Since the November 8th election, a flurry of media attention has been devoted to the “Trump infrastructure plan.” As I pointed out in my column in the November Public Works Financing, three separate proposals have been made by people involved with the campaign or the transition: a $550 billion number with no details on how it would be paid for, a suggestion of an infrastructure bank, and a $1 trillion proposal for P3 infrastructure, developed by investment banker Wilbur Ross and economist Peter Navarro. The latter is the only proposal with details, so it has become the focus of most of the attention in recent weeks. (http://reason.org/news/show/trump-era-bring-new-infrastructure)
Amazingly, many people seem to have interpreted the $1 trillion number as implying new federal spending of that volume. But the only federal money in the Ross/Navarro proposal is up to $137 billion in tax credits for P3 projects—assuming that a total of $1 trillion worth were ultimately financed and built. But the mistaken idea of a trillion-dollar flood of federal dollars sent the stock prices of engineering and construction firms soaring 10-50% in the three weeks following election day. The flip side of this misunderstanding is that a number of fiscal conservatives in Congress have denounced the proposal as if it actually were a trillion-dollar call on the federal budget.
But as the true P3 nature of the proposal sinks in, an array of commentary has emerged from diverse sources. Wall Street Journal financial writer Spencer Jakob pooh-poohed P3 toll roads, citing a Congressional Budget Office report that found that four out of 14 such projects either filed for bankruptcy or were bought out by the public sector. As privatization expert Steve Savas noted in a letter to the editor, the Orange County project (the 91 Express Lanes) has been highly successful and was bought by the county transportation authority only so it could do away with an overly stringent non-compete provision. And the formerly troubled Chicago Skyway and Indiana Toll Road (ITR) were both purchased last year by pension funds at a large premium to their last-decade asset value.
More predictable have been attacks from the political left. Streetsblog‘s Angie Schmitt claimed that P3 concessions rely mostly on “other people’s money,” which implies taxpayers’ money—which is false. According to a recent tally in Public Works Financing, the average U.S. revenue-risk P3 highway project was financed with 25% equity, and most of the rest by debt that is to be serviced by toll revenues. The just-financed I-66 express toll lanes project in Virginia involves 40% equity, and last year’s pension-fund acquisitions of the Skyway and ITR both involved more than 50% equity.
One of the longest critiques of the Ross/Navarro P3 proposal is from Kevin DeGood of the Center for American Progress. I don’t have space here for a detailed rebuttal; my Reason colleague Baruch Feigenbaum posted one last week, “Center for American Progress Critique of Trump’s Infrastructure Plan Is Misleading” (http://reason.org/news/show/center-for-american-progress-critic).
One of DeGood’s main complaints is about the proposed tax credits for the equity investors, about which he writes, “Aside from enriching Wall Street, what does this federal subsidy buy? The answer is effectively nothing.” Which would be nonsense if the tax credit actually generated nearly $900 billion in sound projects to repair and replace aging and inadequate infrastructure. Yet, as I wrote in my PWF column, the tax credit is unlikely to be needed. P3 infrastructure investors have plenty of incentive to invest in sound U.S. projects; their problem is that only a handful of projects are on offer. And that contrasts sharply with countries like Australia, Canada, Chile, Colombia, France, and many others where P3 infrastructure is national policy.
In addition to DeGood, a number of reporters have put forth the idea that projects with bondable user-fee revenue streams are few and far between. But that is mostly false and generally misleading. To be sure, most states do not yet have workable P3 enabling legislation. But there are thousands of candidate projects out there. In the highway sector, the potential for toll-financed replacement of worn-out Interstate highways and bridges is a $1 trillion unfunded need all by itself. America also has a very large unfunded need to replace aging municipal water systems. The good news for that sector is that user fees (water bills) are a long-established reality. Airports and seaports also have long-established user-fee revenue streams. About the only public infrastructure sector that doesn’t is the inland waterway system (see article below).
What DeGood and other P3 opponents want is an expansion of traditional design-bid-build infrastructure funding, with its built-in potential for cost over-runs, schedule delays, and low construction costs at the expense of high maintenance costs, resulting in wastefully high life-cycle costs. And of course, “highways to nowhere” that would never pass a benefit/cost requirement, let alone a realistic return on investment hurdle. Long-term P3 concessions address all those shortcomings of the status quo. That’s why I see the Trump proposal, via Ross and Navarro, as a breath of fresh air, despite its largely irrelevant call for federal tax credits.
(This article first ran in the December issue of Surface Transportation Innovations)