Posted on 11/21/2016 9:00:54 PM PST by Tolerance Sucks Rocks
Donald Trump loves the idea of infrastructure. He brings it up all the time. He wants to make an infrastructure bill a priority in his first 100 days as president. And Democrats like Nancy Pelosi and Chuck Schumer have said theyd love to work with him on this.
"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," Trump promised cheering supporters on election night. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it."
The catch, though, is that Trump doesnt really have a plan to do all this. At least not yet. Not in the conventional sense of the word.
What Trump has right now is an idiosyncratic proposal for Congress to offer some $137 billion in tax breaks to private investors who want to finance toll roads, toll bridges, or other projects that generate their own revenue streams. But this private financing scheme, experts across the political spectrum say, wouldnt address many of Americas most pressing infrastructure needs like repairing existing roads or replacing leaky water mains in poorer communities like Flint. Its a narrow, inadequate policy.
For instance: This is unlikely to do much for road and bridge maintenance, notes Harvard economist Edward Glaeser. And [economists] have long believed that the highest returns are for fixing existing infrastructure.
Trump could, of course, propose to do much more. But that would put him in a political bind. Many Republicans in Congress are hostile toward the idea of spending billions more on public works. Back in September, when asked whether he would help Trump pass a $550 billion infrastructure program, House Speaker Paul Ryan initial response was a loud laugh. Infrastructure may be popular with Trump fans. But its not so easy to pull off in Washington.
If you poke around Trumps campaign website, you see vague promises to boost investment in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs. But there arent many details on how to do this.
In fact, Trumps only concrete proposal was this slim, 10-page white paper released October 27. In it, campaign advisers Wilbur Ross and Peter Navarro proposed a set of tax breaks for private investors who want to finance infrastructure. These tax breaks, the campaign claims, could help finance $1 trillion worth of projects.
To understand how Trumps proposal might work, lets back up for a second and just think about how roads currently get built in America.
Traditionally, state and local governments fund roads directly, using some combination of their own revenues, federal highway aid, and public money borrowed from investors by issuing bonds that are ultimately repaid via taxes or tolls. Public agencies then oversee the design, construction, and maintenance of said roads.
In recent years, though, some states have been experimenting with bringing private investors directly into projects, via public-private partnerships (PPPs). The exact set-up varies, but heres one example: Private firms might bid for a road project, and the winning bidder then raises money from outside investors to design, operate, build, and maintain the road for a set number of years. The firm recoups its costs through tolls or fixed state payments. Because the private company is on the hook for the whole thing, the theory goes, it has an incentive to keep costs low and finish on time.
To date, such set-ups are relatively rare. Over the last quarter-century, the US has only had 36 privately financed road projects, according to the Congressional Budget Office. Of those, 14 are complete, three have declared bankruptcy, and one required a public buyout. The rest are still in construction stage. (These arrangements dont have to be for new roads or even tolled roads: Pennsylvania set up a PPP to refurbish old bridges.)
So thats where Trumps plan comes in. Hes proposing a large tax credit for private investors in such projects equal to 82 percent of the equity amount in any deal. The hope is that this tax break will lower the cost of financing and spur more investors to pour more money into these projects.
In their white paper, Ross and Navarro argue that youd need around $137 billion in federal tax breaks to attract $1 trillion in infrastructure finance. And, they claim, the government would recoup this lost money via new tax revenue from new construction jobs and profits. That is, the tax cuts would pay for themselves. (Neither Ross nor Navarro responded to a request for an interview.)
As well see, however, these assumptions are debatable.
Privatizing infrastructure is a controversial idea, but its not crazy. Countries like Australia have lots of success with PPPs. The trouble here, according to outside experts, is that Trumps proposed tax credits would only likely address a narrow slice of Americas infrastructure needs if that.
Randal OToole is a transportation analyst at the libertarian Cato Institute and broadly in favor of privatizing infrastructure. But he sees a few problems with Trumps plan. For one, theres a lot of infrastructure thats already profitable to invest in, like electrical grids. He would be giving tax breaks to private owners who would be investing in that infrastructure anyway, OToole notes.
Second, governments also fund lots of infrastructure that isnt profitable, like rail transit. And here, no amount of tax breaks would get private investors to spend money on infrastructure that doesnt pay, OToole says.
Other analysts zeroed in on that second point. If high user fees or tolls are needed to help private investors recoup their investments, then a lot of infrastructure in America may simply never get funded. Think of existing toll-free roads in poor shape, or urban bus systems, or aging water pipes in low-income cities like Flint where people cant afford a big hike in their water bills. Many of these projects may be worthwhile, but they typically require public funding.
If [we] only built projects that could cover their costs with user charges, we would have far fewer white elephant projects, says Harvards Glaeser. However, we would also miss good projects as well. In particular, we would miss projects that mainly serve the less advantaged. Asking buses to pay for themselves would be a mistake.
There are many tens of thousands of infrastructure projects out there across sectors that need to get done, adds Kevin DeGood, the director of Infrastructure Policy at the liberal Center for American Progress. Fixing 120-year-old water mains that break, interchange widenings, roads that need to be fixed, bridges that are deficient, runways that need to be expanded, levees that need to be repaired, ports that need to be deepened.
And this plan does essentially nothing for any of those, DeGood says. There are only a very, very small number of projects that would fit the parameters that would make them attractive in theory for tax credits. Because you have to be able to charge really high margin tolls and user fees. So the facility has to be big enough and have high demand that its going to generate revenue that you can go out and take on expensive private equity capital.
Now, its possible for states to set up PPPs that dont rely so heavily on tolls the state can simply reimburse the private company using tax revenue (whether this saves money is debatable). However, David Levinson, a transportation analyst and professor at the University of Minnesota, brings up a number of other concerns about this plan. PPPs are complicated multi-decade financial arrangements, and not all states and localities are necessarily well-equipped to manage these deals in the public interest.
Meanwhile, these tax credits would do nothing to attract investors without any federal tax liability, such as pension funds, endowments, and international sovereign wealth funds. Thats potentially important, Levinson says. If you look at the major investors in existing quasi-privatized US tolls roads, they tend to be international players and pensions funds.
Finally, the Trump campaigns claim that its tax breaks will pay for themselves by creating new tax-paying jobs looks dubious, Levinson notes. Right now, unemployment is extremely low. Anyone who works on these new privately financed infrastructure projects is likely to be employed already this would just be shifting jobs around, not creating new jobs. (Levinson did add, though, that it might be worth trying out Trumps tax credit scheme on a small scale just to see how it worked.)
Ultimately, its hard to find anyone who thinks private financing alone can solve Americas pressing infrastructure needs. There is no replacement for direct federal funding [of infrastructure], said Richard Fierce, senior vice president at the engineering and construction firm Fluor Corp, at a congressional hearing two years ago. And the number one priority for Congress should be to ensure there are long-term sustainable funding sources in place.
Trump, of course, isnt limited to this tax plan. He could ditch it, or supplement it with a more detailed plan for the federal government to directly fund highway repairs, grid modernization, airport upgrades, school repairs, and the like. The latter is basically what Hillary Clinton proposed on the campaign trail.
Democrats have said theyd be receptive to working with Trump on an idea like this. We can work together to quickly pass a robust infrastructure jobs bill, Nancy Pelosi, the House minority leader, said after the election.
But the Republicans who control Congress seem much more divided on this idea. On the one hand, House Majority Leader Kevin McCarthy (R-CA) said hed consider it as long as any new spending did not increase the deficit. Infrastructure in America is lagging far behind, he told the Hill. I think this is going to be a priority, and I think it will be a bipartisan issue.
The problem is that paying for infrastructure spending has been a sharply divisive idea among Republicans in the House. It took years of squabbling and knock-down fights before Congress finally agreed to a five-year, $305 billion transportation reauthorization bill last December that would fund highways, bridges, roads, and transit. Because no one in Congress wants to raise the federal gas tax, they had to scrape together funding from a variety of oddball sources like raiding other trust funds or new custom fees.
Many Republicans arent eager to go through that process again. As Russell Berman notes at the Atlantic, in the week since Trumps election, House Speaker Paul Ryan has spoken often about working with Trump on repealing Obamacare and cutting regulations. Hes said nothing on infrastructure.
In the Senate, meanwhile, Majority Leader Mitch McConnell (R-KY) has shrugged off this infrastructure talk, calling it not a top priority, according to NPR. Right now, Republicans control the agenda in Congress. And infrastructure doesnt seem high on that agenda.
Here is the Trump campaigns full explanation of their infrastructure plan.
Here are additional analyses from Mary Wisniewski, Larry Summers, Tyler Cowen, David Dayen, Nicole Gelinas, and Jim Tankersley and Max Ehrenfreud.
Here is a story I did a few years back on the push in states to privatize their infrastructure, both by selling off assets outright or pursuing public-private partnerships.
How did Obama’s infrastructure stimulation work out, Butt Plumber?
Another self-styled ‘expert’ heard from.
Someone should remind this writer that opinions are like a-holes - everybody has one.
u mean like Obamas stimulus?
Ya beat me to it.
Brad can just stop with the mansplaining any old time.
For some people, that’s all they have.
Let’s get to the important question: Has the sea level receded under Trump as it was promised by the Messiah? Have the Corinthian columns appeared in Central Park? Do Palestinians now love Jews? If Trump can’t be the next Obama, well, wtf? And will the Messiah ever shut his gd mouf?
More like femsplaining.
Ezra Klein’s hate site gets worse and worse.
Unlike 0bama’s which made the US infrastructure full functioning and pristine.
Oh wait.
Nevermind
VOX, or any other vile liberal media outlet is not to be trusted whatsoever.
Hope someone knowledgeable will comment soon.
Obama had his 8 years. Why are things so terrible given “obamas infrastructure plans”?
“Why experts think that Trumps plan falls short”
Because experts are full of s**t.
What a silly argument this paper presents. Trump has set a goal for the country: update/fix our infrastructure. Not in office yet, OF COURSE he doesn’t have a detailed plan to present. In fact, he may never have one, just as John F. Kennedy didn’t have one when he set the national goal of “putting a man on the moon before the decade is out”. In fact, Kennedy himself never presented a plan.
My concern is not with Trump’s plan but Trump+Schumer+Bernie+Pelosi’s plan. The GOP should be in charge of this
Itrump will do the will of the American people and will still accomplish 10 x.more than Obama. The Left doesnt realize at we expect Trump to hit 100 % of the target. The bottom line is anyone BUT Obama or Hillary is a BIG win.
Good point.
What made it so funny is that he said "it turns out there are no shovel-ready jobs" after spending almost $1T and adding it to the deficit.
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