VOICES FROM THE INDUSTRY: Infrastructure is costly to improve, but costlier to ignore

A recent article in

Strategy+business

magazine estimated that “the world’s urban infrastructure needs a $41 trillion makeover” between now and 2030. The article explained that $41 trillion is roughly equivalent to the “2006 market capitalization of all shares held in all stock markets in the world.”

Some experts think that “new technology” will be the answer, and it may be when nanotechnology takes over the world. For now, however, the trend usually reinforces the trend, and we do the same old thing with some new tricks. Better pavement will help, but we’ll need new nicely landscaped highways. Better pipe joints will help, but we need bigger pipes. Replacing copper wires will help, but we need clean power plants.

The large global corporations have been watching this problem for a while. They have piles of cash and are looking for relatively low-risk, long-lived investments. Compare the projected annual profit of Goldman Sachs in 2007 ($13 billion) with the recently passed two-year Indiana state budget ($26 billion).

It’s pretty easy to understand why it and other multinational companies have become interested in toll roads and utilities that offer returns in the range of 8 percent to 10 percent.

While it sounds good to have such companies interested in helping us solve our problems, incentives must be balanced with clear reasoning:

The governmental role has to include clear oversight-setting specific goals and incentives, establishing criteria for success on both sides of the deal, and selecting the contractors on a qualifications-based approach.

Independent planning teams should be given responsibility to think problems all the way through, defining options based on criteria for success that include operational efficiency, schedules that make sense, and budget management with an element of risk for every reward.

Users must be involved or represented in the process.

Finally, it should be made clear to all that funding will rely mostly on user fees and very little on subsidies.

The partnership between the Indianapolis Water Co. and Veolia is a great example of an effective public-private relationship, as is United Water working with the Department of Public Works. The bills to consumers for both water and sewer service are combined-a simple, but remarkable concept. And funding of a massive sewer reconstruction project is being funded at the same time.

Without exception, every city in the world has infrastructure problems. While

“Whoa, that’s a lot of money!” you’re thinking. It’s probably more than any government will ever be able to find, especially since investments in infrastructure compete with public funding for health care, education, crime, wars and public pensions, among other things. But the bitter truth is that the cost of not funding infrastructure improvements will cost even more than $41 trillion.

Fortunately, solutions exist. We just have to use imagination and challenge the status quo. We can’t keep doing things the way we’ve been doing them. We need to find new ways of paying for these projects.

Urban infrastructure isn’t the cool stuff we want to hear about, like stadiums, hotels, hospitals and research buildings. It’s the basic, underlying structure of our cities and towns. It’s our power, water and transportation systems. Yet much of it is too old to work efficiently and too small to handle existing capacity (let alone future capacity).

As the Strategy+business article says, the world’s critical infrastructures are “technologically outdated, woefully inadequate, increasingly fragile or all of the above.” The answer to the $41 trillion challenge involves realigning the governance, financing and management of infrastructure projects, and changing the focus from cities, states and countries to private companies.

Many governments already use some form of “public-private partnership.” But the “public” is usually the challenged half of that duo. “Public” usually means red tape, and many good ideas have died while caught up in it. (The Katrina relief and reconstruction programs come to mind.) Moreover, neither side seems to trust the other very much.

larger cities have the largest problems, Indianapolis is certainly a member of the club. We recently were ranked among cities with the worst air pollution, our traffic is at a stand-still in the morning and evening, and our streets clearly portray the destructive nature of Midwestern winters.

The writer in the magazine said it best: Cities that organize infrastructure effectively “will become centers of growth and innovation for the farsighted companies of the next 100 years. And they will become magnets for humanity, standing on the platform of quality infrastructure: a plat
form that goes generally unnoticed-except when it doesn’t work.”

Indianapolis already has the aura of a championship city, but there’s a lot of fix’n to do. We have problems to solve, and $4-a-gallon gas will make transit systems look better all of the time.

Government at any level can’t do everything, so bring on the corporations, never forgetting the words of President Reagan, “Trust, but verify.”