Getty Images

How Trump Could Rebuild America

At a time when Americans seem to agree on little else, almost everyone agrees on the need to bring the country’s infrastructure into the twenty-first century. The task now is to turn consensus into action.

BERKELEY – In the United States today, with partisan polarization at record levels, there is still at least one policy goal on which there is broad consensus, not only among Republicans and Democrats, but also among business and labor leaders, states and cities, and ordinary citizens: infrastructure.

The US has been short-changing infrastructure for years. Historically, federal, state, and local governments have together invested about 2.5% of GDP in non-defense infrastructure assets. But, over the last 35 years, federal investment as a share of GDP has dropped by more than half.

For a long time, state and local governments were able to cover the shortfall, increasing their contribution to three quarters of total spending. But when the Great Recession hit, states and cities were forced to slash their budgets. As a result, in the second quarter of this year, total public expenditure on infrastructure fell to an estimated 1.4% of GDP, the lowest share on record.

This is all the more worrying, given the already-poor state of US infrastructure, which earned a grade of D+ from the American Society of Civil Engineers in its 2017 quadrennial report. Almost 20% of US highways are in disrepair. The costs and consequences of deferred maintenance are apparent everywhere, and almost every city and state has its horror stories: dysfunctional subways in New York City, lead-contaminated drinking water in Flint, Michigan, the near-collapse of a major dam in Oroville, California.

The report estimates that restoring US infrastructure to “a state of good repair” would cost $4.6 trillion between 2016 and 2025. That is $2.1 trillion more than has been committed so far. Developing new funding sources for infrastructure investment is therefore critical.

An innovative strategy under discussion in Washington, DC, is linked to corporate-tax reform – a priority for President Donald Trump and congressional Republicans. Under the current tax system, US multinationals can defer tax payments on their foreign earnings until the earnings are repatriated. With foreign earnings growing and foreign corporate-tax rates falling, deferral has become increasingly attractive. As a result, US companies are holding an estimated $2.6 trillion in foreign earnings abroad, rather than repatriating it and paying taxes that could be used to finance, say, domestic infrastructure investment.

The World’s Opinion Page

Help support Project Syndicate’s mission

subscribe now

Since 2013, the US Congress has floated several reform proposals to increase revenues collected on the stock of foreign earnings. Two recent bipartisan bills – which seem to have the support of Speaker of the House Paul Ryan, among others – link such reforms directly to federal infrastructure funding.

But Trump seems eager for state and local governments, which are in the strongest position to assess the needs of their communities, to shoulder much of the burden. Federal funding, he has signaled, would be limited to “high priority,” “transformative” national projects and used as leverage to encourage public-private partnerships (PPPs).

Private investors have long been eager to invest in public infrastructure – such as transportation or energy – in exchange for a share of those projects’ future revenues. Of course, private investors are generally not interested in projects that don’t generate revenue – such as, say, school libraries, urban “greenways,” or low-income housing – despite the importance of those projects for the economy and society.

In some areas, however, PPPs can offer substantial value. Though private finance may be more expensive than tax-advantaged public finance, over a project’s entire life, a PPP can benefit its government partner in numerous ways: through innovation; reduced design, construction, and lifetime maintenance costs; and risk mitigation.

To date, PPPs have played only a minor role in infrastructure development in the US. Trump seems convinced that the problem is a lack of available private capital, and thus has proposed a tax plan that includes generous credits to encourage private investment in infrastructure.

That is the wrong approach. What is really limiting private infrastructure investment is, to some extent, public opposition to the private ownership of public assets and, mainly, impediments to matching private capital with infrastructure opportunities. While 37 states have some form of enabling legislation and regulatory framework for infrastructure PPPs, there are wide disparities among states. Moreover, many states and localities lack the capacity to evaluate the costs and benefits of PPPs – a problem that President Barack Obama proposed solving with a new federal PPP knowledge center.

Ultimately, restoring America’s failing infrastructure will require what we call “progressive federalism”: harnessing the strengths of each level of government and working with the private sector to address pressing social and economic challenges.

The federal government must promote national-level goals; impose tough criteria for project selection and rigorous performance metrics in construction and maintenance; and push state and local governments to eliminate bureaucratic red tape and costly internecine squabbles. From a financial perspective, it should provide adequate funding for projects of national and regional significance, and use its financial leverage to overcome obstacles and enforce best practices.

State governors and city mayors, for their part, must take the lead in setting state and local priorities, with each deciding whether to opt into national projects. And private investors can provide risk capital, innovation, and management expertise, both as contractors on publicly funded projects and as partners in revenue-generating projects.

To support such a process, we urge Congress to establish a “Commission on Twenty-First-Century Infrastructure,” co-chaired by teams from the National Governors Association (perhaps led by Republican Governor John Kasich of Ohio) and the Conference of Mayors (perhaps led by Democratic Mayor Eric Garcetti of Los Angeles). The Commission should include business leaders and cabinet-level representatives of the Trump administration, like Secretary of Transportation Elaine Chao and National Economic Council Director Gary Cohn.

At a time when Americans seem to agree on little else, almost everyone agrees that it is time to rebuild the country’s infrastructure. The task now is to turn consensus into action.

http://prosyn.org/ChDYy1N;

Handpicked to read next

  1. Sean Gallup/Getty Images

    Angela Merkel’s Endgame?

    The collapse of coalition negotiations has left German Chancellor Angela Merkel facing a stark choice between forming a minority government or calling for a new election. But would a minority government necessarily be as bad as Germans have traditionally thought?

  2. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.

  3. A GrabBike rider uses his mobile phone Bay Ismoyo/Getty Images

    The Platform Economy

    While developed countries in Europe, North America, and Asia are rapidly aging, emerging economies are predominantly youthful. Nigerian, Indonesian, and Vietnamese young people will shape global work trends at an increasingly rapid pace, bringing to bear their experience in dynamic informal markets on a tech-enabled gig economy.

  4. Trump Mario Tama/Getty Images

    Profiles in Discouragement

    One day, the United States will turn the page on Donald Trump. But, as Americans prepare to observe their Thanksgiving holiday, they should reflect that their country's culture and global standing will never recover fully from the wounds that his presidency is inflicting on them.

  5. Mugabe kisses Grace JEKESAI NJIKIZANA/AFP/Getty Images

    How Women Shape Coups

    In Zimbabwe, as in all coups, much behind-the-scenes plotting continues to take place in the aftermath of the military's overthrow of President Robert Mugabe. But who the eventual winners and losers are may depend, among other things, on the gender of the plotters.

  6. Oil barrels Ahmad Al-Rubaye/Getty Images

    The Abnormality of Oil

    At the 2017 Abu Dhabi Petroleum Exhibition and Conference, the consensus among industry executives was that oil prices will still be around $60 per barrel in November 2018. But there is evidence to suggest that the uptick in global growth and developments in Saudi Arabia will push the price as high as $80 in the meantime.

  7. Israeli soldier Menahem Kahana/Getty Images

    The Saudi Prince’s Dangerous War Games

    Saudi Arabia’s Crown Prince Mohammed bin Salman is working hard to consolidate power and establish his country as the Middle East’s only hegemon. But his efforts – which include an attempt to trigger a war between Israel and Hezbollah in Lebanon – increasingly look like the work of an immature gambler.