There is an interesting article from the Brookings Institute that documents four trends in infrastructure funding. The conclusions of the report surprised me and I suspect they will surprise others.
Infrastructure Spending is Up, But Spending as a Share of GDP is Down
Total infrastructure spending has been climbing steadily over the last fifty years. Infrastructure in the early 1970 was a little over $300 billion per year, and since 2015 has been between $600 and $640 billion per year. However, the comparison of infrastructure spending to gross domestic product shows a slight decline over these same fifty years. In the early 1970s, infrastructure was 2.5% to 2.7% of GDP and in the 2020’s has dropped to 2.2% to 2.3% of GDP.
Gross domestic product is the measure of a country’s total economic output, expressed as the monetary value of all goods and services produced. The ratio of infrastructure spending to GDP shows the amount of national wealth that is reinvested in infrastructure. Seeing this ratio drop in recent years is an indication that, over time, the country is not reinvesting at the same level as in the past. Brookings says that most of the spending drop is related to highways, with the other categories of infrastructure spending the same or higher over time.
State and Local Governments Fund Most Infrastructure Spending
This is the finding that surprised me the most. The percentage of infrastructure spending that is funded by State and local governments has climbed steadily since the 1970s. In the 1970s, State and local government spending paid for 67.9% of infrastructure, and that has climbed to 77.5% since 2020. The percentage of federal spending has dropped even with what feels like huge infrastructure spending from the Infrastructure Investments Job Act and other federal programs.
To show the magnitude of the shift, in the 1970s, the federal government spent $1 trillion on infrastructure while State and local governments spent $2.2 trillion. In the 2010s, federal spending had increased to $1.3 trillion while state and local spending more than doubled to $4.6 trillion.
The Share of Infrastructure Spending on Maintenance is Climbing
The percentage of infrastructure spending to maintain existing infrastructure is climbing, meaning the percentage of spending for new infrastructure is dropping. In the 1970s, 44% of infrastructure spending was to maintain assets like roads and buildings, and that has grown to 57% since 2020.
State And Local Revenues More Important than Federal Grants
State and local revenues are paying for an ever-increasing percentage of infrastructure spending. This means state and local taxes and user fees. In the 1970s, 59.5% of infrastructure was funded by local taxes and fees and that’s up to 71.6% in 2023. This is also a surprise because of IIJA funding, and Brookings speculates that increased federal grants drive State and local government to fund more money than normal to use as grant matching funds.