U.S. cities are facing huge liabilities that remain invisible on their books: dilapidated roads, bridges and buildings.
A new study aims to put a dollar figure on the total wear and tear on the country’s urban infrastructure, and arrives at $1.03 trillion. That is not necessarily what it would cost to bring the infrastructure up to date, but it offers a snapshot of the magnitude of the repairs local governments will need to address in coming years.
The costs are hypothetical for now, but could someday hit cities’ bottom lines. About a decade ago, for instance, new rules made cities account for their long-term pension obligations. Afterward, taxes rose, services were cut and muni bond prices fell for many cities.
The new paper by municipal research pioneer Richard Ciccarone examines the age and expected life of infrastructure in 2,000 cities.
“You’re hiding an obligation or a commitment that’s got to be made sooner or later,” Ciccarone said, “and it’s usually more expensive at that point.”
He said many of the city structures in everyday use are already well past their intended expiration date.
With no balance sheet penalty for putting off infrastructure repairs, cities trying to close budget gaps and avoid tax hikes often delay improvements to their roads, bridges, vehicles and equipment. The looming costs associated with keeping cities livable for residents can take a back seat to pension and debt payments—and remain invisible to investors in the $4 trillion muni bond market.
“The study highlights a real and important challenge facing local governments nationwide,” said Spencer Duncan, mayor of Topeka, Kan. “Like nearly all cities, Topeka faces a fundamental challenge: infrastructure needs exceed available funding.”
Older cities, such as Philadelphia, Baltimore and Milwaukee, face some of the biggest potential burdens for repairing and updating their infrastructure, the study found.
Breakdowns of aging infrastructure can be disruptive and dangerous. Jackson, Miss., residents were left without drinking water for weeks in 2022 after flooding overwhelmed the city’s out-of-date water treatment facility. The same year, a Pittsburgh bridge collapsed, injuring 10 people, and federal investigators later found the city had failed to maintain and repair it.
Growing cities in the South, including Austin, Texas; Charlotte, N.C, and Phoenix, fared among the best in the study. Jacksonville, Fla., outranked other big cities—despite struggling with its pension costs—thanks to a local infrastructure sales tax, federal stimulus funding, and repairs and updates following recent hurricanes.
Philadelphia is considering spending $1.5 billion in city funds over the next six years to improve its aging infrastructure, said Rob Dubow, the city’s finance director. Another roughly $20 billion is expected to come from other sources including the federal and state governments.
Baltimore is in the midst of a 10-year spending plan that includes significant infrastructure updates, a city spokesman said. He said the city has been strained by highway maintenance responsibilities it took over from the state of Maryland following the 2008 financial crisis.
Ciccarone, who spent 48 years in the muni market, delayed retirement to finish the study. Investortools, a software platform for fixed-income managers, bought his firm Merritt Research Services in 2019 and plans to release the study Tuesday.
In it, Ciccarone used the few numbers cities do report on the age and intended life of their buildings and infrastructure to come up with the $1.03 trillion wear-and-tear figure for the 2,000 U.S. cities. That amounts to more than three times the cities’ municipal bond debt and four times their pension debt.
Ciccarone arrived at that figure by looking at infrastructure assets’ original cost and their “useful life”: the number of years that cities estimate each road, bridge or vehicle will last.
By Ciccarone’s calculation, a $100 million tunnel halfway through its useful life would have wear and tear of $50 million plus inflation. He arrived at the figure by multiplying the cost of an infrastructure asset by the share of its useful life that has passed, then adjusting for inflation.
In practice, that $100 million tunnel might end up getting repaired for far less than $50 million. Or it might be safe to drive through well past the end of its expected useful life. Estimates of how long assets will last don’t necessarily take into account “actual infrastructure performance,” said Duncan, the Topeka mayor.
The difficulty of determining exactly when infrastructure will need to be updated is part of the reason the Governmental Accounting Standards Board has so far declined to define future infrastructure costs as a liability.
The board, which publishes widely-adhered-to guidelines for states’ and cities’ annual financial statements, has shown signs of getting stricter, though: It is currently considering forcing cities to be a bit more transparent about infrastructure assets at the end of their estimated useful lives.
It began defining pensions as a liability in 2014, and many cities had to add hundreds of millions of dollars of debt to their balance sheets. Then many cities’ bottom lines fell by tens of millions more in 2018 when they began having to also account for other post-employment benefits promises such as retiree healthcare.
Lisa Washburn, a managing director at bond research firm Municipal Market Analytics, said Ciccarone’s study is a first step toward filling a longstanding information gap in municipal finance.
“You have your bond obligation and then you have your pension obligation and then you’ve got infrastructure over here and it’s got no number on it,” she said. “How do people make budgetary decisions about how scarce resources are getting spent?”
Write to Heather Gillers at heather.gillers@wsj.com