February 26, 2018

Money Doesn't Guarantee Infrastructure Success

Patrick McLaughlin

Director of the Program for Economic Research on Regulation
Summary

Regulations are often the barrier to new projects, not political will or funding.

Following the passage of tax reform legislation in December, President Donald Trump promised to honor multiple campaign promises and pursue a bipartisan infrastructure deal. It makes sense: Some estimate that 14 million jobs are directly related to infrastructure in the United States. Now, thanks to the administration's infrastructure legislative outline, we can see some details. The plan calls for $200 billion in funding in hopes of sparking $1.5 trillion in infrastructure upgrades across the country.

But the mere act of allocating federal funds to infrastructure projects, while important, doesn't guarantee success. For the money to turn into useful infrastructure, the local and private entities who actually build it must navigate a labyrinth of red tape, courtesy of the numerous federal regulatory agencies with overlapping jurisdictions, different and independent permitting processes and multiple veto points. This complicated route to success can delay worthwhile projects for years, or even kill them.

The experience of the city of Logan, Utah, is a perfect case study on how convoluted regulations can cripple even simple and environmentally friendly infrastructure projects.

A little more than a decade ago, Logan's city planners realized that their water system needed some upgrades, including new pressure-reducing valves to accommodate increased water pressure. Rather than simply replace the valves, they had a great idea: install a micro-hydro turbine inside the pipeline in question. This would solve the pressure problem, but it would simultaneously generate low-cost, renewable energy.

It was a win-win. Or so they thought.

Under normal circumstances, this project – with no disturbance to any creek or stream – should have taken little time and about $375,000 to implement. Instead, Logan spent four years and $3 million navigating the complicated nexus of relevant federal regulations and their associated permitting processes.

Much of it wasn't even relevant. The turbine was to be installed inside an existing structure requiring no new construction, yet city planners had to show that no historical structures would be negatively impacted by the project, and conduct an analysis to show that no potential endangered species would be harmed. Although the project would reduce carbon dioxide emissions by an estimated 3.7 million pounds per year, even environmental regulations got in the way.

The root of the problem is not one specific regulator or regulation. It's the accumulation of regulations over decades and across dozens of different agencies like the Army Corps of Engineers, the Environmental Protection Agency and the particularly convoluted Federal Energy Regulatory Commission, just to name a few. Each has created regulations in response to a veritable laundry list of congressional mandates and authorities.

Some are familiar to most people, such as the Clean Air Act and Clean Water Act. Others, while more obscure, are equally relevant: the Federal Deepwater Port Act of 1974, the Coastal Zone Management Act, the Fish and Wildlife Coordination Act, the Energy Policy Act of 2005, the National Historic Preservation Act, the Rivers and Harbors Act, and the Wild and Scenic Rivers Act. And those are just some acts of Congress that are relevant to FERC.

The end result for Logan was not environmental benefits, it was costs piled on top of costs.

While the city eventually installed the turbine, after navigating and complying with all the relevant regulations, many people involved stated that they would not be interested in pursuing additional infrastructure projects, especially projects related to renewable energy.

Perhaps change is on the horizon. President Donald Trump's recent actions may be the impetus needed to correct the regulatory jungle-gym surrounding infrastructure projects. While taxes, immigration and health care dominate headlines, the administration has also been working on infrastructure-related reforms.

For example, last year, the president issued an executive order designed to streamline the permitting process for infrastructure projects. It set goals to finish "environmental reviews and authorization decisions for major infrastructure projects within two years" and established performance priority goals and deadlines.

Trump's "Legislative Outline for Rebuilding Infrastructure in America" improves on that executive order. Fifteen of the 55 pages are devoted to eliminating or streamlining unneeded regulations. From a strictly regulatory perspective, that's a step in the right direction.

Furthermore, the outline introduces the concept of "One Agency, One Decision," which looks to establish one lead agency for each individual infrastructure project, instead of requiring permit applications with and distributing multiple veto points to many different agencies.

Even if all of the administration's infrastructure ideas bear fruit, infrastructure regulations, like all regulations, will require constant tending and improvement. Ultimately, that is the lesson: Decades of red tape from multiple agencies affects both infrastructure and the overall economy. Red tape is undesirable, unnecessary, and avoidable, but it will always resurface until the regulatory process accounts for regulatory accumulation.