New York faces a shortfall of up to $89 billion in funding for water, sewer and transportation infrastructure over the next two decades, according to a report issued today by State Comptroller Thomas P. DiNapoli. The report is the latest in a series of reports DiNapoli will issue to highlight the causes of fiscal stress in New York’s local governments.

“There are growing cracks in New York’s public infrastructure,” DiNapoli said. “New York may have as much as $89 billion in unmet infrastructure needs in the next 20 years, and the effects of Hurricane Sandy and Tropical Storm Irene have only compounded the problem. The longer we lose ground and push this problem out, the worse our bridges, roads, and sewer and water systems become.

“We need to enact real and meaningful reform of how we prioritize and fund public infrastructure projects. It won’t be easy but now more than ever we must do this right.”
While local governments have tried to maintain their infrastructure assets during difficult fiscal times, rising construction and energy-related costs have increased much faster than the rate of capital spending, and have eroded the purchasing power of capital project dollars, according to DiNapoli’s report.

Over the past ten years, total capital spending by local governments has increased by more than 30 percent. In contrast, fuel costs have increased 190 percent and asphalt costs are up 206 percent. Further, materials for highway and road construction increased 57 percent.

In 2010, local governments spent about $1.3 billion combined on highway, water and sewer capital needs. This includes $974 million on roads and bridges, $224 million on sewer systems and $136 million on water systems.

Based on this level of annual capital improvement spending, DiNapoli’s report found that infrastructure investments will need to significantly increase over the next two decades in order to meet current and future needs. Several estimates project New York will need to spend $250 billion on its water, sewer and highway systems over the next 20 years. This includes $175 billion for transportation needs; $39 billion for the state’s drinking water systems; and $36 billion for municipal wastewater systems.

Infrastructure funding, however, is estimated to only reach $161 billion over the next 20 years, creating a likely $89 billion shortfall. The report indicates that in order to reduce this funding gap, the state needs to promote efforts to strengthen capital planning, increase access to funding and coordinate local infrastructure investment.

The Comptroller included a number of recommendations for state policymakers in the report, including:

• Advocate for increased funding from the federal government – In the current economic climate, only the federal government has the financial resources to significantly close the infrastructure funding gap facing local governments. Ideally, federal investment should meet or exceed the peak levels achieved through the American Recovery and Reinvestment Act (ARRA).
• Consider other pooled financing vehicles – Certain pooled financing vehicles, similar to the revolving loan fund operated by the Environmental Facilities Corporation, could offer low- or no-cost access to capital.
• Strengthen municipal capital planning – To ensure the effective and efficient use of additional funds, requirements for local governments to engage in long-term capital planning should accompany any additional aid.
• Create regional structures for municipal cooperation on infrastructure investment – Such an approach could provide a number of important implementation benefits, such as savings generated through economies of scale, expanded capacity to manage complex building projects and avoiding duplication of effort.

The report also found that the largest revenue source for infrastructure repairs continues to be local debt issuance. Outstanding capital debt for all counties, cities, towns and villages in New York topped $22 billion in 2010, up from $14 billion in 2002. By comparison, the next largest funding sources for local projects – state and federal aid – accounted for $745 million in 2010 and $519 million in 2002. A large portion of the aid increase for that period was due to temporary funding through ARRA in 2009 and 2010.

Local governments have been able to absorb the cost of their increased debt load for the time being because interest rates have declined to historically low levels. Increases in interest rates, however, could make this type of funding structure unsustainable, said DiNapoli.

Further, the Comptroller’s report noted Hurricane Sandy and Tropical Storm Irene will continue to divert resources and force many municipalities to undertake emergency repairs at the expense of repairing unsafe bridges, crumbling roads and failing water and sewer systems. DiNapoli recently proposed legislation to help local governments deal with the financial impact of Hurricane Sandy.

The report did not take into account added costs for dealing with the damage from Hurricane Sandy and or address the capital needs for the Metropolitan Transportation Authority, the New York State Thruway Authority and the New York State Bridge Authority.

In an effort to highlight fiscal stress issues, DiNapoli plans to issue fiscal profiles on select cities across the state to further inform officials and citizens on some of the unique environmental and systemic pressures facing municipalities.

Starting in January, DiNapoli’s office will implement a new fiscal monitoring system that will calculate and publicize an overall score of fiscal stress for municipalities and school district across the state. The ‘early warning’ system will identify those headed toward fiscal crisis and give local officials and the public sufficient time to consider options for turning things around.

The monitoring system was announced in September in conjunction with a report examining the demographic and financial trends of New York's 61 cities (excluding New York City) over the past three decades. The report found many cities are struggling to balance budgets and revitalize local economies.

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