July | August 2017







Infrastructure Week Previews Transportation Funding and Finance in the Trump Era

By Sean Slone, CSG director of transportation & infrastructure policy
Just days before President Donald Trump issued his 2018 budget proposal with a list of principles for his infrastructure initiative tucked inside, his Secretary of Transportation Elaine Chao previewed those principles at an event on May 15 to kick off Infrastructure Week activities in Washington, D.C.
“Currently less than one-fifth of all infrastructure spending is federal,” said Chao during the event at the U.S. Chamber of Commerce. “The rest comes from state, local and private sources. This administration wants to retain the primacy of state and local spending and use federal funding as leverage to increase the total amount of funding available for infrastructure.”
In a fact sheet released May 23 by the White House, the president outlined infrastructure principles including encouraging “self-help.”
“Localities are better equipped to understand the right level—and type—of infrastructure investments needed for their communities, and the federal government should support more communities moving toward a model of independence,” the document reads.
Chao described how the new approach to federal funding might work in practice.
“States and localities that have secured some funding or financing of their own for infrastructure projects will be given higher priority access to new federal funds,” she said. “And the goal is to use new federal funding as an incentive to get projects underway and built more quickly with greater participation by state, local and private partners. This approach is in line with studies that show that federal spending often substitutes (for) rather than augments state and local funding on infrastructure.”
Other public officials on hand for Infrastructure Week seemed to recognize that a paradigm shift in how federal transportation dollars are deployed is underway and has been for some time.
“The days of a state or a city showing up here with an empty hat and thinking you’re going to have a single dollar in that hat when you leave are over,” said Los Angeles Mayor Eric Garcetti. “But if you come with a hat that’s half filled—trust me, this has happened in the last four years with a Republican Congress and a Democratic president—you can leave with that hat filled all the way to finish your project.”
Another of the president’s key principles for infrastructure investment that has already received significant attention is leveraging the private sector and making use of public-private partnerships, or P3s.
“The private sector can provide valuable benefits for the delivery of infrastructure, through better procurement methods, market discipline, and a long-term focus on maintaining assets,” the infrastructure initiative fact sheet reads.
Maryland Democratic Congressman John Delaney, who spoke at a May 18 Bipartisan Policy Center, or BPC, event, estimates that P3s could be used to tackle between 10 and 20 percent of the nation’s infrastructure needs. Right now, they are used for just 1 to 2 percent of infrastructure projects.
“I believe public-private partnerships are an incredibly important part of our infrastructure solution and they should be central to our infrastructure strategy but … they only apply to certain types of projects,” Delaney said. “Typically projects that have revenue streams (such as tolls) are well-suited for public-private partnerships.”
Chao said it is a distinction the administration understands.
“Everyone recognizes that there is no one-size-fits-all revenue model for infrastructure projects,” she said. “Toll roads, for example, may work well in urban areas where they generate consistent revenue because of high traffic and high demand. But lower demand on rural roads may not generate enough revenues to repay private investment. This administration is committed to an infrastructure package that addresses the needs of the entire country—urban and rural.”
Chao pointed to P3s involving availability payments, which she said could be used on some projects where tolls wouldn’t work.
“In this model, a government entity contracts with the private sector to build, operate and maintain a piece of infrastructure,” she said. “In return, the contractor receives payments from the government over a specified period of time provided that certain milestones and targets are met. Using this approach, the government doesn’t have to bear the full costs of infrastructure up front and the risk to both the private and the public sector is mitigated.”
Michael Bonini, who directs the Public-Private Partnerships Office at the Pennsylvania Department of Transportation, knows something about availability payments. With the Pennsylvania Rapid Bridge Replacement Project, the commonwealth has incorporated the payments into a P3 deal with private-sector partner Plenary Walsh Keystone Partners to replace 558 structurally deficient bridges in just four years as opposed to the 10 to 15 years it would have taken otherwise.
“We will pay a monthly availability payment for each and every one of those 558 structures over the term of the design, construction and ultimately the maintenance portion of the job and those availability payments are tied to performance metrics,” said Bonini at the BPC forum. “We think we’ve put a pretty good structure in place that could be used as a model elsewhere when you’re looking at bundling assets together and providing long-term maintenance performance over a specified period of time.”  
Prospects for an Infrastructure Plan in 2017
While many in Washington for Infrastructure Week were optimistic about an infrastructure investment package taking shape this year, many factors will have to fall neatly into place. Some are hopeful that tax reform could be a vehicle to make it possible.
“If you want to do anything transformative around infrastructure, it has to be done as part of tax reform just definitionally because you need money and the only way to really have any money to invest is to do it as part of tax reform,” Delaney said.
Specifically, Delaney and others have proposed tackling international tax policy and doing something called repatriation to produce revenues necessary to fund an infrastructure package. He said more broad-based, comprehensive tax reform is too much of a heavy lift because of an unbridgeable ideological divide over how much wealthy Americans should pay in taxes.
“Whereas the international tax system, which is encouraging all this cash to be entrapped overseas … has a whole different set of issues associated with it,” he said. “It has issues of deferral—in other words, letting companies defer paying their taxes if they keep their cash overseas, which is bad policy—and it has kind of a double taxing effect that makes U.S. companies not particularly competitive. What I’ve proposed to do … is to basically end deferral, reduce international corporate (tax) rates, which will generate revenues for the government, create pathways for that cash to come back to the United States and make U.S. companies more competitive. Pair that with infrastructure and then you get a bipartisan deal that can get done.”
Regardless of the legislative path an infrastructure plan might take, public officials say reaching consensus will require a recognition that a variety of solutions and tools may be necessary.
“Republicans, stop thinking you can do all this through leverage; Democrats, stop thinking you can do this all through grants,” Garcetti said. “We need both. If you’re going to be absolutists about this, it’s going to go the way of the health care fight where people just go in their camps and try to muscle it out with most people being upset.”
Fortunately, infrastructure is one of the few areas left where bipartisan consensus may still be possible, said Utah Speaker of the House Greg Hughes, another panelist at the Infrastructure Week kick-off.
“Wouldn’t it be great … to show your constituents that you can build trust and work together and … that you’re moving the needle,” he said. “If there is any space in politics where that can occur and where the overlap in low-hanging fruit is the greatest and its impact to our communities would be the greatest, it is this very space here.”
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