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Social Costs of Infrastructure Neglect

November 3, 2009

When considering the total costs of the crumbling “wet” infrastructure (water/sewer utility infrastructure) around the US, the financial cost of actually repairing and replacing the assets is something that all by itself is able to cause severe sticker shock.  Estimates from the American Society of Civil Engineers show that our drinking water infrastructure is underfunded by about $11 billion annually (that means that every year we fall $11 billion short); and our Congressional Budget Office estimates that wastewater infrastructure is underfunded by $23 to$37 billion each year.  These are the costs of actually fixing the infrastructure systems.  Yet, one of the costs that is not always discussed is the huge costs that exists if the systems are not fixed and then ultimately fail in one way or another.

The consequences of failure can be high.  Water main breaks like those seen in abundance in Los Angeles this summer can cause millions of dollars of direct damage to public and private property due to flooding.  People, many times the water utility crewmen, have been known to die as a result of these kinds of water main failures (click here to read about such an incident that occurred in Denver).  One of the costs that is difficult to nail down, but a cost nonetheless is something called “social cost.” When water mains failed in Studio City (near Los Angeles), the immediate damage came in the usual way: flooding engulfed local homes and businesses causing property damage (and flooding isn’t covered under most insurance policies).  Now, almost two months later, we see in this latest news article that businesses in Studio City remain closed due to the damage.  The loss of commerce from those businesses is an example of a social cost that has been incurred as a direct result of the water main failures.  How much has society lost?  Apart from the customers’ convenience of being able to transact at these businesses, we have also lost an untold amount of income and sales tax revenue that has no doubt  further exacerbated local government budgets; we may have incurred additional benefit payments to the unemployed workers who now have no job since the stores have not reopened; and we could have more widespread property devaluation depending on the extent of the damage and its lasting impact.

These “soft costs” are the kinds of things that are often overlooked, but they help us understand the magnitude of the problem of failing infrastructure.  If the cost to repair the systems is high, imagine how high the costs are to NOT repair them when one considers the consequences of failure.

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