WASHINGTON – State officials and transportation experts have an increasing number of questions about President Trump’s infrastructure initiative as details of the plan slowly trickle out.
During the presidential campaign, Trump announced a $1 trillion, 10 year infrastructure initiative that would rely on tax credits to attract private investment.
The president’s fiscal 2018 budget request last month showed $200 billion of federal infrastructure funding spread out over nine years, with only $5 billion provided in fiscal 2018 rising to a peak of $50 billion in fiscal 2021 and then dropping after that through fiscal 2026. Trump also proposed eliminating community block development grants and other programs that provided funds for infrastructure projects.
On Wednesday, the president said state and local governments would have to provide matching funds to get the federal funding, but did not provide details. On Thursday, the White House released a Rebuild America’s Infrastructure chart showing that $100 billion would be used for local prioritization of infrastructure needs, $25 billion would be used for rural infrastructure, $15 billion for “transformative” projects.
One big question is how the administration will pay for the infrastructure initiative and to what extent there will be a role for tax-exempt bonds, if any, in the plan. Tax-exempt bonds have been states and localities primary means of financing infrastructure. Uncertainties about Trump’s plan may cause governments to hold off on projects.
Disinvestment in infrastructure, rather than new investment, will be the short-term outcome, said Frank Shafroth, director of the Center for State and Local Leadership at George Mason University.
Shafroth said the tax reform plan being developed by the White House could jeopardize the tax exemption for municipal bonds and the deductibility of state and local taxes.
Until there’s clarity about taxes, many risk adverse states and localities won’t undertake new infrastructure projects, Shafroth predicted.
“It’s just an apparent lack of appreciation and understanding how state and local governments, and public school systems and universities do infrastructure finance in this country,’’ Shafroth said. “Moreover, this is a proposal that is absolutely unclear how it’s going to be paid for.’’
Ben Watkins, Florida’s director of bond finance, echoed Shafroth on the priority of maintaining the tax exemption for municipal bonds. “If you screw that up, it doesn’t matter what you do to try to enhance that,’’ he said.
In addition, Watkins said the federal infrastructure plan must be additional money and not a replacement for other federal infrastructure support.
Transportation financing consultant Jack Basso of Peter J. Basso & Associates LLC, and a former chief operating officer of the American Association of State Highway and Transportation Officials, said, “There’s still no explanation of how the administration wants to pay for the $200 billion of offsets. That’s not real clear. If they try to do that now, it would be very difficult to do without raising the deficit.”
Tax reform, which has been stalled in Congress by the wrangling over health care, is the most likely vehicle for the offsets needed for additional federal infrastructure funding, Basso said.
Basso said he remains optimistic about passage of an infrastructure program this year. But if it doesn’t happen this year, it is not likely to happen next year.
“I think it’s about 60/40 that it can be done in 2017,” Basso said. “The reason is that infrastructure truly is a bipartisan issue and popular with both parties. But if it isn’t accomplished now, that would push it into the 2018 election cycle and then good luck with that. It would be highly problematic.”
Another big question is how much states and local governments will have to pay to match federal infrastructure funding.
Requirements for state and local governments to put up some of their own funds to get federal funding is not uncommon, said both Scott Pattison, executive director and CEO of the National Governors Association and Basso.
“That’s pretty normal, but the real question is what is the match going to be,” said Basso. “If it’s an 80/20 split, that’s doable. If it’s 50/50, then it could be a heavy lift.”
“I think where the nuance starts in, at the federal level there has to be the understanding that the resources are more limited,’’ said Pattison.
“You can put a lot of proposals in, but if we don’t have the money to match because the match is too high or whatever, it’s not going to happen,’’ he said.
“Most local money very heavily goes to K through 12,’’ the NGA executive director said. “And then at the state level it’s K through 12 and Medicaid healthcare. Their budgets are more tight than is appreciated in Washington, D.C. They would love to have more money, but they don’t.’’
Some states and localities may not participate, said Pattison. “There may be a poor county, or city or state. They may not have a significant tax base. They may be under statutory limitations on how much they can raise. There are all kinds of ways in which their resources are more limited.’’
Additionally, many governors have questions about the Trump administration’s proposal to slowly ramp up the $200 billion in federal spending. The White House budget calls for only $5 billion for new infrastructure in the 2018 fiscal year that starts on Oct. 1 of this year, then $25 billion in fiscal 2019. Federal spending would rise to $40 billion in 2020, peak at $50 billion in 2021 and then ratchet down to $40 billion in 2022.
But economic growth in many states has slowed below the national GDP rate, according to Pattison. The Commerce Department’s Bureau of Economic Analysis reported in May that first quarter gross domestic product grew by 1.2%. Trump’s plans, however, are based on an assumption of 3% GDP growth.
Another question is what role tolling and public-private partnerships will play in Trump’s plan.
When President Trump talks about private investments in public infrastructure, that means tolls, said Stephanie Kane of the Alliance for Toll-Free Interstates.
“Privatizing our infrastructure through public-private partnerships will not solve our transportation problem,” she said.
“Tolls will not fill our infrastructure deficit because tolls rob everyday drivers to line the pockets of Wall Street and international investors,” Kane said. “Tolls are the worst funding mechanism available and are a highly inefficient use of funds.”
Earlier this year, it seemed that infrastructure might be the one area on which Republicans and Democrats could agree, but that no longer seems possible.
Most Democrats are opposed to Trump’s infrastructure plan, said Rep. Jamie Raskin, D-Md., a member of the Congressional Progressive Congress. The CPC has proposed a $2 trillion infrastructure plan.
“I have not heard a single colleague say that he or she was remotely tempted by this scam plan that Trump is putting out there," Raskin said during a conference call on Wednesday after Trump asked in his speech for cooperation from Democrats on the plan.
“The President’s plan is a recipe for Trump tolls from one end of America to the other,” Senate Minority Leader Chuck Schumer, D-N.Y., said Tuesday. “That’s not what the American people are crying out for. They don’t want more tolls. They want us to rebuild our crumbling water systems, bridges, and schools – not finance new toll roads.”
“”Unfortunately, the President surrounds himself with bankers and financiers, these are folks who used to work in investment banks,” Schumer continued. “They look at infrastructure as an investment to be made by corporations in the private sector.”
“If the President truly wants to rebuild our nation’s infrastructure, he needs to approach this issue in a bipartisan way,” Schumer added. “There are several Republicans who don’t want the federal government to spend any more money on infrastructure, but the majority of Senators probably do. The President needs to sit down with Democrats and work something out if he wants to get something done.”