Friday, June 9, 2017

Infrastructure Update

Did you know this week was "Infrastructure Week"?  It was overshadowed a hair by the James Comey testimony and the upset British election.  But it was "Infrastructure Week," touted by the Trump administration as the time when its big infrastructure plan would be rolled out.

The plan was not in fact rolled out, at least with any specificity, but we can at least discuss what we know.

First of all,Trump's proposed budget actually cuts transportation program funding by 13% for the coming year, and cuts billions more in grant money for infrastructure.

As for the touted infrastructure plan -- previously promised in the amount of $1 trillion over 10 years -- his aides are now indicating that $200 billion of that will come from the federal government, and the additional $800 billion will come from private investors.

If that sounds potentially like a $800 billion handout to private investors, that's because, in a nutshell, it is.  But who cares if it works well, right?  Well...

Bernie Sanders' office did a nice job reporting on so-called "public-private partnership" schemes (also known as P3s -- I previously covered them here) and their many notable failures.  I encourage you to read it yourself, but the salient points follow:

First of all, the American Society of Civil Engineers (commies?) say we need $2 trillion, not $1 trillion, in infrastructure spending on top of what we're spending currently just to get our highways, bridges and the like back to a sound state.  So Trump's $145 in budget cuts are a bad place to start.

Secondly, private equity financing is often far, far more expensive / less efficient than government spending (emphases added mine throughout):

Trump’s plan to rebuild America relies heavily on the use of public-private partnerships to finance infrastructure projects with private equity capital. Such financing, whether through private equity or traditional tax-exempt municipal bonds, is repaid by ordinary citizens through a combination of taxes and user fees. Private equity financing is markedly more expensive than traditional government financing, however – by as much as three to six times. Considering the scale of infrastructure development under consideration, that difference could be enormous. For example: the charge for a $100 million-dollar investment using traditional government bond financing (at 3 percent, over 30 years) is about $90 million. For private equity capital, at a 15 percent return, the total skyrockets to $450 million.  (Sen. Bernie Sanders)

I have previously looked at whether the private sector was more efficient than the public sector, generally, in this blog post.  Needless to say, private contractors employed by the government do not fare well in the "spending taxpayer money responsibly" department.

The Sanders report takes a lot at a lot of specific, galling instances of public-private partnerships gone wrong; it's a brisk weekend read so print it out and give a once-over if you can.

It appears that under the euphemism of "asset recycling," the Trump administration will be looking to take many facilities built with public funds and hand them over to people we as taxpayers/citizens do not vote into office and ergo cannot control:

In addition to the obvious siphoning of public resources that Trump’s tax breaks and private equity financing entail, his administration has been pushing “asset recycling,” i.e. selling off existing assets – like airports, bridges and highway rest stops – to private investors and using the revenue (“recycling” it) to fund new facilities.

It is important to note, moreover, that weak investment in America’s infrastructure is not due to lack of access to financing, but because of constraints associated with insufficient state and local government revenue. Trump’s public-private partnership model does not address this problem and, in fact, exacerbates it by increasing overall costs to taxpayers. And because smaller-scale projects, like those in rural areas, may not be profitable enough to attract private equity investors, his model risks leaving many parts of the country behind. 
(Sen. Bernie Sanders)

That bolded point is critical.  The federal government does not lack for funds to invest in big infrastructure projects.  States and municipalities, however, do.

The critical issue with infrastructure is -  it needs to get funded, somehow.  We as citizens can either pay taxes for it, or, if we turn our infrastructure over to some private operator, we will pay tolls and fees instead.  Either way, we pay - but based on the track record of public-private partnerships, we pay a lot less if we just fund the damn projects ourselves and leave the private companies looking to cash in out of the picture.

The US spends less on infrastructure these days than it has in 20 years.  This is no surprise, because beginning in the Reagan era and continuing in the Clinton era, we took a turn as a country to the belief that only tax cuts work and that government spending never does.  It was a grand experiment but the results are in: our infrastructure is not up to snuff.

A veteran of the NYC Office of Management and Budget ("OMB") spoke to Hamilton Nolan about NYC's specific infrastructure decline, but most of his points apply to many localities, and our nation writ large.  It's an excellent, entertaining read, but I'll try to sum it up for you.

Back in the 90s, during boom times, everyone assumed that growth at exorbitant rates would continue forever.  Therefore unrealistic spending plans were submitted - plans that included both maintenance and brand new expansion.  When economic hard times hit, NYC and other municipalities couldn't sell the bonds for these plans.  Who would buy them?

So the reduced funds from insufficient bond sales had to be spread out over both maintenance and new projects, with the result that maintenance has suffered and new projects are long-delayed or unfinished.

Maintenance shortcomings and project delays often get blamed on government corruption / inefficiency.  The OMB official makes clear that the popular, flashy stories about "graft" overlook a more serious problem:

Journalists love to find the stories of the government employee who misused a company car, but they couldn’t care less about a general funding shortfall (I don’t blame them, it’s not interesting, or easy to get anyone to understand why it matters.) (Hamilton Nolan / Fusion)

That's right.  We don't like taxes in this country, so we don't have money to spend on infrastructure.  It's not complicated.

The OMB official states that there were major "builds" in the 1930s and 1960s, and not since then. Infrastructure lasts a long time, but it doesn't last forever; it's time for another build (which will take years to be completed, it should go without saying, although it often goes unsaid).

(By the time of the Bloomberg era in NYC, people in charge were more interested in real estate than in infrastructure.  No big surprise there -- but a discussion of real estate's disproportionate political power is a subject for another blog post.)

He goes on, in a nutshell, to blame tax cuts for the problem -- since, after all, local governments need money to invest in infrastructure.  (The federal government can more freely use deficit spending, but for political reasons, it, too, needs tax income, and it looks like Donald Trump isn't proposing raising any taxes at all).  There is plenty of blame to go around, the OMB official says:

We can blame the GOP and tea partiers all we want, but there’s not a single Democratic politician proposing anywhere near the infrastructure funding we need, even if there were, there’s not a single voter out there who would vote for the kinds of tax hikes we’d need to address it, we’re just not close. ... Let’s say we shorted ourselves on taxes just 1% per year (though probably much more), but did that for 40 years, how we would ever get that lost savings back? This is the kind of stuff that’s easy to ignore because no one would look twice at a line graph with 1% cuts. But now we all own a giant house that we can’t afford the upkeep on since we spent all our money on iphones and hookers instead of investing in the house. So all you schlubs out there are just reaping the harvest that was sowed a generation ago by schlubs like me. Too late now.  (Hamilton Nolan / Fusion)

Oh well.
Donald Trump is also proposing "asset recycling" the national air traffic control program.  I think this editorial cartoon by Chan Lowe / Tribute Content Agency (full disclosure: used here without permission!) puts it best:

I encourage you all to read Naomi Klein's The Shock Doctrine whenever you can, which discusses privatization in many different forms and locales over the years.  It does not paint a pretty picture.

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