President Trump’s long-awaited infrastructure plan proposes that the federal government put up $200 billion in incentives and investments over 10 years, leaving state and local governments and private industry to come up with the rest. Here’s a look at how the plan may pan out, and what the challenges will be in turning $200 billion into $1.5 trillion.
First, the federal government has to find the initial funds. The premise is that increased funding will create an incentive for states and cities to spend more on their own infrastructure.
The problem is that the government’s spending plan, which includes the infrastructure funds, significantly increases the federal deficit.
Mr. Trump’s infrastructure plan was unveiled Monday as the administration put forward a $4.4 trillion budget proposal for next year. The proposal, which would create deficits of at least $7.1 trillion over the next decade, includes $200 billion in infrastructure spending. Half of that $200 billion would go to incentives for states and cities, and the other half would go to grants, loans and bonds to fund projects.
State and local governments will then have to come up with their (very substantial) share. The premise is that states and cities understand their infrastructure needs better than the federal government does and should have a primary stake in the projects in their own regions.
The problem is that additional spending could come at the expense of other programs, create new debt or put an outsize burden on taxpayers to fill gaps where revenues fall short.
Under the new plan, a project is eligible to receive up to 20 percent of its cost in federal funding. That means if a city or state wants to take on, say, a $1 million project, it could potentially receive up to $200,000 in federal funding if it’s able to raise the other $800,000 on its own. But states and municipalities are already paying the bulk of infrastructure costs, and would have limited options if they wanted to increase that spending, especially if they are already strapped for cash or may have trouble raising new taxes. Many would hit spending limits before they could receive all of the available federal funds over the next 10 years.
The rest will be up to private investors. The premise is that companies can complete projects more quickly and cheaply, and with more innovation and flexibility, than governments can, limiting the amount of debt that cities and states take on.
The problem is that while public-private partnerships can result in short-term savings, experts say there is little evidence that suggests they are ultimately more beneficial than public-run projects.
The idea is pitched as a win-win: Governments get faster and cheaper work from companies, and companies get large projects that are, in some cases, worth millions of dollars.
Currently, public-private partnerships account for only a small fraction of infrastructure spending. That’s because the United States has a well-developed municipal tax-exempt bond market, enabling governments to borrow money for capital projects at the cheapest rates.
Regardless of the form of funding, the burden for supporting public works projects ultimately falls to taxpayers — through parking meter fees, highway tolls or higher taxes.
Indiana, for example, once had to pay a contractor $450,000 to make up for profits lost when the state waived tolls on a privately funded highway during a flood emergency.
California was for years prohibited from making road repairs and improvements, or upgrading its public transit system, in a part of Orange County because of a noncompete clause in the state’s contract with a private consortium that leased and ran an expressway. The clause stipulated that no improvements or repairs could be made that might draw customers away from the expressway. After a long court battle, the county’s transportation authority in 2003 bought out the private consortium’s stake in the expressway for $207 million so that it could go ahead with a highway and public transit overhaul.
Teaming up with private companies is also not a given for every locality. In many states, lawmakers would have to create legislation that would allow them to use private funding for infrastructure projects.