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The Trump Infrastructure Plan and Potholes

By December 21, 2016No Comments

Hazardous streets and highways got plenty of attention in the 2016 election. Will the president-elect favor fixes – or exclusively build new roads?

In the 2016 election both major party candidates shared at least one idea. They promised, to varying degrees and by different methods, to fix America’s crumbling infrastructure. Potholes – pavement crevices, not just the metaphors – were mentioned by both Mr. Trump and Mrs. Clinton.

Since his electoral victory, President-elect Trump has made some concrete moves toward fulfilling his infrastructure promises. This shouldn’t be surprising, given that Mr. Trump’s career was largely in building. His campaign promises were strongly based in creating the kinds of jobs that fixing and constructing roads and bridges would bring.

But can campaign promises be met? On the hopeful side, there appears to be bipartisan support for an infrastructure bill in Congress, considering how Democrats introduced several such bills during the previous administration.

What asks is will this effectively reduce the number of potholes that hamper and endanger motorists and commerce in America?

Here is what we know thus far:

Cabinet strength: Elaine Chao, Trump’s appointed Secretary of Transportation, has a long track record in public service having held leadership positions in both Bush administrations (she was Labor Secretary under George W. Bush and Deputy Secretary of Transportation under George H. W. Bush). Her history as a Washington insider, hurt in no way by the fact she is married to Senate Majority Leader Mitch McConnell, suggests she will employ strong competence in administering the agency. She also has a pro-business, anti-regulation track record that should favor fast deployment of whatever funding Congress grants the agency.

$1 trillion infrastructure bill: This is the meat of the meal, so to speak. But what is it actually made of, and what will it actually taste like?

The Trump policy statement explains this amount of money, $1 trillion, would be amortized over ten years and be spent on roads, bridges, transportation systems, clean water, telecommunications, the electricity grid and other infrastructure that supports national security. It would optimally not add to the deficit but instead leverage tax incentives to private companies. For-profit developers could borrow money through private financial markets that subsequently would be paid back by revenues from those investments.

Which then means user fees would be the lynchpin of such projects. As previously reported on, such private-public partnerships as Colorado’s E-470 demonstrate that such investments can pay off.

Of note, it’s only possible to establish user fees (tolls) on new roadways. It’s not possible to charge motorists who drive on free roads that have their potholes filled in.

Governing, the magazine of states and local governments, published a story critical of public-private partnerships (P3s), noting in an article on December 16 (“Trump’s Infrastructure Strategy Has Produced Uneven Results in States”) that “less than 1 percent of spending on highways nationwide, for example, came from P3s in the last 25 years, and a number of these highway projects hit stumbling blocks.” Still, the article also points out that by pushing project risks onto private developers it promotes innovation, cost-effective solutions, and that a majority of states are adopting P3s for the building of jails, police headquarters and streetlight modernizations, where the user-fee is paid from tax coffers.

Still, the emphasis is on revenue-generating new projects. Repairs to existing buildings and asphalt have at best a tangential, theoretical connection to revenues.

Funding by corporate tax cut plan?: The president-elect’s proposal to cut the corporate tax rate from 35 percent to 15 percent is based on the intent to stimulate investment and job creation as well as repatriation of offshore corporate cash – the positive impact of which could then be used to pay for infrastructure fixes. The initial cut in federal revenues of $4.4 trillion (over the next decade) would, in theory, be offset by economic growth, according to The Tax Foundation, a non-profit tax research organization. “Lower tax rates hold the possibility to create growth,” according to Jeff LeSage, vice chairman for tax at KPMG in an article in CFO magazine. But he adds, “Whether they actually do is a complex question.” The details of such a proposal remain elusive and several economists say the revenue impacts of such a drastic cut remain largely an article of faith.

Cato Institute pushback: The Libertarian think tank, long an advocate of market-driven privatization of historically public projects, also takes a critical look at the plan. In a podcast (“The Trump Plan for American Infrastructure”), a senior fellow with the Institute and analyst of infrastructure spending, Randal O’Toole, discusses the privately-issued bond funding method as potentially revenue neutral. This would help states and cities to work around debt limits because private developers would hold that debt. But again, that plan rewards new building because those kinds of projects are the only way to generate revenue streams to pay off the bonds and incentivize the developers.

O’Toole also urges that any and all infrastructure spending take into account whether or not the project contributes to the Gross Domestic Product (GDP). Historical examples of such include the 1869 completion of the Transcontinental Railroad, and the mid-20th century expansion of the National Highway System. This website has previously reported on how the quality of pavement – or the opposite, the poor quality of roads – can adversely affect a regional economy.

So it appears that budgets to repair potholes are not the immediate benefactors of the $1 trillion program. That said, many details have yet to be revealed and the Congressional process has yet to begin.




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