President Trump’s call for $1 trillion in federal public infrastructure investment over the next decade appears as close to fruition as the Great Wall between our southern border and Mexico. His promise to rely on private sector funding rather than municipal bonds for a massive public rebuilding effort appears to have foundered, even as the national debt has accelerated, posing increased threats to the cost of state and local financing of public infrastructure. There is no such plan in the House or Senate-passed tax bills now hidden in conference, even though the President vowed in a speech after the budget roll-out in May that: “Working with states, local governments, and private industry, we will ensure that these new federal funds are matched by significant additional dollars for maximum efficiency and accountability.”

There has been no such effort by the White House to work with the nation’s state and local elected leaders. Instead, the federal government is awash with new debt—a generation of debt likely to further push up interest rates and further undercut state and local reinvestment in the nation’s public infrastructure.

Frank Shafroth
Frank Shafroth

In a year in which the American Society of Civil Engineers, in their Infrastructure Report card, awarded the federal government a D-plus, the House of Representatives, in its version of federal tax reform, even eliminated private activity municipal bonds and advance refundings: lumps of coal for Christmas stockings.

In his pre-holiday promise to facilitate the logjam in federal approvals and provide a single “point of contact to deliver ‘yes or no’ for the entire federal government,” and accelerate the process, Trump even promised to fill Christmas stockings with a new federal council charged with assisting and accelerating federal approval of state and local infrastructure projects. But that will be a promise un-kept; instead, the White House now indicates that its long-delayed public infrastructure initiative will be proposed next month, as administration officials rush like Christmas elves to bandage together a $1 trillion road-and-bridge-building plan. The emerging proposal would propose direct federal spending of at least $200 billion, offset by cuts in other programs affecting state and local governments. The idea is that such federal grants would leverage hundreds of billions in state and local investments even as federal aid to state and local governments, overall, would be reduced.

Left unclear, as Congress’ Joint Committee on Taxation has exposed just how much further in debt the federal government will be in the wake of the federal tax reform package, is from whence the fiscal resources would surge. With the fastest growing part of the federal budget now dedicated to paying interest on the national debt—and Congress on the verge of agreeing to a “tax reform” package which, unlike the bipartisan 1986 Tax Reform Act, is projected to increase the federal deficit by more than $1 trillion—how much hunger might there be in such a partisan Congress to beggar the nation’s fiscal future? State and local leaders, in issuing debt, are singularly focused on how any such debt will be financed. Only in Rod Serling’s Twilight Zone is there imagining that Members of the House and Senate who care about the nation’s fiscal future would willingly mortgage the country’s fiscal future. Or, as Maine’s Senator Susan Collins last July put it: “It’s just incredibly irresponsible.”

So, even as the President’s advisers have laid out dozens of pages of “principals” for federal investment in the nation’s public infrastructure, the emerging final tax reform package has already eliminated some of the proposed options. And the House tax reform version has gone so far as to propose elimination of private activity state and local bonds. While some Trump administration officials have asked Santa to preserve private activity bonds, perhaps by limiting permitted uses to infrastructure, that could well turn out to be a bridge too far.

In his speech, the President stated: “We are here today to focus on solving one of the biggest obstacles to creating this new and desperately-needed infrastructure—and that is the painfully slow, costly and time-consuming process for getting permits and approvals to build…My administration is committed to ending these terrible delays once and for all. The excruciating wait time for permitting has inflicted enormous financial pain on cities and states—and has blocked many important projects from ever getting off the ground.”

But, subsequently, the President reported to Congress he was abandoning a key element of his planned $1 trillion infrastructure package, complaining that some partnerships between the private sector and federal government simply do not work, after, earlier in the summer, promising to include “massive permit reform” in his $1 trillion infrastructure package as a way to speed up the lengthy construction approval process. He blamed that process for getting in the way of efforts to repair the nation’s public infrastructure. The President’s comments, described by a House Democrat who met with him, appear to indicate that there is, in fact, no Trump infrastructure plan. Rather, it appears that the White House is, instead, passing the buck to state and local leaders to assume responsibility and leadership with regard to the capital financing of the nation’s roads, bridges, water and sewer projects, airports, and other public infrastructure vital to the nation’s economy, even as it proposes to undercut state and local authority to issue some kinds of municipal bonds important to such capital finance. Instead of White House leadership in rebuilding America, the administration wants to force states and local governments to foot most of the bill.

In a speech at the U.S. Department of Transportation headquarters, the President claimed his goal had been to bring the approval process from as long as 10 years down to two years, while providing “one point of contact to deliver ‘yes or no’ for the entire federal government.” In his remarks, wrapping up a weeklong infrastructure push intended to build support for his promises to rebuild the nation’s roads, bridges, and other public works, the President noted: “My administration is committed to ending these terrible delays once and for all. The excruciating wait time for permitting has inflicted enormous financial pain on cities and states—and has blocked many important projects from ever getting off the ground.”

Now, excruciating months later, that plan could well be with Rod Serling in the Twilight Zone, with Congress nearing agreement on a so-called federal tax reform plan that is projected to increase the federal debt by nearly $1.5 trillion while capping or eliminating the deductibility of state and local tax. That plan represents a significant revenue shift from state and local governments to the federal government, offset by not just pressure to increase state and local taxes and fees, but also higher costs to issue municipal bonds vital to financing the nation’s public infrastructure. That is, in what might well be best understood as a ‘shift and shaft,’ state and local taxpayers are likely to be smote particularly hard not only by the decisions to limit the deductibility, but also by the vast increase in the national debt. That will force up the costs of borrowing—costs which will not just impact state and local costs of financing the nation’s public infrastructure, but also force cities, towns, counties, and states to impose tax or fee increases. The proposals are especially worrisome for public school districts, cities, and counties, because the proposal to limit the deductibility of state and local taxes could take away home ownership incentives. Such a takeaway could lead to a drop in assessed property values, putting state and local leaders between a rock and a hard place. The plan also would lead to fiscal discrimination, because the proposals propose a double standard whereby the White House and Congress would take away deductibility for individuals, but leave it for businesses.

One hundred sixty-nine years ago, in one of our nation’s municipal cradles, 300,000 citizens from all over New England gathered on Boston Common. They gathered not to take up arms against the Redcoats, but rather to celebrate the completion of the city’s first municipal water system—a system that was the product of physical and fiscal innovation to finance the construction and operation of an aqueduct that brought fresh water 15 miles from Lake Cochituate in Natick to Boston. For the first time, the city had access to a pure supply of water for drinking, bathing, cooking, and cleaning.

Now, as the new year looms, and as President Trump and Republicans in Congress seek to cut federal taxes, that kind of commitment to critical public future seems very much at risk.

Frank Shafroth

Frank Shafroth

Frank Shafroth is director of the Center for State and Local Leadership at George Mason University.