Trump and Clinton pledge billions to fix US infrastructure
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With both pledging to invest billions to fix the USA’s infrastructure, just how much good can Donald Trump’s and Hillary Clinton’s plans actually do?
About the only thing the leading 2016 US presidential candidates agree on is that the country’s infrastructure is in a desperate state. Democrat Hillary Clinton describes the problem as “a national emergency” and Republican Donald Trump opines that “our house is falling down”. If elected, both promise to pour billions of dollars into repairs and maintenance running the gamut from potholes to kindergartens, into upgrades for ports and airports, and even into funding that very un-American concept, public transport. This spending would be spread over 16 categories of infrastructure as defined by the American Society of Civil Engineers (ASCE).
The society has given a cautious welcome to both candidates’ budgetary proposals. That is not entirely surprising since they do not fall far short of ASCE’s own estimates.
In its 2013 American Infrastructure Report Card, the society concluded that the US needed to invest $3.6tn by 2020 to bring infrastructure up to scratch. Based on likely capital spending levels however, it warned of a $1.6tn shortfall - or about $201m annually over the eight years covered by the report. The overall grade ASCE therefore awarded was a poor D+.
“We will build the greatest infrastructure on the planet Earth - the roads and railways and airports of tomorrow.”
Clinton proposes an extra $55bn a year in federal spending on infrastructure over five years and the establishment of a National Infrastructure Bank to tap more private-sector funding. All this would be put in train during her first 100 days in office (it is important to remember that this is federal money, while most US infrastructure is owned and maintained by the states).
“A big part of our plan will be unleashing the power of the private sector to create more jobs at higher pay,” Clinton has argued. “And that means for us, creating an infrastructure bank to get private funds off the sidelines and complement our public investments. $25bn in government seed funding could unlock more than $250bn and really get our country moving on our infrastructure plans.”
Trump has repeatedly called for a “trillion-dollar rebuilding plan”, with $500bn of that in federal seed funding. “But we are going to look boldly into the future. We will build the next generation of roads, bridges, railways, tunnels, seaports and airports. That, believe me folks, is what our country deserves,” he has said.
He has less to say on specifics. So rather than disagreeing on policy with Clinton, Trump’s approach is to go much bigger. “Her number is a fraction of what we’re talking about. We need much more money to rebuild our infrastructure,” he told the Fox Business Network. “I would say at least double her numbers, and you’re going to really need a lot more than that.”
“We have seen a lot more on policy from Secretary Clinton so far, but for us one positive aspect is that you have candidates from both parties who appear to understand not just the problem, but also its scale,” says Brian Pallasch, ASCE’s managing director of government relations and infrastructure initiatives.
Yet there is one nagging question. Even taking both proposals at face value and then assuming the politicians meet their revenue targets, is the task still beyond either of them?
According to Liz McNichol, a senior fellow at the Centre on Budget and Policy Priorities think tank, US state and local governments own more than 90 per cent of non-defence public infrastructure assets and meet about 75 per cent of the cost of maintaining them. The federal government in Washington helps with original costs, but it is clear where the burden lies.
Last year, President Obama’s administration did get the five-year $305bn FAST (Fixing America’s Surface Transportation) plan through Congress, but it was soon criticised over how effectively it distributed money at local level.
For example, several analysts noted how the federally-managed TIFIA (Transport Infrastructure Finance and Innovation Act) scheme that provides cheap credit for local transport projects had seen its loan threshold lowered to expand eligibility but also had its total funding cut from $1bn to nearer $250m.
This illustrates a long-standing Washington weakness on infrastructure, although the federal government, while important, is not the only player.
“With interest rates at historically low levels, they [state and local governments] can secure private-sector loans or issue long-term bonds to fund projects,” says McNichol. “Longer-term instruments also help address the ‘fairness’ issue [over who pays and when] by spreading the cost of a project over more of its useful life.”
Promoting such a privately-led approach to infrastructure seems to be what Clinton has in mind with her proposal for a national bank, but McNichol says it may face some cultural issues.
“In a lot of state capitols and a lot of city halls, there is a big fear of debt,” she says. “If we saw debt go back to where it was before the recession, it would release about $400bn that could go toward infrastructure. But the people running local government need to feel it is safe for them to now take that on.”
McNichol believes that confidence-building can be done. However, imagine if Washington opened a new infrastructure bank, but its turnover failed to meet expectations.
“The heart of my plan will be the biggest investment in American infrastructure in decades.”
For her plan to work, Clinton will need to invest heavily in both administering the money flow and outreach to make sure the customers turn up. Her programme cannot simply be a top-down act. Trump will face similar challenges.
A massive number of shareholders and stakeholders will need convincing, all with competing claims and counter-claims. That process would not be confined to finance.
The broader lobbying and regulation surrounding any major US infrastructure project are further complicating factors, particularly given how Washington’s role is viewed.
As a property developer, if there’s one thing Donald Trump hates, it is red tape. His battle plan there is of the slash-and-burn variety. “It is estimated that current over-regulation is costing our economy as much as $2tn dollars a year - that’s money taken straight out of cities like yours,” Trump told the Detroit Economic Club. “I will ask each and every federal agency to prepare a list of all of the regulations they impose on Americans which are not necessary, do not improve public safety, and which needlessly kill jobs. Those regulations will be eliminated.”
Philip Howard is one of the US’s leading voices on legal reform and chairs the similarly-themed Common Good coalition. A frequent bugbear for both Howard and his organisation is how US infrastructure projects often get enmeshed in red tape.
One example he frequently cites is the Bayonne Bridge ‘Raise the Roadway’ project. Its economic objective is sound. The bridge connects New Jersey and Staten Island, NY, and raising its clearance will allow the new generation of larger Panamax container ships to pass easily into Newark Bay.
This is being achieved by building a new roadway above the existing one and removing the original. The bridge’s existing foundations and rights-of-way were carefully integrated into the design so that it would arguably have no significant environmental impact.
Yet, as Howard points out, there was a five-year pre-project review that resulted in a 20,000-page environmental assessment. Even after Bayonne’s approval, the project was then challenged in court by groups who thought the assessment insufficient.
Robert Puentes, CEO of Eno Centre for Transportation and senior fellow at the influential Brookings Institution think tank, says: “Increasing complexity is common to infrastructure projects everywhere. It makes the funding models more complex, the ownership more complex and the regulation more complex.
“If you’re asking about red tape specifically, the comparison that comes to mind is Germany. It has a federal structure and, from what I hear, a very strong environmental lobby. Yet it seems capable of moving forward much more quickly with major infrastructure investments. We should be asking ourselves why.”
Regulation matters not only because it can delay the delivery of economic benefits from new or improved infrastructure but also because of its influence over whether that infrastructure gets funded to start with. And when Americans think regulation they tend to think of the Feds.
One school of thought holds that US infrastructure has been allowed to decay so badly because of an ideological fetish for minimal taxation. There is some truth here, but the reality is more complicated.
At one level, it was noted that in passing last year’s FAST bill, both the White House and Congress indulged in a lot of financial sleight-of-hand to direct more funds towards highway maintenance without increasing the federal gas tax. In fact, that tax - currently 18.4c a gallon - has lain untouched since 1993.
Economist John Rennie Short points out the mathematical consequences: “The current 18.4c tax on every gallon of gasoline... now brings in close to $30bn a year, but Congress spends almost $50bn on road projects. We need to almost double the gas tax just to pay for existing projects.”
On the macro scale, federal infrastructure spending has fallen from 1.0 per cent to 0.5 per cent of GDP in the last 35 years.
“More states are having to take things into their own hands. The big example that contrasts with Washington is that we are seeing states, Republican and Democrat, increasing state gas taxes without public opposition when they make it clear the investment will go toward infrastructure,” says Puentes. “We’re seeing some introduce novel funding models, such as road-pricing schemes.”
Significantly, most states that recently raised fuel taxes have Republican governors: in all, seven of the eight that did so in 2015. Six of those seven Republican governors were working with state assemblies also controlled by their party.
There is a powerful bloc within the Republican Party that will seek to ‘punish’ any of its elected officials who vote for any tax hike. Yet, the American Road and Transportation Builders Association (hardly a left-wing lobbying body) notes that 287 of the 293 Republican governors and state legislators who have faced primaries in their seats since voting in 2015’s gas tax increases have been reinstalled - that’s 98 per cent. Why is there such an apparent disconnection?
Many a dissection of how US politics functions finds its way back to the phrase popularised by Tip O’Neill, the Reagan-era Speaker in the House of Representatives. Infrastructure is a good example.
“It is a very difficult concept for people to understand. It is very broad and when problems with the infrastructure start having an effect on you, you might not notice,” says ASCE. “For example, your commute has been getting a couple of minutes longer every year. You don’t react to each increase, although you might eventually realise that what used to take 20 minutes is now taking 45, and think, ‘We need some action here.’”
In many cases, a local scandal will suddenly focus broader attention on the issue. Sadly, the US has had too many of those in recent times: Hurricane Katrina’s devastation of the Gulf Coast; a fatal train crash on Washington DC’s Metro; the lead-poisoning of children in Flint, Michigan following a switch to a substandard water supply, to name but three.
In others, though, such as in the case of traffic congestion around Washington DC and up along the East Coast, people do eventually get fed up, prompting demands for local action.
In this context, wider popular opposition to federal increases in the gas tax to fund infrastructure appears to hold, even though Gallup reports that 75 per cent of voters back higher ‘government’ spending in related sectors.
Washington, as a political entity, is not trusted. It is seen as the source of red tape that can delay projects and even render them unviable. Allowed to control the vast sums needed to upgrade US infrastructure, many voters believe the politicians in the Capitol and White House will find ways to earmark funds for friends’ ‘pork barrel’ projects.
At state level, by contrast, the relationship between how revenues are raised and how they are spent can be more closely controlled (though not perfectly).
“You have to be careful about saying that this is a Washington issue,” notes Eno’s Puentes. “A lot of money has been going from the federal government into infrastructure in the last few years as part of the economic stimulus, so that has raised its profile, raised its role. Yet most of the key decisions and innovation is taking place at a much more local level. It has to.”
McNichol agrees that there is a danger here. “The challenge has always been about how you get the federal funds to the local level, to the point-of-need.”
The conclusion is easy enough to draw. Clinton’s and Trump’s numbers look good, but what neither has yet outlined is how they will get those funds into place, how those projects will be chosen and by whom.
A better bellwether of how the US will tackle its infrastructure crisis may well lie in the slew of votes that will accompany the Presidency vote. Many of those will take you closer to the people who will ultimately sign the cheques.