Investment opportunities from crumbling US roads

In the US a lot of road and bridge infrastructure is paid for through the Highway Trust Fund (HTF). This is funded at the Federal level through the Gas Tax, which has been 18.3 cents per gallon of gasoline since President Clinton’s administration in 1993. This means the Federal component of the HTF has not adjusted for inflation in over 20 years. It has been suggested that with the oil price rolling over, as it has in the past six months, now would be a good time to raise the Gas Tax because it wouldn’t be felt as much by consumers.

The trouble is it would be a politically unpopular move. There will always be roads in need of repair and it would be economically positive to repair those roads but the benefits are not seen on day one. The lack of political will to address this issue has led to a significant funding gap, which has not been helped by the leveling off in miles driven and the increase in fuel efficiency of vehicles – leading to a lower consumption of gasoline. President Obama’s latest suggestion to implement a 14% one-time tax grab on US$2 trillion of overseas earnings could raise US$238bn from US companies. But even if it is passed this will not be a cure-all. The American Society of Civil Engineers assigned a grade of D+ to US infrastructure in 2013 noting an estimated US$3.6 trillion of investments are needed by 2020 to get infrastructure systems to a state of good repair. Private companies will increasingly step in to fill this void – stumping up the original capital to fund the project and then recouping this (plus some) through tolls.

 

James Lydotes – The Boston Company Asset Management, A BNY Mellon company

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