At long last, the Trump administration has released its proposal for an infrastructure package. The plan proposes several new programs along with changes to several existing programs. Federal funding for the plan would total $200 billion, which the administration expects will incentivize at least another $1.3 trillion in state, local, and private funding.
Three Major New Programs
Infrastructure incentives initiative. This new program would provide $100 billion for grants to encourage state, regional, and local governments to raise new revenue for infrastructure. The program rests on the notion that it is politically easier to raise taxes or fees at the local level, where people know what projects will be funded, than at the federal level, where revenue increases are generally not tied to specific projects. The incentives initiative is designed to provide just enough of a sweetener to help local leaders get tax or fee increases across the finish line.
The program is set up as a national competition, with no state receiving more than 10 percent of the total. While the proposal lists a number of evaluation factors, the dominant criterion would be the amount of new money raised for infrastructure (both construction and operations/maintenance), representing 70 percent of the total score. Another 10 percent of the score would be based on “the dollar value of the project,” which presumably would provide more points to larger projects. Following the project evaluation, each project’s score would be multiplied by the share of non-federal revenues being provided, giving a boost to projects providing more than the required 80 percent local match. In the evaluation, revenue raised during the past three years would get partial credit, while revenue raised from now on would get full credit.
Analysis: This program recognizes that insufficient revenue is a major barrier to addressing America’s infrastructure needs. Moreover, it takes an important step forward by requiring applicants to identify funding for long-term operations and maintenance as well as construction, which will yield more efficient, longer-lasting assets. In addition, the program appears to take a positive view of public-private partnerships (P3s) by providing extra points for projects that use new delivery methods; P3s are also more likely to involve project-based revenues such as tolls, which would help meet the requirement for new revenues.
However, numerous questions remain about what types of projects this program would actually support, such as whether new highway projects, which are easier to toll, would dominate over transit or water projects (which also tend to be smaller, so would presumably not score as well on the “dollar value” criterion). With the incentive focused almost entirely on raising revenue rather than on improving performance, applicants may put forward the projects most likely to attract broad political support, rather than those that would provide the most economic value. There is also a concern that the program would primarily help communities that are fiscally strong enough to provide 80 percent or more of project costs, leaving economically-distressed regions out.
Transformative projects program. This program, run by the Department of Commerce, would total $20 billion and would be available to support either planning, demonstration, or construction of projects unable to secure conventional financing due to their unique or high-risk nature. Transportation, water, energy, commercial space, and telecommunications projects could be eligible. Construction projects could receive up to 80 percent federal match, while planning and demonstration projects would receive a lower federal match. The federal government would have the opportunity to share in the value created by any projects constructed under the program.
Analysis: Filling market gaps by funding projects that are too risky for private investors but would provide substantial economic return if successful, is a valuable role for the federal government to play. It remains to be seen, however, what types of projects would be selected, and whether evaluators would prioritize financial factors, such as return on investment and level of risk, as the TIFIA program does, or public benefits more broadly, as the TIGER program does.
Rural infrastructure program. This program would provide $50 billion in grants to states based on their share of rural roads and rural population for a variety of infrastructure, including transportation, water, water resources, broadband, and power. Twenty percent of the program would be reserved for states that prepare a rural infrastructure investment plan and demonstrate actions consistent with the goals of the incentives initiative, i.e. increasing state, local, and/or private funding.
Analysis: This program responds to the needs of rural areas for additional revenue and recognizes that many are constrained in the amount they can raise by low population and economic challenges. The program would also incentivize more comprehensive planning in rural areas to help coordinate investments and leverage regional resources. However, with no performance goals or set-asides, there is a concern that states may prioritize state-owned assets such as highways ahead of local needs like water systems. The formula for allocating the block grants among states feeds this concern by focusing on road miles rather than other measures of need, such as broadband access or water quality.
Two federal infrastructure funds. The proposal includes a new Public Lands Infrastructure Fund to build and maintain infrastructure on federal lands with revenues received from mineral and energy development, and a Federal Capital Financing Fund to support the capital costs of new federal buildings. The latter fund appears to be an innovative way of addressing the hurdles that OMB Circular A-11 creates for federal agencies seeking to expand or move into new buildings.
Federal financing programs. The proposal would provide $14 billion to increase budget authority for credit assistance programs at USDOT, EPA, and USDA. It would add airports and ports to the types of projects the TIFIA program can support, would make RRIF easier for short-line and passenger railroads to access, and would make several changes to WIFIA, including allowing it to support flood control, navigation, water supply, and water clean-up projects. The proposal would also provide $6 billion to eliminate volume caps for private activity bonds while also exempting them from the alternative minimum tax and expanding their use to additional infrastructure types, such as rural broadband. These changes would expand the availability of low-cost financing for infrastructure projects, including P3 projects.
Programmatic changes. The proposal makes several programmatic recommendations, which are primarily focused on eliminating barriers to raising private capital or user fees at the state and local level and speeding up project delivery. These include, among others:
- Faster disposition of unneeded federal real property
- Expansion of authority to toll interstate highways
- Authority for states to commercialize interstate rest areas
- Expansion of state infrastructure banks’ authorities and reduced federal requirements on their lending
- Ability to reduce federal requirements for projects that receive only a minimal amount of federal funds
- Changes to a wide variety of environmental rules and practices intended to shorten the review period for federal permits to two years
The proposal misses opportunities for improvement in other areas of federal infrastructure policy. First and foremost, the administration has made clear that the $200 billion in federal funding is not “new money,” but rather comes from cuts in other parts of the budget, including some from other infrastructure programs, reducing the net new investment to something below $200 billion. Moreover, the proposal does not address funding shortfalls in other infrastructure programs, such as the Highway Trust Fund, which will again face insolvency in just a few years.
Moreover, the proposal does not address the need for systemic reform in project development under existing federal infrastructure programs. As BPC has observed, the current process for developing infrastructure projects builds in long-term inefficiencies and misses opportunities for cost savings. Better asset management and life-cycle cost analysis, coupled with capacity building and technical support, are the building blocks to smarter infrastructure. While the proposed incentive and transformative projects programs include these principles, they should be integrated throughout all federal infrastructure programs.
Attention will now turn to Congress, which faces the challenge of crafting an infrastructure package that will satisfy the administration as well as members of both parties. The question of how to pay for new federal investment will likely dominate the debate, followed closely by questions about the extent of the federal role in infrastructure. Under the administration’s proposal, federal funding would represent a far smaller share of many infrastructure projects than it has in the past, and federal requirements would apply to fewer projects. Both issues will attract heated debate from stakeholders on all sides.
If those issues can be addressed, concerns about which projects and what parts of the country would benefit from the proposal may still limit its chances in Congress. But, regardless of one’s view of its merits, the fact that the administration’s proposal has finally been released is something to be celebrated, as congressional leaders have for the past year been reluctant to proceed on infrastructure without the President’s plan. Now that the plan is out, real debate can finally begin.