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Is there a Capital Problem in New England?

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Edi Tebaldi, Associate Professor of Economics at Bryant University and the New England Economic Partnership, explores New England's public capital and infrastructure investment gap, and looks at the role of public-private partnerships in closing this gap

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Is there a Capital Problem in New England?

  1. 1. Is there a Capital Problem in New England? Edi Tebaldi, Ph.D. Associate Professor of Economics Bryant University & New England Economic Partnership Prepared for: Economic Perspectives on State and Local Taxes
  2. 2. Why worry about capital investments? • Under knowledge/technology diffusion, the stock & quality of the stock of capital determines labor productivity & economic growth. • Capital-embodied technology = quality of capital • Capital Investment must enhance the infrastructure to foster growth and productivity. • Capital improvement projects are region-specific and must be aligned with market trends. • Federal, state, and local funds for infrastructure constrained. • No evidence of “reverse crowding out effect” in infrastructure. • Poor infrastructure, particularly highways & bridges.
  3. 3. Be aware of bridges across New England! 37.8% 43.4% 44.7% 40.7% 44.6% 52.0% 70.3% 55.2% 23.9% 31.4% 32.1% 32.9% 34.5% 39.5% 52.2% 56.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% % Bridges Structurally Deficient and Functionally Obsolete 1992 2014 23.6% 18.9% 15.6% 21.7% 18.8% 21.4% 15.9% 19.8% 7.5% 8.9% 9.0% 10.0% 10.7% 13.1% 15.0% 22.7% 0% 5% 10% 15% 20% 25% % Bridges Structurally Deficient 1992 2014 Source: Federal Highway Administration (FHWA), U.S. Department of Transportation.
  4. 4. …. and of roads & highways! State Vehicle travel increase from 1990 to 2013 (%) Major urban highways congested, 2013 (%) Major roads in poor condition, 2013 (%) CT 18 58 34 ME 19 na 25 MA 22 38 11 NH 31 51 22 RI 11 37 37 VT 22 na 25 New England 21 na 26 State Commodities transported by trucks Commodities delivered by USPS/ courier (multiple modes) $ Amount, 2013 CT 73% 18% $143 billion ME 81% 10% $31 billion MA 71% 22% $212 billion NH 63% 26% $38 billion RI 79% 18% $29 billion VT 80% 14% $18 billion New England 75% 18% $371 billion Source: Tripnet.org Source: Tripnet.org …. which New England badly needs to function
  5. 5. Capital Per Worker: A Pillar for Growth (2000 US$) Rank Annual Growth Rate State 1990 2007 1990 2007 1990- 2007 Rank CT 80,206 106,942 9 4 1.7% 3 ME 61,168 61,602 39 49 0.0% 41 MA 72,497 94,256 18 9 1.5% 6 NH 65,591 78,814 30 18 1.1% 15 RI 56,939 72,187 46 30 1.4% 9 VT 60,186 68,252 42 40 0.7% 21 United States 73,157 86,457 1.0% New England 71,347 90,361 1.2% 61,602 68,252 72,187 78,814 86,457 90,361 94,256 106,942 - 20,000 40,000 60,000 80,000 100,000 120,000 Capitalperworker(2000US$) Stock of Capital Per Worker Stock of Capital Per Worker, 2007 Source: Author’s calculations using data from Yamarik (2013) and U.S. Bureau of Labor Statistics.
  6. 6. Low Public Capital Investment Across New England States (2013 US$) Rank Annual Growth Rate State 1992 2013 1992 2013 1992- 2013 Rank CT 1,924 1,844 16 31 -0.2% 37 ME 1,460 1,473 40 45 0.0% 34 MA 1,428 1,891 43 26 1.3% 11 NH 1,078 1,314 50 48 0.9% 18 RI 1,693 1,237 24 49 -1.5% 48 VT 1,174 1,416 40 46 0.9% 19 United States 1,791 2,009 0.5% New England 1,537 1,727 0.6% Public Capital Outlay Per Worker Public Capital Outlay Per Worker, 2013 Source: Author’s calculations using data from U. S Census Bureau and U.S. Bureau of Labor Statistics. 1,237 1,314 1,416 1,473 1,727 1,844 1,891 2,009 - 500 1,000 1,500 2,000 2,500 PublicCapitalOutlayperworker
  7. 7. Low Public Spending with Transportation Across New England States (2013 US$) Rank Annual Growth Rate State 1992 2013 1992 2013 1992- 2013 Rank CT 1,244 1,062 29 43 -0.75% 46 ME 1,346 1,636 22 13 0.93% 14 MA 929 1,034 45 46 0.51% 24 NH 1,005 1,331 41 32 1.34% 7 RI 972 967 44 48 -0.03% 40 VT 1,623 2,452 9 4 1.96% 4 United States 1,188 1,378 0.71% New England 1,083 1,176 0.39% Public Transportation Spending Per Worker Public Transportation Spending Per Worker, 2013 Source: Author’s calculations using data from U. S Census Bureau and U.S. Bureau of Labor Statistics. 967 1,034 1,062 1,176 1,331 1,378 1,636 2,452 0 500 1,000 1,500 2,000 2,500 3,000 PublicTransporationCapitalOutlayper worker
  8. 8. Closing the Capital Gap across states AL AK AZ AR CA CO CT DEFL GA HI ID IL IN IA KS KY LA ME MD MA MI MNMS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SCSD TN TX US UT VT VA WA WV WI WY -.02-.010.01.02 GrowthinCapitalperworker,1990-2007 11 11.2 11.4 11.6 11.8 12 ln Capital per worker, 1990 AL AK AZ AR CA CO CT DE FL GA HI ID ILIN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX US UT VT VA WA WV WI WY -.04-.020.02 GrowthinPublicCapitalOutlayperworker,1992-2013 11 11.2 11.4 11.6 11.8 12 ln Capital per worker, 1990 Source: Author’s calculations using data from Yamarik (2013) and U.S. Bureau of Labor Statistics. Are states with low stock of capital per worker catching up? Are State Governments steeping in to close the capital gap?
  9. 9. Takeaway • The private sector has been the main driver of capital growth in Massachusetts, Connecticut, and New Hampshire; • Low capital accumulation in Rhode Island, Maine and Vermont; • Poor infrastructure across New England states; • Low public capital investment across New England states; • Transportation infrastructure has been neglected •Can New England states TAX their way out of the infrastructure gap?
  10. 10. How much more do New England states need to close the public capital investment gap? Additional public capital Investment required to achieve “per worker” level of: ($ Million, 2013) % Change in 2013 public capital investment required to achieve “per worker” level of: State Top 10 Average US Average Top 10 Average US average CT 2,317 273 76% 9% ME 1,065 322 120% 36% MA 4,549 397 72% 6% NH 1,236 444 147% 53% RI 947 364 162% 62% VT 561 182 129% 42% New England 10,677 1,984 88% 16% Source: Author’s calculations using data from U. S Census Bureau and U.S. Bureau of Labor Statistics.
  11. 11. Can PPPs address New England’s Capital & Infrastructure Needs? • Public-Private Partnerships (PPPs) • “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance". ( World Bank) • Greenfield projects: new-build. • Brownfield projects: existing assets. • New England is behind the curve on PPPs • No legislation to enable PPPs in NH, RI & VT ( source: NCSL) • Project-specific legislation in CT (source: NCSL). • Little activity in CT & MA (Route 3 Express PPP in MA); • Engage policymakers to create legislation & mechanisms to foster and leverage PPPs in New England.
  12. 12. Thank you etebaldi@Bryant.edu

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