I.                    Maintaining Competitiveness ‑ The Role of Infrastructure

There has been much debate over the ability of the U.S. to compete in the international economy. The most ominous sign of a relative decline is the decrease in the annual growth of labor productivity, from an average of 2.8 percent between 1958 and 1969 to 1.4 percent between 1970 and 1986. It has been estimated that businesses spend between $30 and $40 billion per year on remedial training. Growth in income depends crucially on productivity.
 

The evidence is very clear that a significant reason for this relative decline in our competitiveness is the neglect of our infrastructure. The Federal Reserve Bank of Chicago has estimated that more than half of the decline in labor productivity growth rate is due to our neglect of infrastructure. Spending on public infrastructure has declined as a percentage of GNP, from 2.3 percent in 1964 to 1.7 percent in 1987. Spending on new infrastructures¹ has fallen even more dramatically to 1 percent of GNP in 1989. Wisconsin's total spending on infrastructure has followed this pattern of decline from 2.1 percent of Gross State Product (GSP) in the 1960's to 1.6 percent of GSP in the 1980's.

A consensus is emerging among researchers and business leaders that a healthy infrastructure is essential for growth and economic development. Recently Robert Reich of Harvard University highlighted two sets of factors which determine capital flows in the global economy. The first is a highly capable labor force which is especially skilled in the identification, coordination and resolution of problems. The second category is the quality of the communication and transportation networks. It is the quality and attractiveness of these two factors that determine a region's standard of living.
 

The focus of this report is on the economic impact of public infrastructure on a region's growth and development. In particular, I will provide a framework for analyzing the effects of Corridors 2020 on the Central Wisconsin economy. 

II. Corridors 2020

A.     Overview

The state of Wisconsin has embarked on an important program of upgrading its highway network. It is composed of two elements: a backbone system of multilane divided highways connecting all major population and economic centers with each other and to the national highway network; a connector system of two and four lane highways connecting other significant economic and tourism centers to the backbone system. By the year 2020, the total mileage in the Corridors 2020 system will be expanded to 3200 miles, of which 550 will represent additional multilane mileage to the backbone system (a 50 percent increase) and another 350 multilane miles will be added to the connector system (representing a 29 percent increase).

The most important aspects of Corridors 2020 for Central Wisconsin are the upgrades of highways 10, 13 , 29, 34 and 54. The expanded highway 29 corridor, the most heavily traveled east‑west route in north‑central Wisconsin, will allow local businesses greater access to the major urban centers of Green Bay (pop. 156,000), Eau Claire/Chippewa Falls (pop. 82,000) and eastern Minnesota. Traffic volume averages about 7200 vehicles per day, with the Wausau ‑ Marathon City portion heaviest at 10,000 vehicles per day. Of the total 199 miles, 144 miles of improvements remain to be finished by the year 2000.
 

The 60 mile highway 10 corridor has 58 miles of improvements to be finished by 2005. This corridor will connect the Fox River Valley (pop. 200,000) with Central Wisconsin (pop. 250,000). This corridor is heavily used, averaging 8100 vehicles per day. The Wisconsin Department of Transportation (DOT) has projected that volume will nearly double over the next 30 years. The DOT is still undecided as to which bypass to select for Stevens Point. There are at least three being discussed: 1) a northeast bypass ‑ running along 51 to County Road X and across the Wisconsin River; 2) a southwest bypass ‑ route 54 from Waupaca through south Plover; 3) a route from County Road HH through Whiting to 51.

As part of the connector system, improvements are also planned on highway 54 connecting Plover with Wisconsin Rapids, highway 10 west of Stevens Point, 2.4 miles of highway 34 through Wisconsin Rapids, and highway 13 connecting Marshfield with route 29. Decisions concerning the bypasses of Wisconsin Rapids and Marshfield remain to be made.
 

B. Additional Funding Requirements
 

These improvements will require an increase of $50 million per year in additional funding over 1988 spending levels for the years 1993 through 2005. The upgrade of the backbone system is projected to cost $1.1 billion, and the upgrading of the connector system will entail a further cost of $325 million. (All figures are in 1988 dollars.) If additional safety and capacity expansions of $380 million (not part of Corridors 2020) are added, then the total cost is estimated to be $1.795 billion. At current funding levels, an additional allocation of $627 million is expected. Obviously, higher taxes and fees will be necessary, and/or new sources of revenues must be sought.

Wisconsin's transportation funding emanates primarily from two sources. The largest part of the funding, 71 percent, comes from the state fuel tax and vehicle registration fees. The heavy reliance on this one source has forced the state to impose the highest fuel tax in the nation. Despite this dubious honor, Wisconsin ranks 32nd in total fees per "typical" automobile, with just under $200 per auto. Thus, there is a possibility for revenue enhancement here, but most likely not in the form of higher fuel tax rates.
 

Federal aid accounts for 22 percent of Wisconsin highway funding and is the second largest source. Federal aid for highways has decreased in real terms throughout the 1980's. Wisconsin, as a state, ranks toward the bottom in terms of dollars of Federal aid received per dollar of tax paid. We receive less than $.75 per dollar of tax paid into the Federal Highway Trust Fund which is probably due to the low percentage of total interstate miles in Wisconsin (1.3 percent). A redressing of this imbalance could be a valuable source for additional revenues, but seems unlikely.

With the Interstate Highway System 99 percent completed, The Bush Administration is proposing to shift transportation policy toward road repair and gridlock relief, and away from new construction. In addition, it is also pursuing a more narrow role for the Federal government. New construction for states will only receive 75 percent in matches from the Federal government instead of the current 90 percent. Clearly, new construction will become more expensive under the current proposal for transportation policy. At a time when many states are proposing to link their own state networks with the Federal network, aid from the Federal government is drying‑up.
 

II.                  Economic Impact of Corridors 2020

The claim has been made that investment in public infrastructure has beneficial effects on the economic development and growth of a region. In addition, there are benefits to the auto user of the improved highways. In this section, I will describe how these benefits are produced and provide some estimates. Finally, it is important to be cognizant of the costs associated with the highway improvements.

A.     Benefits

Following David A. Aschauer's analysis, highways can be viewed as providing a service to the users. The services received from expansions in highway capacity are reduced travel time, prolonged vehicle life due to a reduction in the damage imposed on vehicles by poor quality roads, and improved safety. The auto user receives these benefits directly. In addition, these benefits produce an increase in productivity that tends to raise the return to producers. The increased rate of return to local productive activities stimulates private investment which, in turn, leads to higher growth in income, output, and employment. This latter category is the economic development benefit.

Not all regions benefit equally from new highway construction. The extent of this increase in productivity of private production depends on the region's stage of economic development. The regions with the most to gain are those with the potential to grow ‑ those possessing a skilled labor force, financial capital, and proximity to markets. Lagging regions which have declining industries and congested regions with substantial economic development are the least likely to gain from improvements in infrastructure. Central Wisconsin is clearly in the first category. In addition, industries in Central Wisconsin most likely to benefit are: food processing, printing, paper production, health care, distribution and retail, and tourism.
 

The higher returns from increases in productivity will not only accrue to existing producers, but also will attract new firms into the local economy. Clearly, Central Wisconsin is well located. The 2020 corridors program allows firms to easily access a number of lucrative markets: the large metropolitan area of Minneapolis ‑ St. Paul; the burgeoning Fox River Valley; Madison. In addition, the local market is strong and growing. The total estimated population of the Central Wisconsin area is over 250,000.
 

Empirical work by a number of researchers has consistently predicted that public investment in infrastructure leads to higher productivity and contributes positively to a region's growth. Using Aschauer's estimates, the expansions in highway capacity of routes 10 and 29 should add an additional .4 percent to 1 percent growth in per capita income per year for the Central Wisconsin area.
 

Using a study commissioned by DOT, I have estimated the benefits for Central Wisconsin. See Tables 1 and 2. 

The Corridors 2020 program will expand our economic opportunities. Each community will share in this growth in proportion to its economic base. In addition, there will be an enhancement in the integration of our diverse, yet complementary, economic activities and industries. The economic pie will not remain stagnant, but will be in the form of increased air and noise pollution, although due to the low population density surrounding much of these roads, I would expect these costs to be minimal. In addition, there may be more run‑off of chemicals (oil, road salt and gasoline) from vehicles which might degrade soils and underground water sources. 

Certain environmental areas, such as the wetlands and wildlife refuges, may be particularly vulnerable to expansion of the highway network. These areas may have to be bypassed altogether or special precautions may be necessary in order to safeguard them. This is probably a larger problem for the expansions of the northern highways, such as highway 53, than it is for 10 and 29. 

Expansion may entail acquisition of private land for new alignments. There will be some displacement of homes and businesses. Some farmland may become severed by the expanded highway, isolating some neighboring farms. 

Since traffic will be rerouted around some communities, there may be less customer traffic for some businesses. Other businesses may relocate along the expanded highways, reducing the tax base. 

I believe these costs of economic development are less than the benefits, though. The DOT studies have also come to that conclusion. 

IV.        Conclusion 

I believe the state of Wisconsin has made an important and, in the view of this author, a correct decision to expand its highway network. The 2020 corridors program will help Wisconsin improve its regional and global competitiveness. In all likelihood, there may be significant increases in the growth of income, employment, and economic development for the Central Wisconsin economy. Although these must be balanced with increased costs associated with development, the benefits should be more significant. 

References

1. David A. Aschauer. "Highway Capacity and Economic Growth," Economic Perspectives, Federal Reserve Bank of Chicago, 1990, pp. 14‑24.

2. "Can You Compete," Business Week, Dec. 17, 1990, pp.60 ‑ 93.

3. Corridors 2020: Wisconsin's Connection to the 21st Century, Madison, WI: Dept. of Transportation, March 1989.

4. Ronald C. Fisher. State and Local Public Finance, Glenview, IL: Scott, Foresman and Co., 1988.

5. William F. Fox and Tim R. Smith. "Public Infrastructure Policy and Economic Development," Economic Review, Federal Reserve Bank of Kansas City, March/April 1990, pp. 49‑59.

6. Highway 29/45 Corridor Study: An Evaluation of Alternative Connections to the Fox Cities, Madison, WI: Dept. of Transportation, November, 1988.

7. Highway 29/45 Corridor Study: Interim Report, Madison, WI: Dept. of Transportation, August 1988.

8. Mike Mills. "Skinner Steers Federal U‑Turn As Interstate Dead Ends," Congressional Quarterly, Dec. 15, 1990, pp. 4134‑4140.

9. Alicia H. Munnell. "How Does Public Infrastructure Affect Regional Economic Performance?" New England Economic Review, Federal Reserve Bank of Boston, Sept./Oct. 1990, pp. 11‑33.

10. Hugh O. Nourse. Regional Economics, New York: McGraw‑Hill Book Co., 1968.

11. Robert Reich. "The Real Economy," Atlantic Monthly, Feb. 1991, pp. 35‑52.

12.Clifford Winston. "Efficient Transportation Infrastructure Policy," Journal of Economic Perspectives, Winter 1991, 5:1, pp. 113‑127.

13. Wisconsin Population Projections: 1980‑2020, prepared by Demographics Services Center, WI Dept. of Administration, 1988.
 

¹Public infrastructure includes roads, water and sewage systems, railroads, airports and telecommunications facilities. Spending on education is not included, nor is spending on gas, electric and transit utilities because of their volatile nature.