Nearly everyone agrees America's crumbling infrastructure is undermining our economy and damaging our competitiveness. The problem, as Chicago Mayor Rahm Emanuel recently put it, is that when it comes to financing critical infrastructure investments we "can't get from here to there on the old model -- it's broken."
That old model -- relying on some combination of tax increases, additional debt, and help from Washington -- has fallen victim to fiscal and political challenges that promise to intensify rather than subside.
As recently as 2005, infrastructure investments were deemed so important that a $280 billion transportation bill -- the largest ever -- won near-unanimous support in Congress. Today, federal infrastructure investments are more likely to generate political attack ads than bipartisan cooperation.
After the 2005 legislation expired, Congress needed nine temporary extensions until it passed a two-year, $120 billion transportation bill last summer. That's progress, but the American Society of Civil Engineers estimates upgrading our infrastructure will require a five-year, $2.2 trillion investment.
No one expects that level of funding anytime soon -- and the fiscal environment isn't getting easier.
In 2012, Medicare, Medicaid, Social Security and other entitlements will consume 62 percent of federal spending. As more Baby Boomers reach retirement age, the pressure on these programs will inevitably increase, further squeezing discretionary spending on infrastructure.
Meanwhile, state tax revenues are still running tens of billions of dollars below pre-recession levels and municipal governments are struggling with red ink, falling credit ratings, and even bankruptcy in several high-profile cases.
For their part, voters seem dubious about funding infrastructure spending through tax hikes. In July, Georgia voters turned down a one-cent state sales tax increase to fund $18 billion in infrastructure improvements. In the Atlanta area, slated for $6.1 billion in road and transit upgrades, the tax was defeated 63 percent to 37 percent.
These are sobering obstacles, but infrastructure investments simply can't wait. Our economic competitors certainly aren't waiting. Europe currently invests 5 percent of GDP on transportation infrastructure, while China is investing 9 percent. In the U.S., we're stuck at 2.4 percent and begrudging every dollar. It won't be long before the economic consequences from this investment gap start piling up.
In my business, the travel industry, we see tremendous opportunities for growth in a sector that already generates $1.9 trillion in annual economic output, supplies $124 billion in tax revenue, and employs 7.5 million Americans. Over the next decade, worldwide travel from rapidly developing countries like China, Brazil and India is projected to grow by more than 100 percent -- additional visitors who could generate billions to spur economic growth, job creation, and small business expansion. Yet America's infrastructure system cannot handle the travelers we already have, much less millions of new ones.
For businesses across America, the story is the same. Congested, aging, or inadequate infrastructure represents a major barrier to growth.
Meeting this challenge requires new infrastructure financing models and new sources of funding -- specifically the deployment of private capital for public purposes.
Public-private partnerships allow government to tap into an enormous pool of idle capital.
According to one study, $250 billion in private capital is available for infrastructure investments. About 50 pension funds with $38 billion in available funds have also expressed interest in investing in infrastructure.
This model has been used successfully for years in other countries. In Canada, the Ontario Municipal Employee Retirement System has devoted $7.5 billion of its $52 billion portfolio to infrastructure investments. Ontario also teamed up with Japanese pension funds to raise $20 billion to upgrade roads, build tunnels and expand high-speed rail lines.
In the U.S., Mayor Emanuel recently launched a $7.2 billion program to "rebuild Chicago" -- with plans for new runways at O'Hare Airport, upgraded water and sewer pipes, school modernization, and new routes for bus rapid transit. A newly established Chicago Infrastructure Trust, a non-profit infrastructure bank, has already received pledges of $1.7 billion in private funding.
Beyond the capital itself, there are additional benefits to teaming up with the private sector. Public-private partnerships can introduce competition into infrastructure projects, leading to lower costs and more innovation. The private sector can also help justify infrastructure investment on a cost/benefit basis, providing the accountability needed to restore public trust in infrastructure spending and rebuild bipartisan support.
Building the infrastructure America needs will require dozens of innovative ideas that bring government together with private stakeholders. It will also require political leaders with open minds and business leaders who understand that advancing the public good is also good business.
Jonathan Tisch is Chairman of Loews Hotels & Resorts and Co-Chairman of Loews Corporation.