Professor Rick Geddes

Professor Rick Geddes

Visiting scholar at the American Enterprise Institute

R. Richard “Rick” Geddes is a visiting scholar at the American Enterprise Institute (AEI), where he focuses on infrastructure public and private partnerships, the US postal system and postal delivery policy, and corporate governance. Concurrently he is professor of policy analysis and management at Cornell University and director of the Cornell Program in Infrastructure Policy.
Dr. Geddes served as a commissioner of the National Surface Transportation Policy and Revenue Study Commission, which submitted its report to Congress in January 2008. Previously, he was a senior economist on the President’s Council of Economic Advisers, a national fellow at the Hoover Institution at Stanford University, and a visiting faculty fellow at Yale Law School.
In 2009 and 2010, Dr. Geddes worked on public-private partnerships in Australia, first as a Fulbright senior scholar at Australian National University in Canberra and later as a visiting researcher with the Australian government’s Productivity Commission.
Dr. Geddes’ work has been published in scholarly journals, which include the American Economic Review, the Journal of Urban Economics, the Encyclopedia of Law and Economics, the Journal of Law and Economics, and the Journal of Regulatory Economics. In addition, his commentary has appeared in CNN.com, The Hill, The New York Times, and The Wall Street Journal, among others.
Dr. Geddes has a PhD and an MA in economics from the University of Chicago. He has a bachelor of science in economics and finance from Towson State University.

Transcript of Episode 127 with Professor Rick Geddes

Unknown Speaker 0:02
Welcome to the Common Bridge, where policy and current events are discussed in a fiercely nonpartisan manner. The host, Richard Helppie, is a philanthropist, entrepreneur and columnist who has over a million listeners around the world. His podcast and YouTube show draws guests and audiences across the political spectrum.

Richard Helppie 0:20
Hello, welcome to the Common Bridge. I’m your host Rich Helppie, with a regular guest, Professor Rick Geddes of Cornell University. We’ve all learned so much about infrastructure, infrastructure bills, and the right way to do infrastructure in today’s world from Professor Geddes. Today, we’re going to talk about the United States Post Office. This is really a fascinating topic that has its origins back with the founding of the country, the way it was a cabinet level position, how it transitioned through congressional management to the state that it’s in today, and where it might go in the future. So Professor Geddes, it’s an honor and a privilege to have you back on the show today, how are you?

Professor Rick Geddes 1:11
I’m doing great. Thanks for inviting me, Rich; good to be here.

Richard Helppie 1:13
Let’s just dive right into this– maybe is there a thumbnail about the history of the Post Office? How was it established? Why was it so important to the country? And I know, we’ve had technology changes from the Pony Express to the telegraph system to what we’re dealing with today, but maybe a little bit on the history to kind of set the table?

Professor Rick Geddes 1:35
Sure, sure thing Rich, it’s actually a very interesting history: the Post Office in this country actually predates the United States. So you have to go back to the time of the colonies. And the way, the fastest way of communicating in those days was by horse post. And that’s where the term post office comes from. People who live in the East know the Boston Post Road, they know the Post House Restaurant in New York. So there’s this idea of a Post, which is actually in the Constitution, Congress shall have the power to create post offices and post roads. Why was that? It was because what you had was a horse and a rider with a bag, and the bag contained written letters. And the r the rider would go fast as he could on the horse to the next post and hand the bag of letters over to the next rider with a fresh horse and a fresh rider to go to the next post. So it was a series of posts, that would quickly communicate these letters. Now, this was not sending holiday cards in those days. This was the way that military commanders would communicate with one another by fast horses. And the British in fact, it’s a very interesting history as to how it became a monopoly. The British when they were concerned about the wrested colonies, one of the first things they did was control the horse post, because they could look for letters coming from colonists who, you know, were revolutionaries, right, and were considered subversive letters against the Crown. So the monopoly, government monopoly on the post, goes back to before the founding of the United States, and was, you know, this power of Congress to do that was not just for fun, it was very much for communications in what we would call national security today.

Richard Helppie 3:45
So the British were looking trying to intercept the mail to get messages, this notion about the government looking at our communications predated our United States Congress!

Professor Rick Geddes 3:55
So Rich, it was to look for treasonous letters, and to search and so the British very well understood that they needed to control communications, rapid communications, in those days, and there was no telephone, you know, it’s hard for young people to understand. There was no internet, it was strictly, you know, this was the fastest way to to get a letter from one point to another; everything was written communications was by horse post. And so, you know, the British controlled that and, of course, the the early, you know, colonists who wanted to form an independent country, realized that they had, you know, they had to have secure communication. So there was a battle, you know, about communications in those early days. And so the United States, you know, when it was formed, kept that sort of mentality and it ends up in the Constitution giving Congress this power to create post offices and post roads. So infrastructure early in those days was to facilitate this communication by horse post. And so, you know, it just continued and the history of that, Rich is very interesting. There’s a great book by Richard Johns called “Spreading the News.” And the idea of the early post, which continued obviously, after the founding of the country, was to facilitate these communications, but it was really newspapers. So the idea was what we call in economics a cross-subsidy, meaning that the delivery of letters within eastern cities, which was the dense population in those days, that was priced up, in order to give the early Post Office, the resources it needed to deliver mainly newspapers to the frontier. And the idea of that was to make these frontier states, you know, which, of course was Tennessee, Kentucky, perhaps in those days, to make them feel part of the Union. It really was to bring the nation together, to knit the nation together in the early days, so that these other states didn’t feel isolated. But the way they tried to make them feel as part of the Union was was to tell them the news. And, you know, we kept that notion of binding the nation together through the post over the years, and it’s the government continued, that monopoly, Rich. Private Express statutes were from 1845, was kind of the legal basis of the modern monopoly, which is actually two monopolies– and then I’ll stop– one is over the delivery of anything defined as a letter that’s within certain height and weight limits, but also over your mailbox. I don’t know if you have a mailbox… there’s part of the 1845 (maybe dates back that far) is that you’re not supposed to put any non-official mail in a mailbox that’s not, you know, stamped and canceled stamped. And so there’s actually two monopolies there. And that goes way back in the Post Office history.

Richard Helppie 4:16
You know, what’s really fascinating about this, we’re talking about the transfer of information. We’re talking about trying to unify the nation. And what are we trying to do today? We’re trying to unify the nation, we’re trying to transfer information. We’re trying to speed communication. Professor, at what point was the Postmaster General made a cabinet-level position? And why did they do that? What enabled that?

Professor Rick Geddes 7:47
Yeah, so Rich, that’s also a very interesting history. The Post Office lasted until July of 1971, when the Postal Reorganization Act of 1970 kicked in. And so you have to go back to the 1960s. So this, basically, because it was really this, you know, for lack of a better term national security idea and binding the nation together through written document delivery, that lasted into the 20th century. And the post, it’s still called the Postmaster General, you know, sort of speaking to the, the military kind of view of it, was a cabinet level, just like, you know, the Secretary of Transportation or Secretary of Defense today, and the Post Office received a line item allocation from Congress to keep it going. It did not break even, right. It did not cover its costs, but it was considered, you know, to be this crucial element. Now, what happened was, that became very inefficient, right? It became bureaucratic. The local postmaster was a patronage position that a politician could give, you know, give out when he or she was elected, could give out these and they were good jobs. I remember my grandfathers talking about what a good job it was to be a local postmaster. You basically had lifetime tenure, good pay and so on. And it was patronage. And it was very much I guess, the structure of it became politicized, but along with that, it became very inefficient. So Rich, I think it was in 1966, the holiday season, so the postal service today post office then is very much subject to peak demand. During the holidays there’s enormous demand, particularly in those days to send cards and letters, packages through the mail during the holiday season, and in 1966, the sorting… the Central Post Office office in Chicago collapsed, meaning that it was unable to sort through all the mail cards, letters, parsed packages that were coming in. And it just there were train loads coming into the sorting center of Chicago and they could not handle it. And I think it was President Johnson, basically sent in the National Guard. I mean, they literally sent in, you know, guardsmen to help sort through the mail… and the President said, this cannot continue. We can never have another crisis like we had in Chicago in ’66, with the mail, so I’m appointing a commission, Rich, which in my circles its kind of a famous commission. It’s called the Capitol Commission. I still have the final report of the Capitol Commission on my bookshelf here at Cornell. It was a big deal. They, made big recommendations to the President and Congress about reform. And basically they said, Look, this should be treated differently, we should think about the post office more as a public utility. Okay, now, these people, a lot of them are coming out of an AT&T you know, kind of a background. So it’s not surprising they thought about it as a utility. And they said, it needs to break even, it should be an independent agency within the federal government, not a cabinet-level position, right? Independent agency, break even, subject of basic utility principles, and that’s what Congress did in the 1970 Act, they pretty much followed the recommendations of the Capitol Commission. And that’s how we got the modern postal service. So you’ll note Rich, post office is an anachronistic name, the name is the United States Postal Service, it came into being on July 1 of 1971. And that’s, you know, the idea is more commercial focused with standard public utility pricing principles about the setting of rates. It still has those monopolies, it’s still a state-owned enterprise, some people think it’s private, it’s not private. It’s a state-owned enterprise, but it was supposed to operate, Rich in this more commercial fashion.

Richard Helppie 12:31
In preparation… now, he wrote this some time ago, (Professor Geddes — sometime, a long time) but it’s so relevant for today. And, by the way, anybody that wants to read this book called “Saving the Mail,” I’d highly recommend it. (Professor Geddes: Thank you). It is a great report, that includes Dr. Geddes’ opinion, but also highly vetted. So I think it’s a very trustworthy piece of writing. And the way you describe the players, the taxpayers, who were kind of the subsidizers or the providers of equity, the mailers, you know, the people that were sending stuff, the rate payers, and then the unions. So you have this is again, my understanding from your book, was you want to tell the Postal Service to break even, but you’ve got lobbyists that are from the mailers that are saying, no, no, you can’t raise rates. And you have lobbyists from the unions that are saying, no, no, we’re gonna keep pushing costs up. And there’s not really a big voice for the taxpayers that ultimately have to subsidize it. (Professor Geddes – Right.) I’m a little unclear how that tied into Chicago, other than the structure didn’t allow capital improvements into the facility. And that’s when the volume of mail just drove it to its knees.

Professor Rick Geddes 13:47
So Rich, there was a lot of discussion, if you read the Capital Commission report, about operating it in a businesslike fashion, and it runs like a thread through the commission report. It’s supposed to be a business, you know, business principles. And if you think about that era, right, it’s 1970, it was this very managerial notion that we could use modern managerial methods, and scientific, you know, management and we would be able to, you know, improve the operation of the Post Office when it became the Postal Service. So big focus on efficiency, right, and all of those things. And I think over time, Rich, maybe if I were to write that book today, I would write it with a different tone. Because over the years I’ve become very… even beyond sympathetic, like, admiring of postal management, that they’ve been able to operate this thing, given the constraints that Congress places on them.

Richard Helppie 14:52
Not only the constraints, but the requirements for universal service. And I don’t think anybody would dispute that we need to be able to reach every address in America and American territories. And also I understand we’re a hub of the world, so everybody wants that universal access. And there’s a pushback against making it, you know, more expensive to send something to the interior of Alaska versus sending it into downtown Cleveland, for example. People all want it to be the same thing. So with those two monopolies that you spoke about, with this demand for universal service, with the rate payers saying, let’s not add any more revenue, and the big cost of the union’s pushing the cost higher, how the heck did they manage and where do we stand today?

Professor Rick Geddes 15:45
So Rich, I think that’s a great untold story in this country. Basically Congress is asking them to do the impossible, right, six-day a week delivery, keep in mind that the post service as we all call it, the Universal Service Obligation– and that’s roughly, it’s not really defined in statute, it’s more of a rough definition of basically every address six days a week. Now, if you go around the world to most countries, they do not have Saturday delivery. So that includes Saturday in the United States, right. And I mean, there’s a few weird addresses, as you suggest, like people who live in the outback, or whatever, in Alaska, where there’s no roads, and they don’t fly the mail in you know, six days a week, but they basically hit every address, you know, six day a week with a physical delivery, and they have to break even, that’s in the statute. And if you look at the data, the post Postal Service has done a pretty good job, you know, until recently– until the recent years– of meeting, you know, meeting its mandate. And you know, they tried to they try to do it in a timely fashion. And so, and meanwhile, all these pressure groups that you’re talking about, they’re big mailers, they’re not… it’s not Grandma and Grandpa, you know, mailing cards and letters anymore. They’re big commercial mailers, mailing catalogs, advertisements for credit cards, just look at your own mailstream and you’ll get an idea of this, right. And so there’s a pressure, a big pressure to keep rates down, you know, because of that. And of course, as you suggest, there’s two pretty strong unions: the American Postal (APWU) Postal Workers Union and the National Association of Letter Carriers. And the letter carriers are a bit more contract on, you know, on the rural routes, while the APWU are sorting centers, and so forth. But they do face the postal management faces these pressures. And I think, you know, in light of the constraints, you know, that Congress has put on them over the years, somebody should write a book, now saying, they’ve done an amazing job. But now, guess what? This story goes back to the Romans– technology has caught up with them.

Richard Helppie 17:56
Someone should write a book and perhaps somebody on this show, and let’s see, it would not be me!

Professor Rick Geddes 18:04
Something should… somebody should do a salute. I used to be very critical of postal management. But now I’ve come to the conclusion, if I’ve looked at things a little more holistically, that they’ve done an incredible job, given the almost impossible constraints that they face, Rich. And then you put communications, technological change on top of that. So we all know, email, text, you know, just cell phones, being ubiquitous…

Richard Helppie 18:35
During my business career, facsimile machines came into being, became ubiquitous, and became outmoded. And that replaced certain parts of the mail. Then we have a course email, and you can send PDFs and I don’t know exactly where the legal structures are now, but more and more things I’m doing on electronic signatures, DocuSign and the like. And so they went from you had to mail me a document that I signed and mailed back, to you sent me a FedEx that I signed and sent back to you, sent me a PDF that I printed and signed and sent back, to now you just send me a place to sign and all of that is outside of this infrastructure. (Dr. Geddes: It’s a substitute.) I can’t quantify it, but it just seems to me– and I’m a technology-based person– that we still need to deliver physical things by the mail. Even though I’m probably like most people, my use of the mail has dropped. But you know, the Postal Service has a service now that I get an email every day that says, here’s what’s coming in your mail. So people could sign up for that usps.gov and, you know (Dr. Geddes it’s amazing.) Yeah, it is. So I’m getting to a question here. The question is, how important is the Postal Service in 2021? We blasted a major reform 50 years ago at a point when things were breaking down. What might we be looking at today and 50 years from now, given all these changes?

Professor Rick Geddes 20:17
Yeah. So again, maybe I’ll back up a little bit in the in the economic history of it, if you will, what you said is true. You and I, you know, we remember the introduction of the fax machine. A revolution is somebody could be in India, you know, they could fax you a letter, it would come out in your, you know, that was an astounding thing. But there’s a very interesting research that shows that the threat to postal volumes actually predates that. Rich, it was the telephone, there’s no surprise, right? You make your telephones ubiquitous, you know, we were very fortunate in the United States to have landline telephones, you know, very early on. But of course, it’s a substitute for sending a letter–you either pick up the phone and call somebody, or you write them a letter– there’s a research paper that shows that you know, the telephones really had an impact. But of course, now it’s that you know, exponentially right, the volume of first class mail. It’s useful to talk about the mail classes here at this point, because first class is what most people think of when they think of a card or a letter. So you send a holiday card, you put a stamp on it, you put it in the mail slot, that is going to go first class, the other big class is standard mail. And that’s more advertising, right. So if you get you get mail, that’s a catalog, or it’s an advertisement for a credit card, or whatever it is, that often goes by standard. Now, the importance of that, Rich is standard mail is that the Postal Service discounts the mail, because the big mailers often do preparation: they pre- sort the mail, so the mail is actually sorted, often down to the carrier route. So the carrier just has it in the right order. And they also do something called Drop Shipping, where they’ll put those big, you know, deliveries farther down into the mail stream. The Postal Service gives discounts to the mailer for that sort of work that the preparation of the mail…the flip side of that is, of course, they don’t make as much money off standard mail as they do first class. The other thing, of course, is parcel post, to your point, right? People know, a lot of online shipping, and of course, the COVID, you know, shutdown, increased, purchases online. Some of that, a lot of that goes by parcel post, although of course, it could go by UPS or FedEx or whatever it is. But parcel post is important. Those are some of the main mail classes, and there’s some other mail classes. Now, this is important, Rich, because historically, the Postal Service made the most money off first class mail. So most of their profits, right, it was kind of hard to estimate their profits, but most of their profits came from first class. But all the stuff you’re talking about email, texting, you know, all these substitute ways of communicating, was eating away at first class mail volume, it peaked in 2001. Keep in mind their most profitable class peaks in 2001. Down–I’d have to look at the recent numbers– but I think it’s down by about 40%, since then. So you can see it’s like this pincer movement for the postal service, because they have to maintain this high fixed cost network to meet the Universal Service Obligation: delivery to basically every address six days a week in the face of their most profitable mail class, just being hammered by electronic communications. And so you know, the result of that is, of course, the multibillion dollar losses we’ve seen, you know, nine, ten, eleven billion dollar losses per year, in the most recent years. So I want to get to your point, Rich. It’s an old story, technological change, you know, disrupts incumbent industries.

Richard Helppie 24:02
Yeah, I just finished a trip on historic Route 66. And gas stations, which were part of the infrastructure, which were no longer needed, have gone to sea, okay, they’re just, they’re abandoned, and nobody’s spending any money on them. If the gas station was the post office, it would be Oh, even though no customers are stopping, you have to stay open, because maybe one customer would come. So I have to add the post office has to maintain delivery capability to remote parts of the country, even if maybe two letters or two first class pieces of mail go there every year. Is that a good parallel do you think?

Professor Rick Geddes 24:48
Yeah, I mean, sure, sure. It’s just maintaining a network, right, a fixed cost network in the face of declining demand. And that’s that’s economics of it. As you know, as opposed to gas stations, where Exxon or whoever is free to close gas stations, the postal service cannot just close, you know, post offices and it becomes very political, you know, to say the least, when that happens, and so you can see what it is there, as opposed to private entities, they’re very much facing a political world, you know, when they try to right-size. So, you know, but let me get to your point that I want to say that it’s still important to appreciate the value of their network. So if you think that we all know the little postal trucks that go, you know, around the neighborhoods, six times a week, you know, that’s one of the only… it’s called the last mile. We call it the last mile. It’s one of the only things in society that really goes the last mile of delivery to each address. And so there’s, with internet purchases increasing, there’s still demand for physical document delivery. You know, there’s there’s a number of reasons to have that. But what has to happen, of course, is a reform, right, there needs to be changes in light of declining demand for first class mail. And I’m happy to get into, you know, what many other countries have done, because, you know, the Europeans recognized this twenty years ago. They said, Look, there’s this thing called email, there’s the internet, you know, our post offices, whether it’s, you know, the Dutch post to the German post to the French post, or Royal Mail, you know, on down the line recognized that they were going to have to adjust to this new communications marketplace reality. And they did. It’s the United States is kind of unique in being a major economy that has not yet reformed its post, basically, we’re living under the same laws, Rich as 1970, and, you know, communication has changed a lot.

Richard Helppie 25:30
I think, our viewers and our listeners would like to understand where can we go from here, and I thought, in the book, you had some intriguing concepts that, frankly, I hadn’t thought about. Something called a transferable residual claim, like, you know, if it moves to a different structure, who really has claim on the value that’s been built up. I don’t know if it’s still true, but at the time of the publishing of the book, that rural routes and urban routes cost about the same, then there were some parallels with some other types of networks like power grids and telephone systems and things, then you kind of tied it off with what other countries are doing. So maybe just talk to the audience a little bit about what might be a better structure and what would it take to get there?

Professor Rick Geddes 27:55
Yes, so that’s great, Rich, I mean, and I think there’s certainly… a lot has changed since that book was written mainly in terms of reforms, you know, around the world. So there’s a number of things. I mean, I think the issue here is, as our discussion kind of indicates, really lies with Congress. Right? It’s not the Postal Service’s fault, you know, that we’re in this situation, it’s Congress, Congress needs to act. So what Congress should do– there’s a bunch of reforms that could be undertaken– one would be to redefine the Universal Service Obligation in light of the market reality. And the market reality is that the nature of the mail stream has changed. It’s mainly commercial material, right? And that’s fine. You know, there’s no problem. But do we really need to have it defined as six days per week, to basically every address. So some of us, myself included, have suggested maybe three days a week now that’s a minimum, the Postal Service could do more if it wants, but the minimum would be, say… the lightest mail day of the week is actually Tuesday. So maybe we could just have delivery Monday, Wednesday and Friday. That would be the Universal Service Obligation. That would be step one. Step two, is that Congress should pay for it. In other words, if it loses money to meet the Universal Service Obligation, Congress just shouldn’t tell the Postal Service Hey, you guys do the best you can and meet the break even and meet the USO in the face of declining demand. We should say here’s the new definition in statute of the Universal Service Obligation. And if you guys lose money, meeting this, we are going to give you a subsidy, you know, we’re gonna make this subsidy transparent. So Rich, that’s one of my big things is the transparency of the subsidy, the actual dollar amount, and then at the same time, free it up and by free it up I mean, commercial freedom. And this… I could go around the world and tell you Australia, New Zealand, Brazil recently freed up its post, you know, and basically get rid of the monopolies; allow it to compete. But on the flip side, give it more… give the managers more flexibility to run it like a regular business. And that means introduce new products, it means more flexibility on delivery standards, a whole sort of set of managerial decisions that almost every you know, all of their competitors have to make subject to this Universal Service Obligation. And then the other thing that I think I talk about in the book, Rich, is a misunderstood term called corporatization. And that means just adopt private corporate law. This is what New Zealand did. And basically, the Postal Service does not have a Board of Directors. It has the, it has a Board of Governors, right. And it’s a political, they’re political appointees. But what I would like to see is a Board of Directors that actually has a fiduciary duty to a shareholder, even if there’s one shareholder, which could be the Treasury, or as the they say, in Canada, you know, the Crown. It’s a Crown corporation, the corporation exists, but you know, there’s a single shareholder, which is the federal government. But the point is that the board would actually have a fiduciary duty, and you get into, you know, corporate law about, and what we’re trying to do is really make the vision of the Capital Commission real, in the sense that have back to the 60s, basically have the Board of Directors of the Postal Service really have this business mentality. And of course, Rich, that involves adopting new technologies for mail sortation, and everything else. So this, I’m just borrowing what a lot of other countries around the world have done. And it’s been enough years that we can assess, you know, the success of that. So just basically free it up, define the USO in the light of modern market realitie– just say, three days a week– but instead of, you know, sort of forcing the Postal Service to lose money– which they’re already losing money– but make that subsidy clear, right, make make it transparent. And then they would become more efficient.

Richard Helppie 32:21
I like the framework. And it’s move to a competitive model with an obligation for the Universal Service Obligation and have Congress pay for that, we the taxpayers, because it’s a vital service. And of course, what we’re seeing today is that during times of COVID, the mail service got more important as people stayed home and order more things online and getting that Last Mile. Dr. Geddes you’ve been, again, incredibly generous with your time. And every time I talk to you, my appetite to learn more is wetted. (Dr. Geddes: Thank you.) If I was younger, I think I’d moved to Ithaca and try to sign up for one of your classes. And if you see somebody who kind of looks like me sneaking into the back row… (Dr. Geddes: It’s never too late) Maybe. Okay. But as we wrap up here, what are some of the things that we didn’t cover? And maybe what would be some of the best and worst policies that we could implement? And maybe if you could kind of hit on those three things, as well as any other final closing thoughts you might have?

Professor Rick Geddes 33:26
Yeah, so Rich, I mean, I think the worst policy would just be to continue the Postal Service the way it is, right? Because it’s losing money– billions of dollars every year– that would be scandalous in any country, you know, that didn’t have the economic might of the United States. I mean most countries just couldn’t sustain the losses. You know, I heard a member of Congress asked one time Why don’t we reform the Postal Service? And he says, because we’re too rich, we can, we can just afford, you know, billions of dollars of losses, but that’s not in anybody’s interest. It’s not the workers, people think you’re protected, but but the workers don’t want to be in this declining, you know, inefficient, criticized entity. I mean, you know, it’s not good for them if they face a collapse, you know, of the Postal Service. It’s…even the mailers I think would benefit from reform because maybe better tracking services, faster delivery, you know, they would benefit from efficiencies, as well as I know that management– management would like to have the freedom and the flexibility to operate it like a real business. And so, I think one of the worst things we could do, Rich is just continue in this way, where it’s it’s just this long, slow decline, without any policy response to the market realities that we’re seeing in the communications world. Where communications costs have decreased enormously, you know, since 1970, and there’s all these new forms so that, you know, the the nature of the mail stream has changed a lot. And we need to, we need to adjust to that. So I think that would that would be one, you know, one of the biggest risks. And the beauty of things today, Rich is we don’t have to speculate on what would happen, we can look to Europe, we can look to South America, we can look to Australia, we can look to New Zealand, you know, we can look all around the world, really, and see how countries are reforming their posts. You know, so I think, I think that the potential and in some sense, I have to say, Rich to honor the tradition of the post office, which was a core part of U.S. culture, you know, for centuries, right? And to now have it, you know, just degrade, frankly, in this way, I think is almost tragic. So I think one of the worst things we could do is just to go along, you know, with what what we have today, this long, slow decline. And instead free it up and use some basic, you know, basic market principles that will make everybody benefit from it.

Richard Helppie 36:15
That all makes sense to me and listeners and viewers of the Common Bridge, you’ve been taken on a journey from the horse post that predated the formation of the country to a vision for the future so that we can deliver the mail, get our passports and all the other services that we get from the United States Postal Service. Our regular guest and contributor, Dr. Rick Geddes, from Cornell University has again been so generous with his time. Professor, thank you so much. This is Rich Helppie, signing off on the Common Bridge.

Unknown Speaker 36:49
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Transcript of Episode 98 with Professor Rick Geddes

Episode 98- Rick Geddes 2.0  Welcome to Richard Helppie’s Common Bridge. The fiercely nonpartisan discussion that seeks policy solutions to issues of the day. Rich is a successful entrepreneur in the technology health and finance space. He and his wife, Leslie, are also philanthropists with interest in civic and artistic endeavors with a primary focus on medically and educationally under-served children.

Rich Helppie:
Hello everybody, and welcome to the Common Bridge. We’ve got a great episode coming up today. It’s about infrastructure. We welcome back to the Common Bridge, from Cornell University, Dr. Rick Geddes. He is a professor in the Department of Policy Analysis and Management and is the founding director of the Cornell Program In Infrastructure. He’s a member of the graduate fields of systems engineering, economics, and public affairs, and is a visiting scholar with the American Enterprise Institute. We had the privilege of having Dr. Geddes with us before on the Common Bridge. It was podcast episode 91, which is season two, episode 24 from February 28, 2021. Really got a grounding in infrastructure and contracting-learned a lot about this. I’d invite you all to please subscribe to the podcast on your favorite podcast channel, to the YouTube channel-YouTube TV Richard Helppie’s Common Bridge, and of course at RichardHelppie.com. Today, we welcome back to the Common Bridge, Dr. Rick Geddes. Rick, so happy that you’ve spent some time with us today.

Rick Geddes:
Thanks for the invitation, Rich, it’s great to be back.

Rich Helppie:
Great, well there’s a lot of noise flying around about infrastructure right now. I know people are accustomed to having the titling of bills be misleading. Have you had a chance to look at the current proposal from the Biden administration?

Rick Geddes:
So Rich, I’ve gotten a general sense of it at a pretty high level. Partly I think that’s because the details of the plan have not yet been released. It’s really a broad thought piece I would say, at this point, but what we know is that they’re proposing a very large federal spend. I think it’s $2.2 trillion. So $2.2 thousand billion is a whole lot of federal money to be spending. One of the big things in the policy community of course, is that there’s a whole lot of programs and issues rolled into one bill. So not only does it include a whole set of infrastructure sectors-so transportation is there, energy, water, broadband and other things. It also seems to include a lot of what we would call social program type spending-care for the elderly, other types of care that’s normally not considered physical, civil infrastructure. I think if you add up the numbers, maybe it’s around half is possibly in the bucket of civil infrastructure of some sort. So there’s a whole lot in the plan as currently proposed, which I think is sort of complicating the discussion about it a little bit.

Rich Helppie:
I know that I’ve read a number of analyses that say that there is $400 billion in there for Medicaid expansion. And that might be a good idea-I don’t know why it’s in this bill. $213 billion for housing, including increased federal control over housing. A hundred billion dollars to schools, and they can get that without reopening. $35 billion for climate reimbursement. $10 billion for a new program called the Civilian Climate Corp. And also, I’m not sure how this fits into infrastructure, but quashes the right to work laws that are in force in a number of states. I don’t know if it went as far as putting card check in place, but clearly there’s a piece of that legislation designed to track the union leadership. I don’t know if we know at this point, but of the things that most people would think would be infrastructure, just like you’ve talked about-roads, bridges, water systems broadband, and the like, is there a lot of policy dispute? Does anybody really quarrel with the fact that we need to get after upgrading those things?

Rick Geddes:
I wouldn’t say quarrel. But I think there’s a consensus that, at least in the people who study infrastructure policy, that the plan, as currently proposed, takes sort of a one size fits all approach to infrastructure sectors in the United States that are really quite different. They’re quite different in terms of the nature of the physical infrastructure that you’re talking about as well as the goods and services that they provide, but they’re also very different in terms of the way they’re funded, financed, how they need to be operated and maintained. And so if we just take the piece of the plan that really does deal with some type of civil infrastructure, so I think one of the issues is that the one size fits all approach seems to be just a big federal spend on those infrastructure sectors over the next eight to nine years. And the notion seems to be that whatever the problem is in those sectors, having a lot of federal money pumped into it is going to help. And so that immediately raises a whole bunch of questions like-keeping in mind, everybody should keep in mind, depending on the estimate-between 85-90% of all the civil infrastructure in the United States is owned by a state or local government. The federal government, the infrastructure it owns, a lot of it is military. So it’s Army bases, Navy, Air Force, et cetera, and that’s normally not civil, or civilian, infrastructure. So immediately you have the issue of how does the plan propose that the federal government is going to interact with the state and local governments that actually own, and thus are responsible for, the operation and maintenance of what people normally think of as civil infrastructure. So if they’re talking about a big spend in these different sectors-so water, there’s a federal a loan facility called WIFIA (Water Infrastructure Finance and Innovation Act of 2014) that provides low cost federal loans for water projects. There’s a TIFIA, that’s one for transportation. Are they going to use federal money to buttress those loan programs or are we talking about grants, where the federal government is just going to make grants to the state of the local infrastructure owners for certain projects, meaning you don’t have to pay the money-pay it back. It’s a grant. So then the question would be, what projects qualify? Anything the state or local government wants to do that it calls infrastructure? Is that going to be eligible for a federal grant? It’s not clear.
The other thing though, and something I’ve made a point on, is first of all, the needs of these sectors are very different. So normally when Congress thinks about doing a transportation bill, that’s reauthorizing spending out of the Highway Trust Fund. So just to refresh, every time you buy a gallon of gasoline, 18.30 cents goes to the federal government and is put in a separate account in the Federal Highway Trust Fund. If it’s diesel fuel, it’s 24.40 cents goes to the federal government. But it accumulates and every now and then, every five to six years, Congress reauthorizes spending out of the Federal Highway Trust Fund. And there’s a whole set of programs that have evolved over time. That’s roads, highways, it’s called the Federal Aid Highway System, where the Congress interacts with the state and local governments. So just transportation, which could include airports by the way, aviation is a pretty complicated thing for Congress to do. So then we have water. So that’s dams, levies, drinking, water systems, wastewater treatment systems, what’s called storm sewer separation, the dredging of inland waterways. A lot of that deals with the Army Corps of Engineers, a different group, and that’s another complicated thing. Different committees in Congress deal with water. And then we have energy. As you indicated, a big part of the bill is focused on renewable energy-charging stations, green generating capacity, et cetera. That’s another world. Then there’s also communications. And one thing we’ve learned from the pandemic is the importance of having all communities access to broadband internet of certain quality in terms of speed. And those problems are both urban and rural. And one thing I’ve learned in studying this is providing that is not just one technology. To ensure that universal service for broadband there’s a set of technologies that have to interact. It’s very complicated to do that. So I think that’s another whole set of issues. So the one size fits all approach, I think, could be a little problematic here.

Rich Helppie:
I recall when we chatted back in February, at that time we had dams in Michigan failing. I learned that those were under private ownership. The power grid in California has failed and people are subject to rolling blackouts, which means they go get generators, which are polluting and very loud. And since you and I’ve talked, the Texas power grid failed to the point where we had people for a week in 20 degree temperatures without power, without heat, without running water. I think we’re a first world country, or at least we still are. And now we’ve had the water issues down in Florida. And I also remember that you educated me, and I’m sure our listeners, about the contracting techniques instead of having a design and a build separate bids, and then leave it up to the state to operate it. But there was a term that you said basically it’s designed, build, operate, and hand it back. Is there any indication that this infrastructure bill is going to do that technique, which seems a lot more logical than the design/build as a separate program?

Rick Geddes:
So Rich, your question gets to, I think, a deeper concern about the plan as it’s currently proposed. The answer is no. In other words, that’s called a DBOM contract, by the way, Design/Build/Operate/Maintain. I’ve written more on that since our conversation. There is some recognition that DBOMs, which are common in other countries, much more common, are a key tool for reducing deferred maintenance. So depending on the sector, one of the big problems that-we saw it in the California wildfires with the grid and in California the PG & E owned-but across sectors. So transportation, potholes in roads, rusting bridges, and old tunnels, et cetera, is that the state and local owners have not maintained the infrastructure to the standard that it was designed to be maintained, so that’s deferred maintenance. So one of the reasons why you push for DBOM contracts is because it contractually obligates the state or local owner to make the expenditures the way the owner’s manual tells you to do it, to maintain the asset over its life cycle. And so the concern with the plan as proposed is that it doesn’t seem to include these policy reforms or policy changes that would reduce deferred maintenance and get us to a place of better operation, more efficient operation, and maintenance over time. Something I’ve stressed, is that the problem the United States faces today is very different from what we faced in 1956, when President Eisenhower passed the bill to create the interstate highway system. At that time, we were designing and constructing and building out new, vast networks of infrastructure. But now-we did that years or decades ago-our problem is better operating it, more efficiently operating it, and taking care of it, meaning maintain it. So we would hope that a bill, a federal initiative, would really recognize the changed nature of the policy problem we face in infrastructure today and do everything it could to encourage and help state or local owners to do a better job of O and M-of operation and maintenance.

Rich Helppie:
And that DBOM makes so much sense. And I could liken it to my experience with computer systems. So you had someone that comes in and wants to sell you the computer networking equipment. And they’re going to say, here’s the spec. They’re not going to be responsible for, does the software run on that? And then if there are new requirements for cybersecurity or changes, well, that’s not my responsibility either. But I would think that systems integrators would be lobbying like crazy for these DBOM projects, because they can be held accountable to service level agreements to say, you’re going to deliver us a dam, a bridge, a power supply that generates this, puts out this kind of carbon footprint, and it is going to be good for so many years. It just makes way too much sense. I don’t know if you have this insight or expertise, but are the lobbyists of the traditional federal contractors more comfortable with the old model of, I can have a profitable design contract or I can have a profitable build contract and not have to worry about it.

Rick Geddes:
I think that’s a great question. I’ve written a bit about what we call traditional delivery, which you and I discussed in our last interview-design/bid/build-where, really particular to the United States from what I can tell, other countries just don’t do this, but a municipality or a county, a state, will bid out the design, pick the design that they like the best, then bid out the construction, typically to the lowest cost provider, and then do the operation and maintenance themselves, quite separate. And then it’ll be, if it’s a typical infrastructure project, it will be financed with tax-exempt municipal debt, which because it’s tax advantage, they pay a lower interest rate. States and cities, thousands of these municipalities, have done this for decades and they’re used to it. They’re comfortable with it. They have a whole structure that supports that, and it’s done great in terms of delivering new infrastructure. But that what we call traditional delivery has done a poor job, as we’ve seen today with almost a trillion dollars of deferred maintenance-depending on who’s estimating it, but kind of agreement almost a trillion dollars-it’s not served the country well in terms of taking care of what we have. The answer to your question, why aren’t some of these companies going in and educating the counties and the cities and the states more about DBOMs, there’s other tools besides DBOMs by the way. But it’s a question. I don’t really know. We’re trying to do that with educational entities, like my program at Cornell where we have seminars and things like that. But it’s really hard to shift from that old, safe mindset. There’s a very risk averse, and I understand that entirely, but there’s a very risk averse mindset about adopting new techniques. So that’d be my answer.

Rich Helppie
That’s really discouraging and I know that we’ve just got a couple of minutes here. One of the things that we chatted about, and it was a mystery at that time. And I don’t know if we know yet from the president’s proposal, but what about mandates for domestic content, for having to source from the USA? Is there any indication that we’re going to get any better at that?

Rick Geddes:
So Rich, that’s another great question. And one of the things I’ll say is, as I’ve studied this, I’ve been surprised at how many of the big companies that do this are not US companies. So the largest heavy civil construction company in the United States, I think, is Bechtel, but they’re number 10th in the world. So that means there’s a lot of companies ahead of them that do this. The Germans do the tunneling, so big boring machines that you need, not only Germans, but they do it. Japanese are very advanced, very big in this. Koreans, but also Spanish, French, British companies come in. So if you’re doing a big project, these companies bid as a group. So it’s a consortium that will bid on something like the Tappan Zee Bridge or the Gateway Tunnel under the Hudson River, which is another big thing. I just happened to know New York city projects, the Goethals Bridge renovation, the LaGuardia Terminal renovation, Terminal One at JFK. There are a few US companies, but it’s really dominated by international players. You could probably say that some of the subcontractors, depending on the nature of the project itself, could be American. But it’s always been an interesting question to me, why the United States lags behind. And I could tell you, toll road operators-a lot of Spanish companies are involved in toll road operation-United States, there’s some players, but it’s not been a big leader in this. So it’s kind of hard to say they have to be US companies when the leaders in these various elements, heavy civil construction design, et cetera, are not US companies.

Rich Helppie:
I believe a lot of the concrete comes from Canada. That’s a great source of our concrete.

Rick Geddes:
I think so, I think that’s right.

Rich Helppie:
The other criticism I’ve heard, and it’s coming from the right, is that there’s no spending at all for border security. And I think by any measure, we have a problem down there, and it’s probably beyond infrastructure. I don’t know if you consider that a miss or not, but today, are there any categories that were just missed? And I know that you’ve graciously agreed to come back and share some of your expertise around the postal service. I know it is a fascinating topic.

Rick Geddes:
It is. I’d love to come back and talk about that, Rich. The point on border security, I think, gets to my earlier point. Most of us who really care and are passionate about US infrastructure-heavy civil network infrastructure-that most people, if you were to ask them, how do you define infrastructure? They would tell you: roads, bridges, tunnels, maybe water systems, energy systems, communication systems. I think we would like to see federal initiatives on this separated from other policy problems, whether it’s immigration, whether it’s care for the elderly, Medicare, Medicaid, et cetera, it tends to complicate it. And just from our discussion today, you can tell there’s a lot of good things the federal government could do just in transportation, just in improving-again, the problem is operation and maintenance. There’s a lot of renovation that has to be done because of years, if not decades, of deferred maintenance. But just getting that right is a heavy lift for Congress. And I think we would all like them to focus on those sectors, and obviously immigration is a super controversial topic right now that we’re afraid could distract from a really good bill just on transportation, or a really good one just on broadband. So that is, I think, our hope. But we don’t know exactly how this discussion is going to evolve in Washington.

Rich Helppie:
I long for the day when the people we elect to serve get together and say, what can we agree on? What can we get done? And that we actually have reporting on it. And that’s of course what this program’s about. Rick, as we wrap up here, anything that we should have covered today that perhaps we didn’t or any closing comments.

Rick Geddes:
So Rich, I do have obviously, and I could talk about this for the next hour, but one of the things I would say is that the policy problem that you face when you’re designing and constructing new systems, whatever it is, and one of the things that makes the country great is our desire for universal service. We don’t want any communities left out of basic public goods and services. We want them all to have electricity. We wanted them all to have telephones. We wanted them all to have paved roads. We wanted them all to have postal service, post offices for over 200 years. And on down the list of things that we think are basic goods and services. But the problem of providing and designing and constructing that new service, that new network, is very different from what we face today, which is operating and maintaining what we already have. So what I think we need is more subtle, more smart, intelligent, if you will, federal policy where the federal government interacts with the state and local owners and in a more thoughtful way-to squeeze the value, to optimize those systems and just get rid of the deferred maintenance, to properly maintain the stuff that we have. And we’ve been lucky as a country, most other people on earth have not had the public services, the clean water, the wastewater treatment, the reliable electric power, the mobility, the communications power, and universal communications networks that we’ve had for decades. So now, in some sense, it’s a good problem to have, but I think the federal policy needs to get away from this notion of just spending big to build out systems because that’s not the main problem we face today, Rich. So I would just leave with that thought.

Rich Helppie:
I love the thought. And I’m a firm believer that those foundational goods and services, including a reliable broadband and devices to get on it, are critical to our future because that’s where the value add in the economy is going to come from. That’s where the innovation is going to come from. And that’s where the opportunity for our citizens are going to come from. And we need to make sure it’s available, whether someone’s in a deep, urban setting or far away from an urban setting in a more rural or mountainous area, what have you.
Rick we’d love to put some links up to some of your recent papers. I know they’re very well received, that there’s a lot of noise about infrastructure. We’ve gotten great comments about the depth of your understanding and your ability to present it to mere civilians like me and the listeners of the Common Bridge.

Rick Geddes:
Happy to do so, Rich.

Rich Helppie:
Well, thank you so much. And again, I just want to ask those that are listening, please subscribe to Richard Helppie’s Common Bridge, Richard Helppie’s Common Bridge TV on YouTube. And of course, subscribe at RichardHelppie.com. We’ve been talking today with Cornell professor, Dr. Rick Geddes and a continuing series about infrastructure and how to solve that problem. This is Rich Helppie, with our guest, signing off on the Common Bridge.

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Transcript of Episode 87 with Professor Rick Geddes

Episode 87- Richard and Rick Geddes  Rich Helppie:
Welcome to the Common Bridge. Today our topic is infrastructure. We’ve all heard about infrastructure, the need to upgrade our roads, our bridges, our railroads and-close to my heart-computer systems, airports, tunnels, dams, locks, energy, basic utilities, communications, internet access, water and waste handling systems and more. And today on the Common Bridge, we have a guest professor, Rick Geddes from Cornell University. Dr. Geddes is a professor in the Department of Policy Analysis and Management. He’s also the founding director of the Cornell Program in Infrastructure Policy. We will put links to those up on our website, RichardHelppie.com. He’s a member of graduate fields of systems engineering, economic and public affairs as a visiting scholar at the American Enterprise Institute. We could not have a more qualified person. Dr. Geddes, welcome to the Common Bridge and thank you so much for being with us today.

Rick Geddes:
Thanks for inviting me. It’s great to be on.

Rich Helppie:
Dr. Geddes, we all like to give our listeners some understanding of the people that are coming on, so you and I, before going on, understand that your family heritage actually includes infrastructure, but can you talk to us maybe a little bit about that and a little bit about your early days and maybe your academic work and maybe what you’re up to today, professionally?

Rick Geddes:
Sure. I’ll be happy to chat about that, Rich. So my training formally is actually in economics and I received my doctorate in 1991 from the University of Chicago in economics. And I taught at Fordham University in the Bronx in the economics department for 10 years. But I’ve always been interested in network industries and regulation of industries. My dissertation was about the regulation of the electric utility industry and how that’s changed over time. I also did a number of research papers on the US Postal Service, which is kind of a niche area of industry regulation. But I always had this interest in the interaction between government and the marketplace and how the government regulation addresses certain industries that have these network characteristics. Water systems are highly networked. Electric power systems are highly networked with strong physical interconnections between the component parts of the network. And that always fascinated me.
And then I was introduced to this whole world of infrastructure policy by serving at on the Council of Economic Advisers in the White House. And that’s in the 2004-05 academic year. I was what’s called a senior economist. Congress was passing a bill at that time, which is what they’re going to have to do soon. Re-authorization of highway spending is a huge issue in Congress. Every time you buy a gallon of gas it’s 18.4 cents that goes to the Federal Government from each gallon. If it’s diesel fuel it’s 24.4 cents, but you can imagine every gallon that American drivers and truckers are using, some of that is going from that state into this fund. And every now and then, every four or five years, Congress has to reauthorize spending out of that Federal Highway Fund, which also includes a transit account, by the way. So there’s transit spending in there as well, but normally in those bills Congress includes policy changes. And I was the micro-regulatory, micro-economist in the executive branch that was asked-this is president George W. Bush-as to deal with a number of policy issues that the executive was trying to work out with Congress. And the analogy is being squirted in the face with a fire hose because you’re being confronted with a whole set of policy issues, environmental permitting reform, road tolling, public-private partnerships, the whole set of policy, things that you’ve never seen before. And you have to quickly learn about that. And it was fascinating for me to learn about this whole new world where policy can be applied to infrastructure. As a result of that, so Congress created two study commissions in that bill that was called SAFETEA-LU of 2005, President George W. Bush appointed me to one of those commissions. I won’t go into the gory details, but it was called the National Surface Transportation Policy and Revenue Study Commission. And Congress wanted to kind of get advice from a group of experts, the commissioners, as to how to reorient the Federal Highway Trust Fund, given that the interstate highway system was basically complete. So the reason there was a gas tax before President Eisenhower greatly increased the amount, the scale of the federal gas tax and diesel tax to pay for the design and construction of the interstate highway system. Well, by that time, 2004-05 that the system was largely complete and Congress wanted to reorient that-the mission of that. So we were funding and policy. We reported to Congress in 2008. I thought it was a great final commission report. It’s called Transportation for Tomorrow. You can look at our final report Rich, but you might recall that some other big policy things occurred in 2008, like the implosion of the global financial system.

Rich Helppie:
I’m going to forget that, [cross talk]

Rick Geddes:
No, you might remember that, how close we came to the edge. Thank heavens we didn’t go over the edge the way we did during the Great Depression and people at the Federal Reserve and the Treasury, et cetera, deserve a tremendous amount of credit for keeping us, the system, functioning. But of course it pushed infrastructure issues to the back burner. Nevertheless, I was introduced again, through the commission, a whole set of issues, and even more depth, that are critical to the country. And I realized that my profession of economics really was not focused on infrastructure, transportation, energy, quite in the way it had been in the past. It’s gone off in a very theoretical direction in some cases, but that there was scope for research teaching and public engagement on the whole set of infrastructure policy issues that are now I think, front and center in the public’s mind. And that’s great.
So I came back to Cornell, I continued to teach at Cornell, but I realized that Cornell University, that it’s a very big university. There’s people doing different things. It’s both a public and a private university together, but with tremendous expertise in infrastructure. And infrastructure could be sensors, it could be civil engineering, it could be design, it could be structures, it could be environmental impacts, it could be funding and financing. It is a whole set of things, but that the expertise at Cornell was not coordinated. There was not a coordinated center just addressing this whole set of infrastructure policy problems. So back in 2012, I founded CPIP or the Cornell Program in Infrastructure Policy. And I urge the listeners to just check out our website at CPIP. Google CPIP Cornell, and you’ll find our effort. And it’s really taken off since then. So we have 26 faculty affiliates just within Cornell. We have the premier industry advisory board. I’m very proud of that. Over 40 members of the industry, and that’s investors, that’s design companies, toll road operating companies, construction companies, law firms, on down the list, that are involved in this whole network of firms and industries that you need to deliver heavy civil and social infrastructure.

Rich Helppie:
I’ve read up on that Cornell program that you’ve got. This goes way beyond Cornell. This goes internationally. And we all have an interest in infrastructure because we’re all trying to drive on roads, we’re all trying to make sure that we have appropriate sanitation, all these things that are common. And I really want to get into where we stand today and what some of the policy ideas are going forward. Speculate a little bit about what might happen if there’s differences in regions among countries and such. So when people talk about infrastructure, is that a universal definition or do people have different definitions of what’s inside the infrastructure box and what’s outside the infrastructure box?

Rick Geddes:
So that’s actually one of our missions at CPIP. One of the things I encountered and one of the reasons I formed the center is because the glossary, in some sense, just the vocabulary is sometimes confused. Let’s just say it’s like basic things. What is infrastructure? What is the funding of infrastructure versus the financing of infrastructure? That’s one of the big hobby horses that I get on. So one thing we’ve tried to do is to be very careful about the definition of infrastructure. So the internet that we’re using now is, some people say, that’s infrastructure. So we’ve tried to be careful. What we’re focused on is the delivery. Now, when I use the term delivery, I mean the whole set of activities that has to happen before the public, the end user, can enjoy the benefits of that infrastructure. That’s design of the facility, it’s construction, it’s operation, it’s maintenance and finance. It could be financing-how you finance it. It could be how you take it apart. Like the old Goethals Bridge in the New York Metro region. How do you disassemble and recycle those elements? It was a 97 some year old bridge-when it’s done.

Rich Helppie:
[Cross talk] On the inside of that, are we talking more about like revamping what we have, like replacing an aging bridge or dam, or are we talking about new projects? Like the population shift, and now we have a need for a waste system. So it is for revamping or new initiatives?

Rick Geddes:
Let me just go back and I’ll define the way we talk about infrastructure and then answer your current question. So when we were talking about heavy civil and social infrastructure, so heavy civil is drinking water systems, wastewater treatment systems, airports, toll roads, dams, levees, sea ports and energy systems, as well, so generation of electricity, transmission and distribution of electricity, the grid system. Then we call that heavy civil and we make a distinction, but it’s important between that and what we call social infrastructure. So social infrastructure, normally stand alone facilities: schools, prisons, courthouses, hospitals, that deliver what we normally think of as basic services you need for any civilized society-like criminal justice, education, healthcare, the facilities, not what’s taught in the classroom or not the doctors, but the hospital building itself. So we make a distinction in my field between the civil standard networked infrastructure, like a drinking water system, a wastewater treatment system. Super network is the transportation system, which is becoming more networked to the transportation system as people drive more electric cars. But I want to say, those are the things-we’re not talking about the internet. We might be talking about 5G or broadband, but I want to make a distinction now.
To your question, Rich, the issue, I think in the United States, particularly the East, is not design and construction of new stuff. There’s some of that, but the majority of the problem, I think the entire United States, we are historically good at building shiny new things-having the ribbon cutting ceremony. We are really bad at taking care of what we have. You can go to the American Society of Civil Engineers website. Deferred maintenance, that’s a huge problem. When state and local governments-this is largely not a federal problem. The owners of the infrastructure, whose name is on the title is a state, the states own the interstate highway system and all the bridges and tunnels associated with that, or a city, a municipality, sometimes the county, but it’s often state and municipal. So the Federal Government plays kind of a different role in that they don’t own the stuff. They own some military housing, military bases, et cetera. but the civil and the social infrastructure is a state and local problem.

Rich Helppie:
We were shocked this summer when there were bridges failed in, excuse me, dams failed in the state of Michigan. And then, that it was privately owned. And I thought, well, how could that be? And then just recently they closed the Soo Locks as the last freighter passed through for the season. And they’ve got a long list of maintenance. And I’m wondering, how did we get into this situation? Just fascinating.

Rick Geddes:
Yes. Rich, so I want to say there’s some-again, back to the vocabulary-in my world we use the term brownfield. So brownfield means the renovation of an existing system, and that system could be any of the things I articulated before, or a greenfield. A greenfield is designed to construction of something new. The field is green and you’re putting in a section of highway or whatever it is. So really Rich, I think the problem in the United States is the brownfield. In other words, keeping up, renovating, maintaining the infrastructure that we already have, like the dam that you mentioned right now.
The question, how did we get here, is a good question. If you’re a mayor of a city or a county executive, you’re a governor of a state and you have a budget crunch, it’s pretty easy to defer infrastructure maintenance to the next year, even though your civil engineers might jump up and down and scream. Well, I want to get re-elected and infrastructure maintenance is not a really strong platform to run on. And it gets deferred and deferred, and pretty soon we’re in exactly the place where we are. And again, I urge listeners to take a look at the American Society of Civil Engineers, they call it their report card, which grades various infrastructure sectors. And we do pretty poorly on that.
So how do we get here in terms of a delivery sense, we could get into that. The United States is one of the only countries I know that uses a specific type of procurement called design/bid/build. And design/bid/build is where you bid out the design and you-the owner, the public sector-pick the design you like, and then you bid out the construction separately. And guess what you do, you pick the lowest cost construction. It’s almost designed to do that. In other words, you don’t wrap design and construction together, in what’s called a DB contract and that has certain advantages. We’ve been doing it 50, 60 years that way to get the lowest cost construction. But the problem is you get the lowest cost construction, and then you also use tax exempt municipal bonds. As far as I can tell Rich, the United States is the only country that has tax exempt-a special tax treatment-for infrastructure debt. And a lot of this is financed by debt. And that crowds out taxable, privately issued debt, which means private partners are often crowded out. They use much more public-private partnerships in other other countries. We can talk about that, but I think the net effect of this is to defer maintenance.
And Cornell has studies that they’ve put out, something called the Local Roads Program here, where how much more it costs you if you defer a few years. You can’t just do regular maintenance you just have to tear the whole thing out. It’s orders of magnitude like seven, eight times more expensive if you defer that maintenance. Maintenance is a very, very good investment. And when you defer it, it’s very costly. So there’s a whole set of forces that have come together in the United States in infrastructure to defer that maintenance and give us the crumbling infrastructure depending on the sector, the crumbling infrastructure you mentioned.

Rich Helppie:
I think that plays into the way we govern. So for example, most municipalities, states, the Federal Government have an annual budget. In contrast, one of the most successful counties in America is Oakland County, Michigan, where the county executive, now deceased- L. Brooks Patterson-put in a three year rolling budget. And so they anticipated shortfall so that they made sure that they met the needs that would be coming up. There’s also been this hidden discussion around term limits. One of the issues that we’ve seen around term limits, particularly at the state level, is not only have we lost the institutional knowledge, that there’s very little incentive to do something long-term, I’m going to be here four years or six years and when that dam fails, it’s going to be on someone else’s watch. And of course, as you were talking about the low bidder, I had to remember Alan Shepard’s quote. And for those of you who are not old enough to remember, he was the first American astronaut to go into space. Alan Shepard was asked, what were you thinking when you were sitting in that capsule? And he looked at all the switches and lights and things and said, this was built by the low bidder. So he got back, which is a good thing [inaudible] the capsule afterwards, that’s another thing.
So when I hear about this, I was unaware of the boundaries about the way different pieces of infrastructure can be set up and, clearly health care services today, it’s become a public good. We’re financing it in the worst way possible and hopefully we’re on a way to fixing that. At least if you have the people that are in charge of doing that listening to the Common Bridge, they’d hear a lot of really knowledgeable people all coming together. And then in the early stages of the pandemic we had states looking for COBOL programmers, which is an ancient language, because their unemployment systems were written in that. And frankly, I wrote a lot of COBOL code back in the day and I’m sure some of those temporary patches that I put in, are still running right now, because that’s the way [cross talk]. And today we have apps and we have blockchain. So with these boundaries, some people would suggest education, certainly voting systems, need to be updated, and we’ve got apps and blockchain. Who could be against fixing the infrastructure? I don’t understand that. How can this even be partisan? How could this even be a controversy?

Rick Geddes:
It’s a great question, Rich. So it boils down in my mind, that like nobody’s against infrastructure, nobody’s against proper maintenance or operation of infrastructure. Everybody’s in favor of it. The question is where’s the money going to come from? And at CPIP, one of our missions is to make a distinction between funding of the infrastructure and financing. And so the funding is the dollars. It’s the underlying dollars. Are they going to come from tolls, user fees of some sort, is it going to come from a broad based tax, like a sales tax or a property tax? And there’s in-between, there’s taxes that could be levied on the change in property values as a result of installing the infrastructure. And that’s called tax increment financing, it’s actually both a funding and a financing source.
When you think about fixing the country’s infrastructure-and I say this because I’ve seen a lot of confused discussions about it-you have to have a story about where the underlying dollars are going to come from, and that is kind of sector specific. So there’s things like the electric utility grid, as we all know, we get an electric bill, so we’re users of electricity and we’re billed directly for it on a monthly basis. That system works pretty well, but take the transportation system. So what happened was, back in the days of President Eisenhower, gas taxes were pretty stable and they were fair in the sense that you probably remember every four door sedan got about the same gas mileage-a Buick, an Oldsmobile, a Ford. If you use one lane mile of interstate highway, you used about the same gas mileage, and you got pretty predictable revenues from the gas and diesel tax. America since World War II, what’s called VMT or vehicle miles traveled, was kind of going up in a pretty predictable rate for decades, and that meant the gas tax revenue was pretty predictable. Things started to change after 2008, there’s still studies being done of that, but what’s happened is that the gas tax revenues have declined at rates that were faster than people expected them to decline. And they are also less predictable. So what’s happened is cars are becoming more fuel efficient. So forget electric cars for a second, just think of the gasoline engine federal mandates and other forces were requiring the OEMs, the original equipment manufacturers, to make gas engines more efficient. And guess what, they did it, but what does that do to your gas tax revenue? It doesn’t help it.
And then if you add to that, it’s not indexed to inflation, it’s 18.4 cents per gallon. Is this 18.4 cents? Well, the purchasing power of 18.4 cents has declined by well over a third since it was last increased and that’s 1993. So it’s been a while, and we haven’t had hyperinflation, but we’ve had modest inflation since ‘93. But even with that modest inflation, you still get eroding purchasing power. And then if you add to that, something interesting, there’s people in the Federal Government, their job is to forecast the revenues into the Federal Highway Trust Fund from both gasoline and diesel taxes. Those numbers are very important, but the adoption rate for electric cars has been greater than people thought. There were predictions, because if you drive an electric car, you’re paying zero in gas taxes, so you’re not paying for the roads. So, the net effect of all this Rich, is that the stability and the value of gas taxes as a funding source has eroded over time.

Rich Helppie:
To that point then, if you look at the way the inter-connectivity would be, you mentioned the electric grid, and there’s always been, who’s going to pay for it, the rate payers or the shareholders. So we have to build a new power plant. Somebody’s going to pay, who’s going to pay, how are we going to fund that? And to your point that the need is not going to be any less acute, the price tag is going to increase. We talk about tolling with user pay, that impacts lower incomes. And look, just by way of example, when he launched the Iraq war, George W. Bush could have said, we’re all going to be in this together and we’re going to raise gasoline taxes 50 cents to fund the war. He didn’t. When the BP oil spill happened in the Gulf of Mexico, President Obama, I thought had an opportunity to say, we’re going to cut our use of gasoline by making it more expensive, but it’s terribly regressive to try to tax drivers. Right now if you go from the Port Authority in New York and New Jersey, every day, it costs between $11.75 to $16 per trip, now it is a little less for carpools, not to mention that gets you just through the bridge or the tunnel, that doesn’t talk about the turnpike tolls, and we already have income disparity in the country. Trump administration held infrastructure week, several times, and even discounting for the president’s very short attention span-that president’s very short attention span-it couldn’t get Congress to pass any broad plan to update this. And I just look at this and say, we’ve got historically low interest rates. And there was an idea being floated in 2016, about 50 or 100 year bonds at 1% specifically tagged to infrastructure, and even discounting the massive pork barrel opportunities that would be in there, why wouldn’t borrowing the specific to start getting after this infrastructure, why wouldn’t that make sense?

Rick Geddes:
It does Rich. I think we have to focus it. So as I said, that there’s a tendency, it’s still there, to focus on new things. And I’m not faulting any individual, I’m suggesting the incentives created by the system that delivers infrastructure are to focus on the short-term, but infrastructure inherently needs long-term attention. So what I would do, interest rates are low, Congress is discussing a big spend on infrastructure. But as you do that, change the way infrastructure is delivered in the United States, change the procurement contract. Now you before mentioned a county executive from Michigan. So people like that, try to alter the way so that you wrap or bundle or combine design and construction with operation and maintenance. That’s actually called a design, build, operate, maintain contract, it’s a DBOM in my world full of acronyms. But that does some amazing things so when you bid out the contract, clearly just combine design and construction. That’s what we did on the Tappan Zee Bridge replacement, the Mario Cuomo Bridge up north of where I am now, a $5 billion, roughly, project. New York did it as a design build. Governor Cuomo is very proud of that, about the type of contract. And I think that’s appropriate. What I’m saying, what we’re saying, is extend that to combine operation maintenance. So that might be over 20, 25 or even 30 years. So what you’re doing is when you do the design and construction contract, and it’s not just one firm, these are consortiums of firms that work together through a contract structure, but you sign up basically at the time you build the bridge for the bridge to be an appropriately designed to construction. We talk about that as the life cycle asset maintenance. So the bridge is the asset. It’s like buying a new car. You wouldn’t buy a new car and then say, oh, forget about changing the oil. I’ll worry about changing the oil later. Well guess what’s going to happen? Your engine is going to be in trouble, So you think about changing the oil when you buy the car. Same thing for a bridge, you contract for the operation and maintenance over decades, but you also budget for that. So the point is that the public sector owner, whoever owns the bridge, or the tunnel, the toll road, whatever it is, commits to the operation and maintenance over the life cycle. That’s called life cycle asset costing. And both of those things are encouraged by a change in procurement.

Rich Helppie:
Let me play that back to make sure I understand that. What we’ve been doing up to this date is we have been putting a bid out for, let’s say a dam, now we’re going to put a bid out for building the dam. And then there’s going to be a third function on operating the dam. But instead of breaking that up, it would be, somebody deliver us a dam for the next, whatever the life cycle is, 45 years, and the dam to meet these performance standards and you figure out how you’re going to charge for that in order to fund that project. And then there might be tax supported money put in, but you, consortium, deliver us and operate and maintain, and you leave us at the end of that four year period, you leave us an economically viable, well-maintained piece of infrastructure. Is that a good lay description?

Rick Geddes:
That is perfect Rich. And actually the thing you said at the very end about turning it back, they’re called hand back provisions and they’re in the long-term DBOM contract. And the hand back provisions say, you must give us back this asset up to these certain engineering standards. And if it’s a road, it could be the line paint. It could be the smoothness of the pavement. It could be the depth of the asphalt. It could be this quality of the signs. It could be the drainage. I mean, there’s a whole set of very nuts and bolts, civil engineering standards, and those are in the hand back. So you can’t give me my toll road back as a pile of crap, it has to be, you have to show me that you’ve maintained it over the past 20 years. And that, frankly, is the way a lot of other countries, developed countries, are doing it now. And the United States is really behind the curve. So what I’m saying, yes, spend more money on infrastructure because interest rates are low, we know that, but at the same time, change the way we deliver it, into a contract type that respects life cycle asset maintenance and life cycle asset costing so that the public sector considers budgets in the operation and maintenance when it builds the thing, whatever it is.

Rich Helppie:
That sounds like a brilliant policy, because it would catapult us out of this declining maintenance, declining value, declining function of the asset. And again, I’ll look to my background in computer systems. If there was a company like IBM or Accenture, or any of the big systems integrators, that said, redo the unemployment system for the state of New Jersey, so that you’re using blockchain, or it’s available on an app and it’s got this security and such. You could apply that same process design/build/operate this and with a hand back provision and be able to get a more assured performance versus I’m going to let a contract out for design and then the designers walk away from it. I’ve been to China and their airports are amazing. And they’re modern and clean and beautiful, and now their traffic congestion’s a mess. That is another issue. But are there other lessons from other countries about this kind of procurement? I’m going to ask a second question too. Does legislation have to change in order to get that life cycle type or procurement done?

Rick Geddes:
It does and again, the Feds can help. So one of the things the Feds could do is reform the NEPA process. NEPA stands for the National Environmental Policy Act, back to 1970. And it was a well-intentioned act to minimize the environmental impacts of governmental actions. But now it’s kind of made its way into a whole bunch of infrastructure act projects and activities. So it can take-for the Tappan Zee Bridge-it took longer to get the environmental permits, much longer, than it did to build the bridge. So it tells you how that process has gotten more cumbersome over time. We have some data on that from CPIP and projects regularly take over 10 years to get permitted. So one of the things that Feds could do is to reform NEPA and streamline it.
But most of this is going to occur at the state and local level. One thing that has to happen Rich, is a lot of states and cities have outdated procurement laws. So their procurement laws were 50, 60, 70 years old. And they were, the laws themselves were, designed for a much more simple infrastructure system, and some of these DBOM contracts that I’m talking about require the states to update their procurement laws. The other thing, and again, I’ve been doing this for 15 years and I’ve got to meet wonderful people who deliver the country’s infrastructure; they’re state highway people and they’re water people, but they’re used to a certain mindset. And when you talk about changing the way heavy civil infrastructure is delivered, they kind of get worried because that could be a technology I don’t understand and risks I don’t understand. So one of the things that can happen are help, expertise-other countries are way-I can’t emphasize this enough, Rich-leading the United States in procurement reform. And bring in experts to help the mayor, help the county executive, help the governor, whoever it is, to do these contracts correctly.
And also I think, changing the financing. So the current system that we have of taxes is muni bonds, which is a multi-trillion dollar wall street market, has tended to discourage these bundling of contracts that I’m talking about, where the private sector companies have to get together. Now, they do this legally under the framework of what’s called a special purpose vehicle, that all these companies are cooperating and that entity it’s-they don’t own the bridge. That legal entity can issue the financing. But you have to kind of give them some tax exemption and we have a mechanism for that. The USDOT does it for transportation, they’re called private activity bonds. So me and a lot of other people who were sort of policy wonks in this area-the Treasury put a cap on the issue of private activity bonds, for an obvious reason-the Treasury loses interest income. If a private issuer issues taxes and bond, reduce that if you want more infrastructure, lift that cap and apply it to many more facilities. So some examples, it’s a lot more…

Rich Helppie:
You can’t turn on the national news without people talking about private activity bonds, or whether NEPA needs to be reformed. If we weren’t talking about those things, we might be talking about the former president’s tweets or whether or not the latest investigation was about something real. Of course I’m being facetious and sarcastic. But I think it’s time for us as Americans, frankly, to grow up a little bit. Get off the news as entertainment and start thinking about these real things that we need to take care of. And that to me, that hearkens back to the education system. So let’s say that we embrace the need to revamp, replace all of our infrastructure. We need to make it more environmentally friendly. It’d be difficult to argue with that. We need it to be more reliable. We need to make sure experts are on top of it. Do we have the civil engineers? Do we have the structural engineers? Do we have the skilled laborers, and the welders, and the companies to do this? What about supply? Can we get concrete and steel and other raw materials from domestic sources? Or have we put so many barriers around young people accessing education or the ability to mine necessary raw materials, that we just can’t do it? Is it practical? Is it practical to get there?

Rick Geddes:
So let me push back a little bit, Rich. We absolutely have the expertise, and this is one of the things that I find frustrating, but also one of our motivations for forming CPIP at Cornell. We have the best structural engineers in the world, the best civil engineers, the best environmental, the best robotics, the best materials science, the best sensors. A lot of these new facilities, the new Tappan Zee Bridge-Mario Cuomo Bridge-has several hundred sensors embedded into the bridge, so you can monitor the vibration, the temperature, the pH, everything about the bridge, sending out signals-in real time. So there’s-it’s like spaceflight, talk about Alan Shepard. You’re monitoring what is the bridge doing in real time? Is it swaying in a way we don’t like, is it sinking because it’s built on muck? There’s no bedrock that far North in the Hudson.

Rich Helppie:
More muck on the Manhattan side, I would imagine.

Rick Geddes:
I don’t know. I know there’s a rare species of sturgeon up there, but otherwise [cross talk]. But the problem is an ancient problem in academics. So they don’t interact enough. So the civil engineering and the robotics people and the materials people aren’t talking to the finance people. So I’m an economist. I know about funding and financing and where the money comes from. And we need to have a more coordinated, less silo-ed and the silos are across sectors. So the energy people don’t talk to the water people enough, and they don’t talk to the transportation people enough. And one of our goals with CPIP is to try to be general and break down those barriers because the same policy-things about permitting, deferred maintenance, where’s the money going to come from, how are you going to finance it, what financial instruments you’re going to use once you have the funding in place-are general across those sectors.
So I think the United States absolutely needs to grow up, but we need to take this more integrated approach to solving these infrastructure problems. And if you do a multi-billion dollar, whatever, a trillion dollar bill using debt financing, I get it, but improve the way we deliver infrastructure. One thing you and I have not discussed, which is a huge problem, is adoption of new technologies. This is not speculative technologies, but the state and local infrastructure owners often either don’t have the incentives or are risk averse, which I understand that, and they don’t adopt proven technologies. LED switching from sodium streetlights, that yellowish glow to LED. That the LEDs, you get more brightness per kilowatt hour of input so the efficiency is better. You save energy, you get more brightness to the point where the lower electric bills can pay for the installation of the technology. But a lot of owners of that infrastructure, are a little unclear on how those contracts work.
Another one is methane capture. We did that in the wastewater treatment plant in Ithica, which was over a hundred years old. You have these settling ponds for the solid waste. Well guess what, they’re emitting a ton of methane into the atmosphere. Methane is a high power gas. So Johnson Controls came in and talked to our public sector folks here, the mayor, and they installed a digester. It’s a big white sphere. I jog past it all the time. And it captures the methane and uses that to turn turbines at 120,000 RPMs. That’s fast. Well, the methane’s powering that, that’s what you get-electricity. And so the plant itself powers itself from gases that used to be released into the atmosphere. But the key thing is, I don’t think the city of Ithica paid hardly anything because Johnson Controls said, we’ll install the new technology if you just let us share your lower electricity costs. So it’s a weird financing approach where you bond against the future savings.

Rich Helppie:
So it’s a win all the way around. And you mentioned bridges, there’s a new international span that’s going to cross the Detroit River. It’s called the Gordie Howe International Bridge. Now, while the Mexicans did not pay for the border wall on the Southern border, which I’m sure was not a surprise to, I think everybody, except maybe one person, but the Gordie Howe Bridge is actually being funded by the Canadians upfront, in that 80% of the trade with Canada, which is the United States largest trading partner, goes through the three ports in Michigan. And most of it goes through Detroit. There’s a rail rate tunnel. There’s a vehicle tunnel. Then there’s an aged bridge called the Ambassador Bridge-private bridge-which is making three times the revenue of a similarly situated bridge, like from upstate New York, going into Canada. And when it gets to the Canadian side, customs is a mile and a half from where the bridge meets the Canadian side. And there’s 21 stoplights between the bridge and the 401 up to Toronto. So the Canadians looked at this and we can fix this by having a new bridge built that connects to the 401. And then on the US side, that it runs into the interstate system on the Detroit side and onto the two major airports west of Detroit, Detroit Metropolitan and Willow Run. Willow Run, which is commercial grade World War II era-built all the bombers there, and such. And the Canadians are fronting this and the United States going to pay them back with user fees. What a brilliant thing that’s going to be in terms of [inaudible].

Rick Geddes:
So let me just make one general point that that’s very critical to what you just said. So there’s very interesting funding and financing approaches that are coming about, but one of the things policy people, particularly those with economics training like myself, are pushing for is more user fees. We like prices and most of the infrastructure for which you pay a direct user fee-water, cell phones, energy-works pretty well. It’s not perfect, but it’s better than where you dump. So one of the things, just to make your point general, states are switching from state gas taxes because the states have their own gas and diesel taxes too-what they call either, depending on the state, an MBUF, a mileage based user fee, or a RUC and RUC is a road usage charge. And it’s interesting, the leading state is Oregon. And so it’s not a new tax. It’s not a new tax, it’s instead of the old tax. So they got rid of their gas tax and switched to a road usage charge, which is like a couple cents, two or three cents per mile. And there’s different ways of administering that. But other States are following that tune. And what that does is really important because it divorces the source of power that the car uses, whether it’s electricity and that talk about hydrogen or gasoline or diesel, it divorces that from the charge for the road. And economists think that’s really good because you have a sustainable rate or fee that’s separate from technology and you just charge per lane mile. My hat is off to the folks in Oregon. They’ve been at this for over a decade just to make that transition. But other States are taking notice, California, Utah, I think, is looking into this, most states out West. So your general point of moving to user fees, whether you want to call it tolling, and that’s separate from a congestion price, which we could also talk about, is a critical thing. We would like to see that included in a bill.
Now when the interstate highway system was built back in President Eisenhower’s time, they were terrified of one state tolling trucks from another state that inhibits interstate commerce, and they made it illegal, or you have to get federal permission to do it. So you have to have some reform in the federal law to allow that, and to actually encourage that through pilot projects, because states are kind of afraid of it too. But the bill could include pilot projects and encouragement for states to switch more to user fees, get away from…the analogy is suppose you’ve funded your healthcare system with a tax on cigarettes, but on the other side, you’re trying to discourage the use of cigarettes. Guess what’s going to happen to your funding over time? So that’s kind of the way it’s been with gas taxes, a wonderful mechanism for decades, that’s now outdated. So we would like to see the whole system switch, kind of the way that Oregon is going to a road usage charge or MBUF.

Rich Helppie:
I think that makes a lot of sense, now administering it and monitoring it is another matter. Certainly during the pandemic, we all drove a lot less. But I’ll tell you, I’ve seen this work in Southern California. We have some freeway systems here where the price is set based on congestion. So you’ve got a transponder in the car and as you drive up, you can say, do you want to go in the pay lanes, and here’s your price at the moment? It’s $2 to go there, or it’s $7 to go there based on that time. We do have to balance those policy responses, I would think, with making sure we’re not having a regressive taxation on people that need to get to work or need to get to the doctor, or want to go visit their family. Professor Geddes, this is fascinating. It’s like, I want to take your classes and…

Rick Geddes:
Come up to Ithica, take a class.

Rich Helppie:
We’ve stimulated some students to think about rebuilding the United States of America, really participating. Has the pandemic changed any thinking or theories or priorities about infrastructure? Is this causing anybody to revisit what we ought to be doing maybe?

Rick Geddes:
Rich, enormous effects. The long-term new normal, if you will, is hard to predict, but before the pandemic there was this movement to densify people. So one piece of that is called transit oriented development. And the idea was to have development around transit stations so people would not be using their car and they could just get on the subway or the transit and they densify. And of course, the instant policy command when COVID came, was to de-densify, was to stay away from other people, get out in the suburbs, don’t be in big groups, this is bad. So all of a sudden it changed, the policy changed 180 degrees, from density is good to no, density is terrible. And so there was this movement. So what happened is transit systems-that includes the New York City subway system, the MTA, the bus systems-hammered, in terms of fare box revenue. They basically shut down BART really quickly around San Francisco. Well those systems are in a crisis situation fiscally now. So there’s a real question as to what’s going to happen when things open up. Are people going to go back to the way they were? Everybody’s become more comfortable with zoom. I know I have in a way that I wasn’t expecting before, but are people going to stay in the suburbs? Are they going to come back to the urban core? How’s it going to affect driving like you just mentioned, Rich. Toll road revenue, if you’re operating a toll road, and we could talk a lot about projects around like you said, real time price-various HOT lanes, that’s high occupancy or toll lanes. How’s all that going to shake out. Very speculative, but we know that it’s going to have a profound effect on infrastructure.
The other thing of course, Rich, we could talk about is broadband where the COVID virus has exposed gaps. And the history of utilities in the United States, a very interesting history, basically the history of universal service, where we want to provide all households with electricity. We want to provide all households with clean water, then it was telephones. We want to provide the telephone. And it was even before that, it was paved roads. I’ve studied postal services, the history of the Postal Service, a multi-sensory history of providing postal services to every community-letters, newspapers cards, so that nobody was cut off. But now we have this in broadband where even some pockets of urban communities, don’t have broadband access, and then there’s a lot of rural. So there’s going to be all these changes, I think, as the country, and indeed the world emerges, from COVID and takes a hard look. Where are the resources best spent? Where are the biggest problems? Do we want to densify again? Is there going to be another virus? And then we’re going to go through this whole drill again? So I don’t know, but I think all I can say is it’s really important.

Rich Helppie:
These are hugely important and they are intertwined. And I can think of just two examples. So the semi-rural town that I live in Michigan, the ambulance service, there was a debate going on about charging municipalities based on the number of runs they made, which I think is just a horrible idea. And it’s like, no, we just want to pay for equipment and training because we might need that ambulance someday. And when we talk about urbanization versus more suburban or ex-urban or rural living, it’s going to come down to do people feel secure. Are they going to be able to live in their homes peacefully? And that ties into other things like public policing. And we had Sheriff Jerry Clayton, who articulated much of what can go into effective policing, we hope to have him back.
And Professor Geddes, we have to have you back because this is a magnificent topic that affects all of us. So as we wrap up today, what didn’t we cover that perhaps we should have, or if there’s high points, low points on policies, like make sure we do this, or make sure we don’t do that, or any other closing thoughts that you might have, because I know that our listeners, and perhaps viewers, on the Common Bridge are going to really enjoy this session.

Rick Geddes:
That’s great. So Rich, the note I would leave on that I touched on, is technology. So in economics, technology change is the closest thing we get to a free lunch. And the United States has been blessed because for decades, we’ve had access to clean water, we’ve had access to reliable electricity and travel, mobility. But our stuff is old but technology allows us to leapfrog, to get to a new, better place without the public sector owner having to have a lot of extra money. But all these technologies have existed in the universities, in the startups, in the labs. They’re proven, they’re patented. It’s just a question of getting them adopted. And I could talk for the rest of the afternoon on examples of that in terms of sensors, new materials, methane capture, all these types of things that a lot of other countries are doing. I think for any serious infrastructure bill, sit down, take a deep breath and figure out how can you encourage state and local asset owners to take that leap and do all these new technologies, which are also much better for the environment.

Rich Helppie:
Professor Geddes, I don’t think there’s been a better articulation of the theme of the Common Bridge. And that is this, the problems we have today are solvable. The opportunities of the moment that we can see are there if we have the will and if we talk about it. We’re not getting there through the Republicans. We’re not getting there through the Democrats. They need to act better. Our news reporting industry has let us down. They need to behave better, but it’s very encouraging that we have people like you working on the things that you’re doing. I hope that many will listen to you and that some of these wonderful ideas can be put into place. I’m so honored that you’ve come on to Common Bridge today, an apt title too, for your area of specialty. I hope that we can have you back as this dialogue unfolds in the country. Thank you so much.

Rick Geddes:
Happy to come back. Thank you for inviting me. It was great, but happy to come back.

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