This commentary originally appeared in Forbes on November 3rd 2016
Transportation and infrastructure policy hasn’t gotten much attention so far in the 2016 election cycle, but the two major party candidates have put forth plans.
The federal Highway Trust Fund spent $249.5 billion in the five years from 2011 to 2015. But, since federal fuel taxes don’t cover all the spending wanted by the President and Congress, and since there is little appetite for increasing the gas tax, lawmakers augment the Highway Trust Fund with billions in general revenue. They then send the money to the states and local governments with a large number of strings attached that reflect the priorities of the federal, not local government.
Hillary Clinton has proposed $500 billion in added infrastructure spending over five years, with $275 billion of that coming from government and ultimately taxpayers via a hike in taxes on business. The remaining $225 billion in spending would be promoted by creating a revolving fund government infrastructure bank with $25 billion in federal money that would underwrite projects with as much as a 9-to-1 leverage ratio. This plan aims to double the current pace of federal spending on infrastructure, though not necessarily transportation specific spending.
The challenge for commuters hoping for congestion relief is that Clinton’s plan takes a broad view of transportation infrastructure that includes school construction and environmental spending.
California offers a cautionary tale in this regard. Over the past two decades, California has borrowed tens of billions of dollars to build transportation and water “infrastructure.” But over time the share of dollars spent on concrete and steel have declined while the dollars spent on endless studies, environmental remediation, and park land acquisition have soared. Environmental groups use their leverage with liberal officeholders and judges to extract ever growing shares of the infrastructure “pie” in a process known as “greenmail” or environmental permit extortion.
As might be expected from a builder of large buildings, Donald Trump has a bigger plan. Trump proposes to spend an even trillion dollars, albeit over a decade.
Trump’s infrastructure plan differs from Clinton’s in three major aspects.
First, it doesn’t raise taxes to increase spending, instead, it adjusts the tax code to incentivize private investment in public projects with an 82% tax credit on equity invested in infrastructure paired with federally-subsidized loans at a 5-to-1 leverage ratio.
Second, the Trump plan aims to create more roads, bridges, and water projects than Clinton’s because it limits funding to those projects which can generate a revenue stream from users—so environmental projects and school campuses are likely out of the picture.
Third, it will result in a major shift in the way America builds infrastructure, putting the federal government foursquare behind for-profit businesses funding, building and operating roads, bridges, tunnels, mass-transit systems of various types and water infrastructure—anything that moves people and goods around in support of a growing economy.
Variations of Trump’s idea have been tried at the state level with degrees of success and public acceptance. In some instances, the public, accustomed to thinking of “freeways” as being free to use—rather than more accurately thought of as “taxways”—protest against paying user fees. Further, public resistance can arise against domestic toll roads or rail projects that are financed, designed, constructed and operated by experienced European or Asian firms. “Foreign” ownership of an American road can be a touchy subject—as if a foreign firm can pack up the road and take it overseas.
One way of addressing public concern would be to tie eminent domain reform with the new federal infrastructure tax credits. If private property owners have greater assurance of being treated fairly by powerful public-private partnerships that can condemn their land for public transportation projects, then there would be less anxiety over the process. Federal tax credits and loan underwriting could be augmented if the developers agree to forego traditional eminent domain land acquisition and reduced if they don’t.
With growing use of the Internet for entertainment, shopping, education and work, Americans aren’t driving as much. Further, autonomous vehicles promise to transform our transportation system, reducing accidents and increasing capacity. Yet, even with these innovations, infrastructure experts claim America needs $500 billion of new infrastructure spending per year. That’s about 3 percent of the national economy and a little more than double the current rate of spending: $420 billion annually at the federal, state and local level.
One last observation about the Clinton and Trump infrastructure plans. The former would result in more spending along the lines of the status quo, with politicians picking projects, often based on political considerations, rather than where the dollars can most be efficiently spent. The Trump plan, on the other hand, relies on investors, not politicians, to make decisions about what to build while having skin in the game, reducing the likelihood of building costly, underused projects with public debt and tax money.
Chuck DeVore is Vice President of National Initiatives at the Texas Public Policy Foundation. He was a California Assemblyman and is a Lt. Colonel in the U.S. Army Retired Reserve.