ASCE Supports Public Financing Tools to Fund Key Infrastructure Projects

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This month, the Government Finance Officers Association (GFOA), an ASCE coalition partner and lead of the Public Finance Network (PFN), released a report entitled, “Understanding Financing Options Used for Public Infrastructure.” For well over a century, state and local governments and public entities across our nation have used tax-exempt bonds as a means to provide added revenue to help finance key infrastructure projects. This report highlights the importance of this key financing tool by discussing the fundamentals and role of tax-exempt bonds for our communities to cost-effectively invest in our infrastructure.

State and local governments have three main ways to finance infrastructure projects:

  • pay-as-you-go financing,
  • using intergovernmental revenues, and
  • issuing bonds or securing other financing.

The use of bonds, which is debt financing, is accomplished by issuing bonds to pay for specific infrastructure projects. The bond issuance is determined or approved by community members through ballot measure or by their elected representatives. This debt instrument holds a low, tax-free interest rate that eventually matures, as well as a fixed sum of money. Additionally, the accumulated interest is payable to those who bought the bond, in other words, the bondholder. This process ultimately keeps borrowing costs low for state and local governments who are looking to make infrastructure investments because of the low interest rate associated with them

Because tax-exempt bonds offer low borrowing costs, this tool has become a popular financing option for state and local governments across our nation. From 2007-2017, bond issuance amounted to $3.6 trillion. The accumulated revenue during this time period had been used to finance numerous infrastructure projects including transportation, general utilities, electric power, and environmental facilities. Although positive financing opportunities are provided by tax-exempt bonds, they do not replace the need for public funding of infrastructure projects.

In ASCE’s 2017 Infrastructure Report Card, our nation’s infrastructure earned a cumulative grade of a “D+,” and in order to raise our grade we need to spend $4.59 trillion and fill a $2 trillion deficit over the next decade. Revenue to fix our infrastructure needs to come from all levels of government, which includes strong federal leadership, and public-private partnerships (P3s) such as tax-exempt bonds as part of a multi-investment approach.

Financing tools are just a set of tools in the toolbox to fix our nation’s infrastructure, but our  nation’s infrastructure cannot be repaired and modernized on these financing tools alone. If the United States is serious about achieving an infrastructure system that is fit for the 21st century, we must recognize the role of financing options and continue to encourage strong federal support.

 

 

 

 

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