#SOTU2018: All Eyes on Infrastructure

In the week preceding President Trump’s first State of the Union address, a leaked six-page document has surfaced that is purported to be the outline of the administration’s long-awaited infrastructure proposal. Days later, Politico reported that White House Deputy Chief of Staff Paul Teller had told a group of conservatives on Capitol Hill that the summary document was “not reflective” of the administration’s final proposal and said that more details would be revealed during the State of the Union address.

Jeff Davis of the Eno Center for Transportation (and editor of the indispensable Eno Transportation Weekly newsletter) broke down program spending, assuming the president’s previously suggested $200 billion in new budget authority holds:

CEI has long opposed so-called “performance-based” discretionary grant programs, pointing out that the selection process is often politically driven and opaque, which results in waste. The Obama administration’s much smaller TIGER program helped fuel the aborted rebirth of American streetcars—a 19^th century transportation technology long eclipsed by the cheaper, faster motor bus and that was inexplicably very popular with gullible transit advocates until the obvious problems became painfully and embarrassingly obvious.The largest program, the Infrastructure Incentives Initiative, is a discretionary grants program that would fund up to 20 percent of selected projects in a wide variety of categories: “surface transportation, airports, passenger rail, maritime and inland waterway ports, flood control, water supply, hydropower, water resources, drinking water facilities, storm water facilities, Brownfield and Superfund sites.”

TIGER and most federal capital grant programs typically fund more than half of total upfront project costs. TIGER currently can fund up to 80 percent of projects in urban areas and 100 percent projects in rural areas, although awards are typically much lower. The Infrastructure Incentives Initiative, in contrast, would only fund up to 20 percent of upfront project costs. This is a welcome change, but the politicized nature of discretionary grants still makes the proposal undesirable. If more federal money is going to be doled out to the states for infrastructure, itself a dubious proposition, the funds should be directed through formula block grant programs, rather than having the feds actively pick winners and losers.

Despite the Trump administration’s misguided call for additional federal spending on infrastructure, there are some bright spots for free marketers in the leaked summary:

• Encourage more infrastructure public-private partnerships (P3s). P3s can reduce taxpayer exposure to project and financing risks while also speeding project delivery and management.
• Eliminating the lifetime cap on private activity bonds (PABs) for transportation projects. Currently set at $15 billion, this nationwide program to reduce the tax advantage of municipal bonds relative to private-sector credit has currently obligated more than two-thirds of that $15 billion. Given that most infrastructure P3s rely on PABs, eliminating the volume cap is crucial.
• Allowing states to toll their own Interstate highway segments. Outside of grandfathered-in turnpikes and a few other exceptions, tolling existing Interstate lanes is generally prohibited. This limits states’ ability to collect revenue from users, prohibits effective congestion management, and makes P3s next to impossible.

These are good developments, as are the expressed commitments of the administration to eliminate unnecessary and redundant regulatory requirements, but libertarians and fiscal conservatives should be wary of any proposal that doubles down on the failed model of federal infrastructure spending. Contrary to its bipartisan boosters, the infrastructure-as-stimulus narrative is largely unsupported by empirical research. Expecting that this time will be any different is almost certainly a big mistake.