Trump’s infrastructure plan unpicked

Donald Trump finally unveiled his plan for reforming and investing in US infrastructure in February. But will it bring the big lift in delivery needed? Jon Masters weighs the odds.

On paper Donald Trump’s new infrastructure plan appears bold and based on a lot of common sense. Its central premise, for generating the big uplift in dollars needed for the United States’ transportation, water and energy networks, is pump-priming federal funds to attract state and private sector investment. The amount promised is $200bn over ten years, with the aim of this garnering a total of “at least” $1.5tr for the nation’s infrastructure.

The plan lacked impact, only because its central idea was much consulted and then the draft leaked in the run-up to publication in February. This came after Trump’s business-friendly tax reforms and cuts elsewhere in the overall federal budget for an administration focused on reducing the nation’s debt pile.

US infrastructure has been funded by a general 80/20 split of federal to state spending. Trump wants to reverse that. His plan includes $100bn of facilitating grants, which come with the caveat that they can only contribute only 20% of project funding. There were few surprises in the infrastructure plan. Now the central questions are over whether it can bring about the desired effect.

The need

Analysis by the American Society of Civil Engineers (ASCE) in 2016, put the US infrastructure spending gap for 2016-2025 at $1.4tr if funding continues at current levels across all sectors, against a total need of $3.3tr. According to ASCE’s 2016 Failure to Act report, the costs of not reversing the deficit will be a $4tr loss in GDP and 2.5 million jobs by 2025, with every household losing $3,400 in annual disposable income.

The ASCE publishes score cards every four years on the condition of US infrastructure, gathered from scores submitted by every state across 16 different categories. This has become an often-quoted state-of-the-nation measurement, particularly for politicians as they lobby for increased spending. The 2017 Infrastructure Score Card gave an overall D+ ‘poor and at risk’ rating due to backlogs of maintenance.

In advance of Trump’s infrastructure plan, ASCE and the US Chamber of Commerce called for a strengthening of all existing federal infrastructure loan programmes, of which there are at least 13, including the Highway Trust Fund and similar for dams, waterways, harbours, rail and drinking water.

The Chamber of Commerce made four key recommendations for US infrastructure. In addition to strengthening and expanding loan programmes (to encourage public private partnership projects), it called for an increase to the federal fuel user fee - the national gas tax - plus streamlining of the permitting (planning consents) process and expansion of the workforce.

Echoing others including ASCE, the Chamber of Commerce has lobbied for an additional 25 cents on the national gas tax, which is the primary source of funding for the federal Highway Trust Fund and has stayed at 18.4 cents on petrol and 24 cents on diesel since 1993.

The Highway Trust Fund has diminished by about 40% as inflation has risen and receipts lowered due to greater fuel efficiency and the rising popularity of hybrid and electric vehicles. The non-partisan Congressional Budget Office has estimated a further $121bn is needed between 2021 and 2026 just to maintain current maintenance of the Interstate Highway System.

Speaking at its Infrastructure Summit in January, the chamber’s president and CEO, Thomas Donohue, said: “By a 22-point margin - 50 to 28 - voters support implementing a federal fuel user fee, provided the money will go toward modernising our infrastructure. And I am not surprised voters are willing to contribute to this investment. Increasing the fee by a total of 25 cents, indexed for inflation and improving fuel economy, would raise $394bn over the next 10 years.”

States add their own tax on top and according to the Chamber, 39 of them have increased levies on fuel since the national rate was last increased. “Not a single state lawmaker has lost their seat for supporting a gas tax increase,” Donohue said. Nationally, however, the gas tax appears too hot an issue for Congress. Trump has reportedly indicated he would support such a rise, but it wasn’t included in his December tax reforms.

The reaction

Responses were predictably mixed in the aftermath of publication, for an infrastructure plan that New York Democrat congressman Jerrold Nadler described as a “scam that would put most of the burden for funding our infrastructure on commuters and cash-strapped sates”. The Senate minority leader Charles Schumer said the plan would place “unsustainable burdens on local government and lead to Trump tolls all over the country”.

Republicans were understandably more supportive. A White House spokesman had described the plan as “the start of a negotiation - a bicameral, bipartisan negotiation - to find the best solution for infrastructure in the US”; pointing to the substantial barriers the plan has to hurdle before a bill is passed. Reports in the days after the plan was unveiled painted a picture of Democrats opposing on principle and some Republicans being wary of the fact that it still needs funding by pinching from other pots.

Nonetheless, among those speaking in favour was Indiana Republican senator Todd Young: “By streamlining onerous permitting regulations, empowering states to invest in their own infrastructure priorities and significantly investing in rural America, this proposal is welcome news for Indiana as we work to ensure our state is equipped for the jobs of today and tomorrow.”

Others urged the US lawmakers on Capitol Hill to just get on with it. Over the past decade US infrastructure has been characterised by spending plans stymied and stalled and existing bills extended rather than new ones enacted. “The plan released is an important first step, but Congress must also find a solution to shore up federal transportation trust funds,” said AECOM’s chairman and CEO, Mike Burke. “Inaction is not an option. Congress should proceed with a sense of urgency to advance our national economy and improve the standard of living for all Americans through modern infrastructure,” said Burke.

The ASCE’s managing director of government relations and infrastructure initiatives, Brian Pallasch, was remarkably sanguine, given that hopes for a significant federal spending commitment have been dashed. “The $200bn over ten years is not enough and the big funding gap in the report card won’t all come from the private sector, but existing programmes that work well stand to be strengthened and the legislative process has started,” Pallasch said.

“Trump has even stated that he’ll support a gas tax rise, which no other US president has been willing to do in 20 years, so he’s showing a moderation of courage at least and there are other positives, such as plenty of big equity investors waiting in the wings. Meanwhile a lot of states are working on stuff and finding their own way of raising funds and there’s no shortage of projects that can use the money,” he said.

The plan essentials

  1. Infrastructure Incentives Programme: $100bn to be administered by the US Department of Transportation, Army Corps of Engineers and Environmental Protection Agency. State applicants for funds will be scored on how much non-federal funding they can commit to construction and lifecycle costs, evidence of efficient approaches to procurement, delivery and technology, plus social and economic returns. Incentive funding cannot exceed 20% of the total to be raised. 
  2. Rural Infrastructure Programme: $50bn to be distributed to states for rural infrastructure projects based on a formula of rural population and lane miles of roads. 
  3. Transformative Projects: A $20bn programme for supporting ‘bold, innovative and transformative infrastructure projects’. Applicants will compete for funds for schemes that are commercially viable, but too technical or risky for attracting private investment. 
  4. Infrastructure Financing: $20bn to bolster existing federal funding programmes; including expanding TIFIA for transportation and broadening its application to ports, waterways and airports; strengthening the RRIF fund for mainline rail and subsidising credit risk insurance premiums to encourage local rail applications; expanding WIFIA for water and brownfield clean-up; extending tax exemption regime of Private Activity Bonds for public-private finance projects. 
  5. Additional provisions: relaxing rules preventing tolling on interstate highways; demanding value capture financing as a condition of transit (public transport) funding; eliminating constraints on PPP transit schemes; greater allowance of airport privatisation; allowing federal funding for privately owned water projects. 
  6. Permitting reform: proposing a new and faster regime with a deadline of 21 months for lead agencies’ environmental review decisions; with greater delegation of decisions to states and judicial reform of permitting.