There is a widespread conviction that the United States should be doing more to repair and improve its roads. The other papers in this session examine investment choices affecting the interstate highway system. In this paper, I look at the opposite extreme of the nation's road network: the local road system under urban government administration. The deterioration of city streets probably is linked as closely with a general undermaintenance of urban capital facilities, and postponement by cities of capital reinvestment decisions of all kinds, as it is to characteristics of the transportation sector. Cities with backlogs of street repairs are likely to confront backlogs for water pipe replacement, separation of combined sewer systems and sewer pipe replacement, and bridge and building repairs, as well. In 1982 when it passed the Surface Transportation Assistance Act, Congress recognized the special problems of city road repairs. It preserved the Federal Aid-Urban Program, which the administration had sought to eliminate, and for the first time required that 40 percent of the monies be used for rehabilitation, resurfacing, repair, or reconstruction, starting in 1984. A handful of states have also created special grant programs to assist cities in resurfacing city streets. In addition, capital repairs have acquired local political impetus in some cities. A favorite device has been the establishment of community reinvestment efforts, that bring together business leaders and political leaders to form infrastructure commissions of several years' duration, whose purpose is to win local public support for higher capital investment and maintenance levels. Have these efforts succeeded in reversing the trend toward postponement of urban road maintenance and repair? If so, which instruments of support have been most successful and hold most promise for the future?

The condition of America's roads, bridges, mass transit systems, and water and sewer facilities has become an issue of increasing controversy. One view holds that deterioration of this infrastructure has reached alarming proportions, and that a significant fraction of future national savings will be needed to reverse the damage of past neglect. Another view argues that there has been no sudden acceleration of decay in capital stock performance, that better facility management can often substitute for capital investment, and that attempts to greatly increase the size and condition of the public capital stock would place unsustainable pressure on financial markets, state and local government budgets, and the federal system of grants-in-aid. How extensive is the capital infrastructure problem? How did it arise, given the many federal government subsidies available for state-local capital expenditure? How much of the national capacity for capital formation should be allocated to solving the problem? If there is a divergence between actual and desired infrastructure capital, can the gap be closed without disrupting the growth of other sectors and governmental objectives? These questions are, unfortunately, much easier to pose than to answer. There is only limited information about the size and condition of the stock of public infrastructure capital, and much of the available information has been assembled from the perspective of engineering or planning standards. Needs assessments typically indicate the fraction of the infrastructure stock that falls below a specified (and somewhat arbitrary) level of performance, or indicate how much spending would be required to bring the existing stock up to the specified standard. While sometimes appropriate as a management tool, infrastructure needs estimates are formulated in isolation from other public and private capital needs and are thus ill-suited to the policy debate over national priorities. Despite significant data problems, some general conclusions about the infrastructure dilemma are possible. As a backdrop for these conclusions, the first section of this paper presents an overview of the historical trends in public sector capital formation and infrastructure condition. The following section discusses the factors shaping these trends, with particular attention to the supply and demand components of the capital spending decision. We then consider the question of whether existing trends will insure an adequate supply of public capital, and address the issue of whether a reduced quantity and quality of infrastructure capital may be expected to reduce private sector productivity growth.

IN order to forecast next year's income tax receipts it is necessary to determine the income of the current year upon which the tax is based. Since the latest data tabulated from income tax returns and published in Statistics of Income apply to income reported two years ago, the gap between recorded data and the present must be bridged by an estimate of last year's income. Analysis of the data published in Statistics of Income has resulted in a tentative method of forecasting the income that will be returned and published in the next two volumes of the Statistics of Income.' The various stages in the development of this method as applied to forecasting corporation income, both before and after the data in Table i (this REVIEW, vol. XI, pp. i8o-i) were derived, may profitably be described. At the outset, attempts were made to use independently such items as gross sales, miscellaneous income, cost of goods sold, and miscellaneous expenses. The ensuing analysis revealed many variations which could not be explained by economic changes, and which were traced and found to be due to changes in laws, methods of tabulation, and accounting practice. Therefore, items of expense or deductions, that might have been interchanged on account of any one or all of these causes and consequently show an inverse relationship, were combined into one group, and items displaying a similarity of movement were combined into another. The dominant characteristics of these resulting groups were those of fixed and variable (supplementary and prime) costs, and it appeared desirable to pursue the study according to such a classification although considerable overlapping existed due to the nature and number of separate items tabulated. A corresponding separation of income into fixed income and variable income cannot be satisfactorily obtained from the data. However, the separation of deductions into two such parts becomes a function of, or dependent on, the separation of income into corresponding parts, as well as on the weight or influence attributed to other unknown factors. Since complete separation of deductions into fixed and variable parts was not possible by direct use of the tabulated data, resort was had to trial and error experimentation to obtain an approximate division. It is fully appreciated that the results are tentative, that publishing detailed results without expressing all of the limitations and mental reservations which the authors have attached to the data and to the method is hazardous, and that as more data become available many of the present conclusions may be discarded. The method in its present stage of development consists of (i) forecasting gross income,2 (2) deducting therefrom an estimate of variable costs, (3) deducting similarly an estimate of fixed costs, and (4) obtaining a resultant estimate of net income. There follows a description of the analysis at two previous stages of development and an explanation of the more important intervening trials and errors. The first stage of development was reached before the data for I926 became available in I928. After discarding the separate items of income and deductions as rather meaningless, and recognizing the limitations of gross income data as published, but without attempting to make the necessary adjustments, an index of gross income was constructed and substituted in place of the tabulated gross income data. This index of gross income was constructed by combining several published index numbers and using constant *Continued from November, I929, issue. 1 Forecasts of prior year loss deductions from net income and of credit for size of net income also must be made in estimating net income subject to tax. Furthermore, the net income as tabulated in the Statistics of Income is not exactly the same as the income on which taxes are actually collected during a given period. For example, during the calendar year I927, some current taxes were collected on incomes tabulated in the I925, I926, and I927 Statistics of Income, owing to the method of tabulating fiscal year returns, and the legal provision for payment of taxes thereupon in quarterly installments, the first of which is due two and one-half months after the close of the fiscal year for which the return is made. 2 Gross income as adjusted and explained in the preceding article.