California estimates it will need to spend $82 billion over the next ten years to build and maintain state infrastructure. However, revenue sources are projected to meet only half this need. Two recent studies released by the Public Policy Institute of California (PPIC) assess the ways in which infrastructure is currently provided and make a number of bold recommendations about how the state might bridge the chasm between identified needs and available revenues.
These studies are the first in a series of PPIC reports about infrastructure planning and financing in California. Both studies were provided to the Governor’s Commission on Building for the 21st Century. The Commission is currently working on a variety of issues involving infrastructure planning and provision.
In California’s Infrastructure Policy for the 21st Century: Issues and Opportunities, author David Dowall recommends that to meet future need, the state must move away from infrastructure provision and toward infrastructure management and policymaking. Although his recommendations are ambitious, the rewards may be enormous: Dowall estimates that the potential financial impact of shifting to a demand-oriented approach to infrastructure planning may generate enough cost-savings to close the state’s infrastructure gap. In Building California’s Future: Current Conditions in Infrastructure Planning, Budgeting, and Financing, authors Michael Neuman and Jan Whittington examine the ways in which infrastructure decisions are currently made and, in the process, reveal the limitations and inefficiencies of the present system.
Both studies stress the need to think more strategically about the ways in which infrastructure is provided so that coordinated, long-term planning can take the place of short-term, project-based provision. Dowall’s major recommendations include:
- Prioritizing infrastructure projects based on demand — that is, how much consumers are willing to pay for services — and managing that demand through strategies such as flexible pricing and efficient resource use. Dowall argues that wide implementation of demand management strategies can significantly reduce the cost of new infrastructure investment.
- Shifting infrastructure responsibilities from public to private and non-profit sectors and stimulating competition for infrastructure services.
- Applying user and beneficiary fees to pay for a larger share of infrastructure services.
- Adopting financing that is long-term rather than pay-as-you-go.
Neuman and Whittington identify three major characteristics of the state’s current decision-making process that adversely affect the ways in which infrastructure is provided:
- Because each state department plans for infrastructure projects separately, infrastructure planning is not coordinated, nor does it support statewide strategy.
- Decisions are guided by the annual budget process and tend to reward short-term budget balancing.
- Financing decisions are made based on available funds rather than long-term needs and priorities.
The authors conclude that the cost of the current approach is unsustainably high and that an alternative process should embrace a clear policy framework and broad coordination and management.
Please feel free to contact Victoria Pike Bond at 415/291-4412 or Abby Cook at 415/291-4436 for further information or assistance.
The Public Policy Institute of California is a private, nonprofit organization dedicated to objective, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The Institute was established in 1994 with an endowment from William R. Hewlett.