Rebuilding Nation’s Infrastructure on the Cheap

Decaying infrastructure could reduce U.S. economic output and jobs in the next decade. President-elect Donald Trump has a $1 trillion investment plan, but his plan doesn’t involve any new federal spending, which could be a big problem.

Decaying infrastructure could reduce U.S. economic output and jobs in the next decade. President-elect Donald Trump has a $1 trillion investment plan, but his plan doesn’t involve any new federal spending, which could be a big problem.

Candidate Donald Trump promised massive investment to modernize decaying American infrastructure. He reiterated that promise in his post-election acceptance speech, attracting applause from Democrats who see such investment as common ground with the new Republican president-elect. 

However, when you look at the devilish details of Trump’s infrastructure investment plan, its most startling provision is the absence of any new federal spending. That’s right, a $1 trillion infrastructure investment plan with no new federal spending.

The Trump plan rests on the belief that $140 million in federal tax credits will entice private contractors to invest the remainder through what are called Public/Private Partnerships or PPPs.

According to the National Conference of State Legislatures, “PPPs are agreements that allow private companies to take on traditionally public roles in infrastructure projects, while keeping the public sector ultimately accountable for a project and the overall service to the public. In PPPs, a government agency typically contracts with a private company to renovate, build, operate, maintain, manage or finance a facility. Though PPPs are not optimal for many transportation projects, they have been shown to reduce upfront public costs through accelerated or more efficient project delivery. PPPs don’t create new money, but instead leverage private sector financial and other resources to develop infrastructure.”

That description probably doesn’t match what many state and local officials wanted to hear to address their long lists of infrastructure projects. Experts estimate there is a $3.32 trillion backlog of infrastructure projects inAmerica

Business leaders may not be happy either. The American Society of Civil Engineers predicts decaying roads, bridges, waterways and airports could reduce the U.S. gross domestic product by $4 trillion between now and 2025, which could equate to 2.5 million fewer American jobs.

The Pros and Cons

The private side of PPPs require a revenue source to pay off the balance of the investment. For roads and bridges, this typically means tolls. For water infrastructure, this means higher rates. While not a new idea in Washington DC, this model of financing is not typical in the United States. However, the PPP movement has gained steam, particularly with Republicans in Congress who oppose raising taxes.

PPPs have a mixed record in this country. PPPs have been given credit for expediting project delivery, lowering costs and delivering projects that never would have gotten off the ground. However, while there have been examples of success, some PPPs have gone bankrupt leaving taxpayers and local governments holding the bag.

Recent failures include Texas Route 130, the Pocahontas Parkway in Virginia and the South Bay Expressway in San Diego. Failures typically arise from faulty toll modeling or changing traffic dynamics over time. 

It’s rumored that PPP was a model originally considered for the Columbia River Crossing Project. However, the project didn’t pencil out for private contractors because they couldn’t prevent motorists from avoiding tolls by using the I-205 bridge. This is not an uncommon problem for PPP investors. 

One example from Orange County required the State of California to pay more than $200 million to get out of a non-compete clause with a PPP developer. Traffic in the area got so bad that Caltrans wanted to add capacity in the region, but the non-compete with the PPP prevented capacity expansion projects.

In addition, PPPs can’t solve most transportation problems. Transportation PPPs can only be undertaken in highly populated areas with the traffic to generate enough consistent toll revenue to finance the cost of the project. Adding tolls to new or existing roads is not a popular concept in Oregon and Washington. Also, PPPs generally don’t work well for public transit projects.

Today, 75 percent of all PPP projects are concentrated in five states – California, Colorado, Florida, Texas and Virginia. Massive transportation projects in Oregon or Washington might benefit from PPPs, such as the proposed Salem Crossing. They probably won’t work that well in rural and sparsely populated areas – the places where Republicans dominate.

You can expect Democrats, and perhaps suburban Republicans, to push for an equally robust investment, but using a mix of more traditional tools, such as matching grants.

As Vice President, Federal Affairs, Joel brings to CFM broad public policy experience as a senior Congressional aide and successful private sector lobbyist.