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Thursday, February 15, 2018
TRUMP’S INFRASTRUCTURE PROGRAM — SOME PROS AND CONS
Fulfilling a campaign promise, President Trump has proposed an infrastructure program. He seeks an initial outlay of $200 billion. Half of the money would be a straightforward appropriations outlay for expanding things like digital networks and federal infrastructure loan programs.
The other half would be used to induce entice state and local governments to spend more on infrastructure. As the editors of the Weekly Standard explain, the feds would offer a four-to-one match. For every four dollars the state or county or municipality spends, Washington would chip in an additional dollar. The White House claims this will produce $1.5 trillion spent on repairing and upgrading infrastructure.
I don’t think there’s any question that our infrastructure needs to be repaired and upgraded. But is Trump’s proposal the right way to accomplish this?
The Weekly Standard’s editors say it isn’t, for several reasons. First, they argue that, as with all federal matching programs, the president’s infrastructure plan would further distort state and local priorities. It would entice states to say yes to projects that are sub-optimal in order to capture federal dollars.
This might not be much of a concern were it not for the fact that only certain roads are eligible for federal funding. For this reason, states have devoted too many resources to roads favored by the feds, as compared to other roads. They would continue to do so under Trump’s plan.
Second, the Standard’s editors complain that, unlike when the Eisenhower administration was building the interstate highway system, federal infrastructure today comes with innumerable perverse and costly regulations. For example, federal law (Davis-Bacon) imposes wage restrictions requiring that workers on federally funded projects be paid at a certain rate or better. These and many similar regulations increase the costs of federally funded projects by as much as 30 percent.
Some within the Trump administration are attempting to address this wage inflation problem. However, it’s my understanding that Secretary of Labor Alex Acosta has not cooperated, for his usual reason — unwillingness to upset the left. (This will likely be the subject of a future post).
Aaron Renn of the Manhattan Institute offers a less critical analysis of Trump’s infrastructure spending plan. On the negative side, and contra the Weekly Standard, he wonders whether a 20 percent federal contribution will be sufficient to induce states to invest. He also notes that, although the plan is billed as empowering states, the federal government will determine which projects get funded through the match program. Thus, Washington will maintain control, perhaps even more control than it exercises today.
On the plus side, Renn sees several advantage to the matching approach:
One is that it can be flexibly applied to a wide range of infrastructure, particularly water and sewer projects, areas where older, post-industrial cities are facing billions of dollars in repairs. A federal matching plan that creates incentives for states to address their localities’ aging sewerage and supply could finally spark action.
[H]eavy reliance on non-federal money will reduce political incentives for boondoggles. It’s easy to build a road to nowhere when the federal government is paying for 80 percent of it. But when governors and mayors have to raise their own funds, they will need to make a stronger case to taxpayers that the proceeds will be spent well.
Trump also contemplates an attack on federal red tape:
Trump wants to reduce significantly the federal approval timeline—from eight or more years for major projects down to two years, using a “one agency, one decision” approach. The lengthy permitting process is one reason that the Obama administration’s 2009 stimulus failed to deliver much long-term value—there simply weren’t enough high-quality, shovel-ready projects to spend it on.
Whatever its merit, Trump’s proposal likely will have a rough ride in Congress. As Renn says, Democrats will be keen to deny Trump any political victory. And many conservatives will be wary of the infrastructure spending plan for reasons similar to those adduced by the Weekly Standard.
But by proposing a thoughtful infrastructure spending plan, Trump is trying to fulfill a campaign promise, create jobs, and address what most Americans understand is a real problem in this country. Thus, his proposal, in itself, arguably constitutes a small political victory.