Dear Mr. Emery:

On behalf of the Construction Industry Round Table (CIRT), I want to take this opportunity to officially submit my organization's views with respect to the concepts and need for a federal capital infrastructure budget⁽¹⁾, as the Commission finalizes its report.

The CIRT was first organized in 1987 to be "a force for positive change in the construction industry" and is composed of 100 CEOs of the leading firms in the architecture, engineering, and construction industry. The member firms account for nearly half of the total design/construction work in the country, which runs at approximately 8-10 percent of the national GNP. Included in these activities are thousands of federal capital infrastructure projects⁽²⁾ worth billions of dollars.

Discussion
While the concept of a federal capital budget presents challenges in a number of areas such as "scoring" and depreciation (i.e., when to begin the approach and whether or not to "reach back" to older capital projects), etc., it does represent an approach that has merit and potential value. For this reason, we urge the Commission not to state in its final report that it does not endorse or support "capital budgeting," instead that it recommends aspects of the capital budgeting approach that would improve current budget practices. [CIRT does not see this distinction as a matter of semantics, but one of critical political momentum for any type of change that the Commission may recommend].

CIRT does not subscribe to the "simplistic" version of capital budgeting that requires all capital or investment expenditures to be financed by borrowing, but rather an approach that permits or allows for borrowing. However, we believe a capital budgeting approach has great potential merit because it:

• Resolves Overstatement of Capital Project Costs: Currently, the consolidated federal budget overstates the cost of an individual capital infrastructure project for a given budget year by requiring the entire expense of a project, which typically has decades long life span of utility, to be taken or "scored" in a single year (particularly for the construction phase).

 
• Diminishes Uncertainly: The current consolidated federal budget approach to capital infrastructure projects increases uncertainty in the system from feasibility planning to construction. Given the overstated nature of the expense any single federal budget year must assume to move to construction, many projects that are ready to proceed are limited, withdrawn, or delayed in order to await adequate funding appropriations.

 
• Enhances the Ability to Meet Capital Project Needs: The present approach to capital infrastructure funding is critically short of the levels necessary to both maintain and expand to meet basic infrastructure needs in the United States. CIRT strongly agrees with the proposed draft report's summary statement that "the current process shortchanges the maintenance of existing assets." Numerous studies have been conducted to establish the shortfall in infrastructure investment vs. the maintenance and development needs of the country. One of the more recent compilations illustrating the needs was undertaken by the American Society of Civil Engineers (ASCE) this fall. (See, Attached materials).

(a)    roads & bridges: it will cost $263 billion to eliminate the backlog of needs and maintain repair levels; another $94 billion is needed for modest improvements--a total of $357 billion;
(b)    mass transit: it would require $72 billion to improve conditions;
(c)    aviation/airports: estimates range from $40-60 billion in the next five years to meet design needs and expand capacity to meet demand;
(d)    schools: it will cost about $112 billion to repair, renovate, and modernize U.S. schools;
(e)    drinking water: total need is set at about $138 billion, more than $76 billion of that is required right now to protect public health;
(f)    wastewater: America needs to invest about $140 billion over the next 20 years;
(g)    hazardous waste: the price tag related to clean-up programs is estimated at $750 billion over the next 30 years.
(See, ASCE's 1998 Report Card for America's Infrastructure).

Conclusions
Proceeding with a "business as usual" approach to America's infrastructure needs will not succeed. A federal capital infrastructure budget approach is one possible means to address long-term needs within the financial constraints that face the country. Long-term investments in infrastructure have long-term use and value, the federal budget should recognize this fundamental truth. As Luther Graef, P.E. recently stated "A crumbling infrastructure can't support a healthy economy. If we want budget surpluses in future years, we must invest in infrastructure renewal to make that possible."

At a minimum, we respectfully urge the Commission to strongly endorse a two (2) year approach to developing budget needs (with establishment of a Capital Acquisition Fund), within the framework of a five (5) year strategy to reach stated and measurable objectives. (This change to the current budget process would be the beginnings of capital budgeting).

It is axiomatic, unless the United States is willing to investment in more infrastructure projects economic development and creation of jobs will be jeopardized to those nations and economies that do make the necessary investments. Movement towards a federal capital infrastructure budget type approach, in our opinion, would be an important first step in ensuring proper funding levels for the infrastructure needs facing the nation.

We would be happy to discuss this matter further with the Commission, if you so desire. (You can contact me directly at 303/771-0952 or CIRT's President Mark A. Casso at 202/661-9262).

Sincerely,

/signed/

Ralph R. Peterson
Chairman
Construction Industry Round Table

Enclosures
Policy/MAC

Footnotes:
1.  We would define "Capital Budget" as: an accounting technique that separates capital long-term infrastructure investments (such as roads and bridges to water treatment plants) from operating expenses. The cost of capital infrastructure investment is spread out over the expected life of the asset.

2.  We would generally define "Infrastructure projects" as: the complex network of public works and facilities with long-term life spans such as: roads and bridges, mass transit, airports, schools, buildings, water projects, wastewater, dams, waste disposal, hazardous waste, and environmental projects as well as other like projects.

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