The Trump Admin’s Infrastructure Plan Doubles Down on a System That Doesn’t Work

Hunter Blair, Economic Policy Institute March 1, 2018

U.S. Secretary of the Interior Ryan Zinke (L) and US Secretary of Transportation Elaine Chao (C) watch US President Donald Trump speaks wave during his visit to the US Department of Transportation June 9, 2017 in Washington, D.C. (BRENDAN SMIALOWSKI/AFP/Getty Images)

The Trump admin­is­tra­tion recent­ly released its long-await­ed infra­struc­ture plan. Despite claims by admin­is­tra­tion offi­cials that the plan will pro­vide a $1.7 tril­lion invest­ment in infra­struc­ture, in fact just $200 bil­lion of fed­er­al funds is ear­marked over the next 10 years for roads, bridges, air­ports and oth­er vital infra­struc­ture projects. And this fig­ure will bare­ly make up for the cuts to infra­struc­ture invest­ment that are embed­ded in the administration’s 2019 budget.

The Trump bud­get fails to secure fund­ing for the High­way Trust Fund, which would result in a $138 bil­lion hole in resources for infra­struc­ture. And just like last year’s ver­sion, the bud­get also calls for slash­ing dis­cre­tionary non-defense spend­ing as a share of the econ­o­my by almost half, which would fur­ther roll back pub­lic invest­ment projects.

The admin­is­tra­tion claims that the rest of the $1.7 tril­lion will be left up to state and local gov­ern­ments to cov­er, but they already pay for the bulk of pub­lic infra­struc­ture spend­ing in the Unit­ed States. Esti­mates from the Con­gres­sion­al Bud­get Office (CBO) show that in 2014, state and local gov­ern­ments account­ed for 77 per­cent of pub­lic spend­ing on mass tran­sit and rail. State and local gov­ern­ments play their largest role in oper­a­tions and main­te­nance, account­ing for 88 per­cent. But they also account for 62 per­cent of cap­i­tal investment.

The cur­rent sys­tem already relies heav­i­ly on state and local gov­ern­ments to fund infra­struc­ture, and this sys­tem has left us with chron­ic under­in­vest­ment. So it’s not at all clear how dou­bling down on this sys­tem will result in bet­ter outcomes.

The fed­er­al gov­ern­ment does play a more sub­stan­tial role in fund­ing some spe­cif­ic types of infra­struc­ture. For exam­ple, fed­er­al fund­ing has his­tor­i­cal­ly paid for 80 per­cent of fed­er­al-aid high­ways, includ­ing inter­states. Under the administration’s plan, this for­mu­la is turned on its head, with states and local­i­ties now being asked to pony up the 80 per­cent, on top of all the oth­er invest­ments they already cover.

So, how are states and local­i­ties sup­posed to come up with this fund­ing? The admin­is­tra­tion has float­ed lever­ag­ing pri­vate invest­ment” such as pub­lic-pri­vate part­ner­ships (P3s). But P3s pro­vide financ­ing — struc­tur­ing fund­ing such as user fees and tax­es in a way that allows upfront costs to be paid over time — not the fund­ing itself. If the fed­er­al gov­ern­ment refus­es to pro­vide infra­struc­ture fund­ing, that fund­ing must still be found, and it will be found in the pock­ets of Amer­i­can households.

After all, pri­vate com­pa­nies will not build our infra­struc­ture for free. Their busi­ness mod­el is pred­i­cat­ed on get­ting a return on their invest­ment in the form of prof­its for the com­pa­ny and its share­hold­ers. To pay back these pri­vate part­ners for their upfront invest­ment, state and local gov­ern­ments will like­ly be forced to raise tax­es, insti­tute tolls or resort to oth­er user fees.

Plus, pri­vate man­age­ment of infra­struc­ture comes with its own host of prob­lems, from non-com­pete claus­es that can ham­string the public’s abil­i­ty to build need­ed infra­struc­ture to bailouts that pri­va­tize gains and social­ize loss­es. Such prob­lems arise because infra­struc­ture typ­i­cal­ly has nat­ur­al monop­oly char­ac­ter­is­tics, with large upfront fixed costs and low mar­gin­al costs. This means that in the absence of effec­tive pub­lic-sec­tor reg­u­la­tion, pri­vate firms will be able to hike tolls or degrade ser­vice qual­i­ty. And the types of projects that are most attrac­tive to pri­vate investors are the ones most like­ly to turn a prof­it, not the ones that will most effec­tive­ly serve the pub­lic good.

Our nation’s infra­struc­ture is bad­ly in need of invest­ment. And a pro­gram of sub­stan­tial infra­struc­ture invest­ments could bring con­sid­er­able ben­e­fits to the econ­o­my. State and local gov­ern­ments already bear the brunt of the pub­lic spend­ing on infra­struc­ture, and they deserve a bet­ter part­ner in the fed­er­al gov­ern­ment. Instead, the Trump administration’s infra­struc­ture plan asks them to do still more. It’s a plan that will be bad news for America.

Hunter Blair joined the Eco­nom­ic Pol­i­cy Insti­tute in 2016 as a bud­get ana­lyst, in which capac­i­ty he research­es tax, bud­get, and infra­struc­ture pol­i­cy. He attend­ed New York Uni­ver­si­ty, where he majored in math and eco­nom­ics. Blair received his master’s in eco­nom­ics from Cor­nell University.
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