Challenges and Opportunities for Innovation in the Public Works ...

population growth over the last three decades. This has created extreme pressure on some
environmental systems, especially on its water supply, which was being purchased from a
neighboring city. That neighboring city had issued warnings for years that the water supply was
going to become inadequate, but the resort city's leadership chose-to ignore the danger signs.
With the contract for water from the neighbor set to expire shortly, the resort city is currently
faced with either a project to pipe in water from another state, sixty miles away, which would be
extremely litigious; a crash desalinization program; or to commence a water rationing
program. Cooperative regional approaches to this problem were proposed fifteen years ago, but,
short-term vision has ruled the day.
Current economic conditions have created a particularly cautious citizenry, with the
result that it is exceptionally difficult to increase revenues by increasing taxes. Tax revolts
have surfaced in several states, and the political repercussions in states like Michigan and New
Jersey have been abundantly clear to political leaders nationally. This charged climate will
make raising revenues for infrastructure provision extremely difficult. On the other hand,
voters in some Massachusetts communities have approved increases in the tax levy to defray
school and infrastructure costs. Many opinion polls have found that citizens are often supportive
of limited tax, fee or toll increases when the revenues are mandated for specific infrastructure or
educational uses. And surveys by the Advisory Commission on Intergovernmental Relations
have consistently shown that local governments, the level closest to the citizenry, is the most
popular.
While some form of public-private partnership for infrastructure provision is one of the
attractive new solutions, there are political, statutory and economic difficulties in implementing
these solutions. A provision of the Tax Reform Act of 1986, for example, (the "private-use test")
requires that for a bond to be tax-exempt, no more than 10% of the proceeds of the bond may be used
by any private business, and no more than 10% of the principal or interest is secured by private
business. Prior to 1986, this test was 25%. While certain facilities are exempt from this
restriction, such as governmentally-owned airports and docks and wharfs, the restriction has
severely curtailed the ability of state and local governments to enter into public-private
partnerships for the provision of certain infrastructure facilities. For example, tax-exempt debt
could not be issued for a privately-owned road if the private business use limits were exceeded.
A close relationship between government and business can result in policies that create
unease, criticism, and sometimes litigation by environmental and labor groups. At the same
time, many of the private concerns that were very attracted to infrastructure improvements when
138