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View from Washington: Trump's $1.5tr infrastructure plan sets sail on choppy waters

Concern over public-private partnerships and a federal funding crunch could sink another presidential flagship.

US President Donald Trump will unveil his overdue programme to renew crumbling US infrastructure today (February 12). Many believe it already looks like another White House policy that will struggle to reach its destination.

Huge questions have quickly arisen over the proposed commitment by the federal government. According to press pre-briefings this weekend, the administration is targeting a Washington spend of $200bn (£145bn) over the next decade aimed at seeding $1.5tr in national investment.

Infrastructure has long been majority-funded at state and local government level, but that $1:$6.50 ratio would place a far higher burden outside Washington than before. A rival Democrat proposal, released last week as ‘A Better Deal to Rebuild America’, makes the case for at least $1tr in federal spending alone.

Moreover, the $1.5tr target falls far short of the $4.6tr in medium-term spending demanded in the 2017 Infrastructure Report Card, published last March by the American Society of Civil Engineers.

So why does everything look so far off goal?

One important part of the administration’s thinking has been the promotion of a much wider use of public-private partnerships (PPPs) in US infrastructure to close the apparent funding gap. Their strongest supporter within the administration is Vice President Mike Pence.

However, as the infrastructure plan was finalised in the last few weeks, news broke of the collapse of PPP contractor Carillion in the UK (and since then, there has also been a profit warning from another major UK PPP group, Capita).

This has led some Trump advisors to argue that PPPs should be considered politically troublesome, at least for now. They argue that the initial emphasis on private-sector involvement should shift to an expansion of support for traditional debt instruments, such as bonds.

Then, a further vulnerability is that two existing and high-profile US PPP projects backed by Pence have proved controversial anyway.

While Governor of Indiana, Pence approved a second PPP contractor to operate its portion of the Interstate 90 highway (aka The Indiana Toll Road), even though the previous one had gone bankrupt and independent reports are understood to have recommended taking the road back under state control.

Pence then engaged another PPP firm to undertake a 21-mile upgrade of Interstate 69 in the state only for this consortium to collapse also last August, after his move to the White House.

It is therefore possible that a big ‘Don’t ask, don’t tell’ PPP-sized hole will sit at the centre of the infrastructure plans financing, while the controversial – and arguably otherwise unworkable – 1:6.5 ratio remains constant.

But even if Team Trump does one day work its way past current scepticism towards PPPs, further obstacles remain. The biggest of those is securing the programme’s budget. It is very possible the administration will struggle to get Congressional sign-off on even the $200bn it wants.

When infrastructure was a ‘first 100 days’ issue for Trump, advisors envisaged funding Washington’s contribution largely through huge anticipated savings from healthcare reform. With the ‘repeal-and-replace’ effort having failed, Republicans have been able to do little more than tinker around the edges of Obamacare with far lower returns.

All the same, the party has pushed through a $1.5tr tax cut and, only last week, added $500bn of unanticipated spending to the federal budget to lift a government shutdown.

As a result, there is the likelihood that Republican budget hawks will reject any further new spending.

Then, although infrastructure was an area where a coalition bringing the White House alongside moderate Republicans and Democrats was once thought possible, the mood among all three groups has greatly soured in the last year.

As the mid-term elections approach, Democrats may be tempted to string out discussions, and then strand the President with another major political failure in November.

With PPPs in the doghouse and money short, White House officials were actively playing down suggestions that the plan is definitive in those weekend pre-briefings. Rather, they said it should be seen as an opening position for bipartisan talks. Even an increase in the federal fuel tax, static since 1993, is not being ruled out.

Such a tone is less strident than that with which the President has so far launched new policies. And Trump will need to handle today’s launch with atypical tact. Even then, such dealmaking skills as he claims will be put to the test.

Because one thing is for sure: "My way or no highway" won't work.

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