%
1.97%
1.87%
1.94%
2.37%
2.24%
2.06%
1.90%
1.68%
Montana
2.51%
2.60%
2.72%
2.59%
2.84%
2.80%
3.12%
3.44%
3.28%
2.90%
3.01%
2.53%
Nebraska
3.10%
3.24%
3.21%
2.92%
2.82%
3.52%
3.23%
3.35%
3.08%
2.62%
2.55%
2.44%

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20
TABLE 3
State and Local Capital Spending by State Since 2000 as Percent of Gross Domestic Product
2000
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Nevada
2.96%
2.89%
2.85%
2.74%
2.59%
2.47%
2.87%
2.92%
3.37%
2.86%
2.61%
1.78%
New Hampshire
1.34%
1.44%
1.43%
1.42%
1.69%
1.57%
1.44%
1.33%
1.32%
1.46%
1.35%
1.30%
New Jersey
1.37%
1.72%
1.76%
1.78%
2.04%
1.75%
1.86%
1.90%
1.72%
1.44%
1.38%
1.40%
New Mexico
2.59%
2.45%
1.97%
2.20%
2.21%
3.25%
3.05%
3.78%
3.54%
3.02%
2.75%
2.42%
New York
2.27%
2.89%
2.86%
2.56%
2.62%
2.56%
2.75%
3.06%
3.16%
2.94%
2.71%
2.58%
North Carolina
2.05%
2.02%
2.01%
2.03%
1.98%
2.10%
2.10%
2.12%
1.84%
1.81%
1.78%
1.66%
North Dakota
3.63%
2.95%
2.51%
2.77%
2.60%
2.76%
2.50%
2.65%
3.16%
2.77%
3.27%
3.16%
Ohio
2.17%
2.21%
2.04%
2.15%
2.14%
2.17%
2.14%
2.23%
2.38%
2.21%
1.89%
1.88%
Oklahoma
2.26%
2.46%
1.83%
1.85%
1.92%
2.14%
2.10%
3.17%
2.87%
2.43%
2.14%
2.12%
Oregon
2.21%
2.37%
1.91%
2.07%
2.15%
2.16%
2.36%
2.66%
2.40%
2.08%
1.94%
1.75%
Pennsylvania
1.86%
2.20%
1.60%
1.99%
1.85%
1.99%
2.16%
2.25%
2.39%
2.21%
2.04%
1.91%
Rhode Island
1.22%
1.54%
1.26%
1.27%
1.43%
1.40%
1.59%
1.44%
1.42%
1.58%
1.29%
1.31%
South Carolina
2.70%
2.80%
2.65%
2.83%
2.62%
2.64%
3.10%
3.39%
2.74%
2.30%
2.05%
2.28%
South Dakota
2.69%
2.43%
2.35%
2.53%
2.52%
2.58%
2.48%
3.17%
3.27%
3.12%
2.78%
2.81%
Tennessee
2.38%
1.91%
1.68%
1.59%
1.90%
1.87%
1.91%
2.20%
1.84%
1.81%
1.80%
1.60%
Texas
2.23%
2.47%
2.35%
2.36%
2.24%
2.19%
2.64%
2.71%
2.50%
2.13%
1.90%
1.84%
Utah
2.79%
3.04%
2.71%
2.41%
2.42%
2.69%
3.22%
3.86%
3.84%
3.42%
3.28%
2.46%
Vermont
1.35%
1.79%
1.37%
1.64%
1.82%
2.07%
1.63%
1.70%
1.84%
2.19%
1.76%
1.69%
Virginia
1.57%
1.91%
1.59%
1.64%
1.67%
1.73%
1.90%
1.78%
1.73%
1.83%
1.91%
1.74%
Washington
2.50%
2.95%
3.14%
3.04%
2.69%
3.08%
3.10%
3.48%
3.14%
2.92%
2.66%
2.71%
West Virginia
2.36%
2.44%
2.22%
2.26%
2.46%
2.47%
2.36%
2.43%
2.31%
2.46%
2.69%
2.53%
Wisconsin
2.39%
2.44%
2.01%
1.90%
1.98%
1.90%
2.00%
2.00%
2.01%
1.99%
1.80%
1.68%
Wyoming
3.67%
3.55%
3.36%
3.45%
2.94%
3.13%
3.32%
4.57%
4.16%
2.98%
3.00%
2.94%
United States
2.11%
2.34%
2.19%
2.12%
2.14%
2.25%
2.38%
2.51%
2.38%
2.17%
2.06%
1.94%
Sources: US Census, Bureau of Economic Analysis (Census data downloaded from Urban Institute Tax Policy Center database) Notes: Census data not available for
2001 and 2003. Spending includes state spending of Recovery Act funds. The Census Bureau data on capital spending include the costs of construction and of the
purchase of buildings, equipment, and land and of major alterations.