Infrastructure Report: Donald Doubles Down (Aug. 5)

Mike & Co.,
This Tuesday, Donald Trump announced his intention to seek to improve the state of American infrastructure with an investment of over half a trillion dollars, financed through a bond program.  The lack of details stands in contrast with HRC’s highly developed infrastructure agenda, which features an investment of $275 billion, including an infrastructure bank and a revitalized and strengthened bond program.

Below is a recap of HRC’s infrastructure proposals, followed a comparison with what is known about Trump’s current plan and a look at California’s ambitious infrastructure investment program, which serves as an instructive model for national infrastructure modernization.

Good weekends, all.



Present State of U.S. Infrastructure

In 2013, the American Society of Civil Engineers gave the United States a D+ rating in its four-year review of the country’s infrastructure.  The ASCE cited several significant problems, such as a backlog of deferred maintenance of infrastructure systems and a “pressing need” for modernization.  The ASCE estimated that the U.S. would need to invest $3.6 trillion by 2020 to make the necessary improvements to upgrade the infrastructure system.

Water-related projects, including levees, dams, inland waterways, wastewater and drinking water projects, account for some of the worst evaluations.  Transit, aviation, schools, roads, and hazardous waste facilities also all earned D grades.

As of May 2016, the United States has fallen $1.44 trillion short of the necessary spending on infrastructure through 2025.  needed to keep facilities such as highways, bridges, and ports up to date over the next decade, at a cost of $3.32 trillion, but the government has thus far supplied only 56 percent of that amount.  Should the gap in funding not be met, the ASCE forecasted a loss of 2.5 million jobs and $4 trillion in GDP. Americans’ disposable income is impacted as well, as each household will pay approximately $3,400 annually over the next decade due to infrastructure deficiencies.

HRC’s Investment in Infrastructure

HRC has proposed a comprehensive agenda to upgrade American infrastructure.  Federal infrastructure investment under HRC would increase by $275 billion over a five-year period.  The vast majority of that sum, $250 billion, would be channeled into direct spending on public infrastructure, with the remaining $25 billion for a national infrastructure bank.  HRC would also reauthorize President Obama’s Build America Bonds program.

The National Infrastructure Bank would have the authority to provide loans, loan guarantees, and other forms of credit enhancement to finance infrastructure projects.  It would also be allowed to issue “super” Build America Bonds to support state and local investments.  The Bank could be used by local governments and private investors alike.  The Bank would leverage its capital to provide up to $225 billion in additional financing.

HRC’s infrastructure plan would include expanding public transit, especially to low-income communities, providing all American households with affordable internet access, as well as free Wi-Fi for public buildings and transit, and modernizing energy infrastructure, with an eye towards promoting clean energy. HRC intends to increase funding to inspect, repair, and expand hydroelectric capabilities, using new technologies to reduce operations and management over time, helping small and large communities to better manage their budgets.

Her plan also seeks to reduce traffic congestion to lower fuel costs, develop safe, high capacity passenger rail lines, and revitalize the Federal Aviation Administration’s NextGen program to upgrade America’s airports. In addition, HRC’s plan would support and encourage favorable legislation supporting public private partnerships, unleashing the power of the private sector to be an active part of rebuilding our infrastructure.

Fiscal and Economic Impact

HRC has stressed her infrastructure initiative would be fully paid for through revenue-positive business tax reforms. Her full proposal on this financing effort has yet to be released, but she has said her reforms may involve eliminating tax breaks for corporate filers.

The campaign has stressed that the infrastructure plan would “create good-paying jobs” and increase wages.  Of note, the Council of Economic Advisors estimates that every $1 billion invested by the federal government in infrastructure stimulates the creation of 13,000 new jobs.  In addition, every dollar invested in improvements to highways, railways, and bridges results in a $1.60 increase in GDP. HRC’s plan not only proposes practical solutions to one of the country’s greatest challenges, but also provides ideas for how to pay for these changes.  Most importantly, these initiatives represent long-term investments in our country that would help ensure it remains competitive in an ever more globalized world.

Trump’s Counterproposal 

On Tuesday, Trump floated the “details” of his own infrastructure agenda, which would cost approximately $500 billion.  He had not previously previously spoken about his plans in this area during the campaign.  While he never confirmed specifically how much his plan would cost, Trump criticized HRC’s proposal for being “a fraction” of what is needed to address infrastructure concerns in the U.S. and stated the solution needs “at least double her numbers.”

To pay for the infrastructure investments, Trump proposed a low interest rate fund through which investors and the average American could buy infrastructure bonds. Presumably, this process would allow people to invest in the infrastructure fund, which would be used to pay for projects around the country.  The investors would at a later date be repaid the full amount of their investment with a small rate of return.

Trump’s proposal signifies a break from traditional Republican rhetoric on this issue.  The idea of an infrastructure fund has been endorsed primarily by liberal economists.  At the DNC last week, former Clinton Treasury Secretary Larry Summers spoke in favor of infrastructure investments totaling between $1 and $2 trillion over a decade.  Republicans frequently oppose such proposals on they grounds that they would have to be debt financed.

It is hard to see how Trump’s proposed infrastructure investment would square with his stated goal of reducing the national deficit.  HRC would ensure that her program is paid for from day one with revenues that will cover these costs.  Trump would not.

The California Infrastructure Model

In recent years, California Gov. Jerry Brown has supported numerous initiatives to improve infrastructure in his state.  In addition to proposing a $55 billion five-year spending plan for infrastructure, the Governor has endorsed two headline projects: a $68 billion high-speed rail line between Los Angeles and San Francisco, and two conveyances beneath the Sacramento-San Joaquin River Delta to create a more reliable water supply for Southern California, at a cost of $15.7 billion.
Both initiatives, and their pay-fors, have faced controversies.  Numerous methods have been used to finance the high-speed rail project, including bonds, federal dollars, and private investment.  Some in the California legislature support diverting the proceeds from the bonds towards water projects.  The rail initiative is also receiving some funding from auction proceeds from the state’s cap and trade program, a move that has received some controversy.

Though these projects are still in their beginning phases, California could serve as a kind of model for the federal government in terms of implementing infrastructure reforms.  It has the potential to demonstrate how to prioritize, enact, and implement initiatives, as well as suggest potential obstacles at the state and national levels.  The size of California alone, in addition to the nature and scale of the projects, may offer clues as to what sort of initiatives could be feasible for the federal government and what the main challenges might be.

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