A recent article in The Atlantic, The Toxic Bubble of Technical Debt Threatening America, describes a fundamental concept that ought to be central in infrastructure policy discussion:

A kind of toxic debt is embedded in much of the infrastructure that America built during the 20th century. For decades, corporate executives, as well as city, county, state, and federal officials, not to mention voters, have decided against doing the routine maintenance and deeper upgrades to ensure that electrical systems, roads, bridges, dams, and other infrastructure can function properly under a range of conditions. Kicking the can down the road like this is often seen as the profit-maximizing or politically expedient option. But it’s really borrowing against the future, without putting that debt on the books.

I wrote about the same thing in a 2017 Governing op-ed, Deferred Public Spending: The Credit Card from Hell:

When infrastructure maintenance is deferred or a pension contribution is skipped, critics of imprudent public spending are quick to label it as “kicking the can down the road.” But that doesn’t really capture the essence of the practice. It’s a form of borrowing. More cash is available in the current period, but a future obligation in the same amount, plus accrued costs, is created. Just like a loan.

It’s not as if the problem of deferred maintenance isn’t increasingly recognized – how could you miss it? And naturally it’s seen as a kind of liability. Rating agencies are starting to include deferred maintenance in measures of fiscal health. The Volcker Alliance just released a report about state deferred maintenance budgeting practices (or lack thereof) which puts the issue squarely into to the same bucket of horrors as pensions.

But the explicit identification of infrastructure deferred maintenance and delayed investment as a type of debt goes a little further than mainstream thinking at this point. Yes, the public sector has plenty of future liabilities and we’re all wondering how they’ll be paid for. But most of these liabilities don’t (or at least shouldn’t) involve long-term debt, especially at the state and local government level. There are explicit and implicit promises of safety nets, health care and other services that extend far into the future – but they’re budgeted and funded annually. Pensions are explicit liabilities that are meant to be pre-funded over time (kind of the opposite of debt) and when they do involve debt financing (POBs) it’s an indicator that something went wrong.

In contrast, infrastructure projects are almost always financed with long-term debt – and that’s okay. The upfront cost of a project is big, but the asset lasts a long time and usually delivers its expected value without much fuss, year over year. So even the most prudent fiscal authority, facing the most tax-resistant and anti-government constituency, shouldn’t have a problem with debt per se for this kind of public spending. Even off-balance sheet debt (e.g. leasing or project finance) to fix overly restrictive budget requirements usually gets a pass if it’s relatively transparent and cost-effective.

The problem of course is that deferred maintenance and delayed investment are very much the wrong kind of debt to use – hidden, relentlessly accruing, unpredictably due on upon catastrophic failure, and (worst of all) with a very high rate of interest. And very convenient to draw down. All’s you have to do is – nothing. Little wonder it’s a political favorite.

Yet, bad as this hellish technical debt is, it’s still debt.

Does this label matter? Probably not much in terms of pure description and measurement – the consequences and scale of the problem are pretty obvious in all sorts of ways (as the Atlantic article illustrates) as is the fact that it’s yet another accruing fiscal liability.

But in terms of developing practical solutions, categorizing deferred maintenance and delayed investment explicitly as a type of debt matters a lot. In contrast to state & local government safety nets and pensions (which are primarily funding problems), deferred maintenance and delayed investment are bad financing choices for infrastructure. To the extent that bad choices in the past have allowed this type of liability to accrue, it is now an infrastructure financing problem – to be correctly considered in a long-term context, and in direct comparison to other, far better debt options.

Debt problems should have debt solutions. In that context, perhaps they are more tractable, especially in an ultra-low interest rate environment. There’s no doubt that new approaches will be necessary, but they could be less ‘radical’ than The Atlantic article predicts that we’ll need – though certainly challenging enough “when the true costs are calculated’.