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  The American Surveyor     

Will the Strategy of Spending Our Way Out of Recession Be Money Well Spent? Print E-mail
Written by Dwayne Mills, General Manager, Exor Corporation North America   
Thursday, 12 February 2009

This opinion discusses how countries are set to embark upon a strategy of spending their way out of recession, announcing significant programs of public work to create jobs and pump billions of dollars into the economy. But will this be money well spent? Allocating huge sums to building new road infrastructure can only create more problems in a significantly underfunded road maintenance program.

Mind the Gap
The developed world looks set to embark upon a strategy of spending its way out of recession as countries announce significant programmes of public work to create jobs and pump $billions into the economy. But just how well will this money be spent? Allocating huge sums to building new road infrastructure, for example, can only create more problems in a significantly underfunded road maintenance programme.

Systemic under funding for decades has left the road networks across North America, Europe and Australia in an extremely poor and often unsafe state, with the resultant congestion creating significant economic cost in lost productivity. Adding new road infrastructure without addressing the maintenance problem will simply add to this funding gap – estimated at over $1trillion in the US alone. But are governments prepared to embark upon a strategic road maintenance and improvement programme that will both deliver new jobs and provide a quantifiable economic boost, asks Dwayne Mills, General Manager, North America at Exor.

Spending Commitment
Governments across the world are united in a strategy of spending to save the global economy from a deep depression. From the US to Australia and Europe, the G20 countries are embarking upon massive programmes of public spending in a bid to create jobs and support industry.

And a key element of the spending programme is a significant investment in the road infrastructure. The UK government has allocated £1 billion to a new road construction project over the next few years, the Australian government Aus$ 4 billion and the US $375 billion over five years as well as the new job creation plan that includes $10 billion for public infrastructure.

Yet while these are undoubtedly impressive sums, questions remain about just how governments plan to spend this money. The road infrastructure across the developed world has endured systematic under funding for decades. Indeed, the gap between required and actual maintenance budget has actually increased in recent years in an unrealised search for greater efficiency.

The result has been a quantifiable deterioration on the quality of the road network and a maintenance policy that works on a ‘worst first’ basis, with no strategic planning. The result is unplanned and extended road closures and disruption that undermines the economy and enrages the electorate.

The impact of this sustained lack of commitment to maintaining the road network is staggering: in the US, the National Surface Transportation and Revenue Study Commission in 2007 found that an investment of $225 billion each year for 50 years is required to upgrade and maintain the national network of roads and bridges; while the American Society of Civil Engineers states that the US needs $1.6 trillion over the next five years to bring the nation’s infrastructure up to good condition.

Viable Economy
But as governments now begin to assess how best to spend these public funds to boost the economy it is very important to understand that simply throwing more money at new build projects is not a viable option. Firstly, building new roads requires significant public consultation and debate and such projects are, therefore, subject to rejection and delay. Even the current strategy of bringing forward existing projects on the table will still require a degree of consultation. If governments want to put money back into the economy today, building a new road is not the answer: once the consultation and planning processes have been completed it will take at least two years for new investment to reach the market and create new jobs.

Furthermore, building new infrastructure simply adds to the already overstretched maintenance burden, creating even greater problems in congestion for the future. And the cost of this congestion to the economy is significant. In 2006, the government funded Eddington report into the future of Britain’s transport infrastructure estimated that congestion may cost the economy of England £22 billion a year in lost time by 2025.

In the US, The Texas Transportation Institute estimates that in 2000 the 75 largest metropolitan areas experienced 3.6 billion vehicle-hours of delay, resulting in 5.7 billion US gallons (21.6 billion litres) in wasted fuel and $67.5 billion in lost productivity, or about 0.7% of the nation's GDP. It also estimates that the annual cost of congestion for each driver is approximately $1,000 in very large cities and $200 in small cities. Traffic congestion is increasing in major cities, and delays are becoming more frequent in smaller cities and rural areas.

In 2005, the three areas in the United States with the highest levels of traffic congestion were Los Angeles, New York and Chicago. The congestions cost for Los Angeles alone was estimated at US$ 9.325 billion.

The situation is just as bad in Australia where a PWC review in 2006 estimated the potential aggregate backlog for all Australian local councils (excluding State and Territory Govt) across the country to be approximately Aus$14.5 billion with an annual renewal underspend of Aus$1.1 billion creating a funding gap to clear the backlog and correct the underspend of Aus$2.16 billion per year for the next 10 years.

If governments want to achieve an immediate boost to the economy, the way forward has to be through structured, planned road maintenance programmes. Not only will this investment create jobs but, critically, by improving the standard of the road network, the strategy will also improve business productivity and profitability, creating a secondary economic benefit.

Prioritizing Investment
With consumers reducing their petrol consumption in response to the economic downturn, the road tax contribution to maintenance looks set to fall further. It is therefore essential that governments address the massive shortfall in infrastructure maintenance.

But there is a major stumbling block to this strategy: very few of the public sector bodies tasked with road maintenance have the detailed asset information required to either prioritise work or build a strong case for a strategic maintenance programme.

Every government has a growing requirement for due diligence around public sector investment. And, despite the underlying panic associated with the current investment pledge, departments will still need to justify expenditure demands. Highway maintenance managers need the detailed insight into the state of every asset and a complete picture of the performance of the road network to enable investment prioritisation.

Today many will struggle to allocate new funds correctly, whether to new tarmac, renewing bridges or the creation of a new roundabout to reduce congestion. Furthermore, once those investments have been made, there is no information on the improvement in performance to justify each decision.

Yet with detailed, accurate and complete road asset information, not only can highway maintenance be more strategically planned but also organisations can move towards three or five year planning cycles. As proved in a US state, the ability to work with contractors in a long term plan delivers unprecedented economies of scale that reduce the overall cost of works by an estimated 20% - releasing more funds to undertake congestion beating work and delivering more benefit to the economy.

Valuable Investment
There is no doubt that by addressing congestion problems the governments across the developed world could deliver significant benefit to hard pressed businesses. But cherry picking the most attractive, headline grabbing new build projects is not going to deliver any economic value – it is simply political expedience.

But if those tasked with road maintenance are to access these funds they need to be able to justify the investment. Today, if this money was made available just how should it be best spent? Why should the government allocate money to any specific road maintenance project and how would ministers feel confident that the spending allocation is in the right area and that it will deliver real citizen value?

For those organisations without detailed, accurate asset information it is hard to make, let alone justify, investment plans. Yet with the right information it is possible not only to justify spending requests and prove the value of continued investment in delivery asset longevity but also demonstrate consistent level of service and the citizen value that will be key for governments keen to justify this public spending strategy to move the economy back out of recession.

This investment in the road infrastructure is welcome. But it is by addressing the decades of underfunding in maintenance and embarking upon planned and managed maintenance strategies that governments can both reinvigorate the economy with new jobs and deliver much needed productivity boost by reducing the crippling levels of congestion in the Western world.

 
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