Earlier this month President Trump walked out of discussions with Congressional Democrats over his administration’s infrastructure plans. But why is the country’s crumbling infrastructure proving so hard to fix? Juita-Elena (Wie) Yusuf writes that the US infrastructure system is fragmented between federal and state governments in both funding and administration. She argues that by leaning on private investment, Trump’s infrastructure plans would do little to alleviate pressure on the much-depleted Highway Trust Fund, or to provide for the maintenance and repair of existing infrastructure.
No one seriously doubts the need to modernize US infrastructure. In its most recent Infrastructure Report Card, the American Society for Civil Engineers graded the country’s overall infrastructure as a D+.
Adding to the infrastructure challenge is the fragmented nature of US infrastructure system that involves different levels of government and different sectors. Consider transportation, which has largely been the responsibility of states and localities. The federal government’s role has mostly been to set national policy via transportation authorization bills and to provide funding. Local roads tend to be the responsibility of local governments. Arterials are often part of the state highway system and the states’ responsibility, with some financial contributions for construction from the federal government. The construction of interstate highways is mostly funded by the federal government.
State and local governments pay for much of the infrastructure construction and maintenance activities in this country. The federal government transfers funds to the states from the federal Highway Trust Fund, and the states, in turn, provide funds for local roads from the state highway fund or equivalent. The Highway Trust Fund, however, continues to be quickly depleted – the federal gasoline tax has lost its purchasing power due to inflation since its last per gallon increase in 1993 – which negatively affects the funding provided by the federal government to states and localities.
In his book American Transportation Policy Robert Jay Dilger suggested that highway policy has been in a state of flux since the interstate highway system’s completion in the 1990s. In a 2011 study, which used data from 1999 through 2007, my colleagues and I pointed to substantial changes in the dynamics of state–local relationships for highway funding. We identified four factors that have produced a funding crisis for local governments:
- An increase in developed land and locally-owned roads;
- Sharp increases in construction and maintenance costs;
- Devolution of financing responsibility away from the states towards localities, but with a reduction in intergovernmental transfers;
- More wear and tear on local roads due to increased vehicle miles traveled.
In 2013, we similarly found an expanding structural imbalance at the state level between states’ highway-related revenues and expenditures. As a result, states and localities now have substantially larger transportation systems to maintain but with shrinking financial support from higher-level governments.
Importantly, the current surface transportation authorization (Fixing America’s Surface Transportation (FAST) Act) expires in September 2020. The last time such a reauthorization was undertaken, it took Congress dozens of short-term extensions to reauthorize, in December 2015, funding for roads, transit and bridges, eventually resulting in a five-year, $305 billion transportation bill. The reauthorization process offers an opportunity to change the course of infrastructure investments in the US.
Trump’s infrastructure plans
In February 2018 Trump announced a $1.5 trillion infrastructure plan. The vision of the plan was to turn $200 billion in federal funds into $1.5 trillion over a 10 year period by leveraging local and state tax dollars, and private investment. The specifics of the plan include:
- Infrastructure Incentives Program: a competitive grant program for projects involving major investments by states, localities, and the private sector. The program heavily weights how much new, non-federal revenue can be leveraged by the project.
- Rural Infrastructure Program: a rural block grant program for transportation, broadband, water, power and electric infrastructure projects.
- Transformative Projects Program: funding for projects considered bold, innovative, and transformative that may be too risky for private investment.
- Infrastructure Financing Programs: expanding existing federal credit programs.
The plan also reforms and speeds the construction project approval process at the federal level and allows for quick and easy divestiture of federal assets to quickly and more easily. However, the plan was not pursued by either the White House or Congress.
April 2019 saw a revival of the infrastructure plan, as Trump and Democratic leaders in Congress agreed to a comprehensive infrastructure plan that invests $2 trillion in infrastructure. Consistent with the February 2018 plan, the April 2019 proposal included broad language about how the federal government should not be the primary funder of the country’s transportation system. Beyond this statement about the role of the federal government the plan lacked details and specifics. As of late May 2019, this infrastructure plan appears to be dead in the water as Trump walked away from discussion with Democratic leaders.
“Chicago, 2015” by Greg Wass is licensed under CC BY NC SA 2.0
A major issue for Trump’s infrastructure plan is about how to pay for infrastructure and who pays. To receive Congressional support, particularly in the Senate, the infrastructure plan would need to be fully paid for. Republicans will support neither a tax increase nor a roll back of the tax cuts from Trump’s 2017 tax reform legislation. In contrast, Democrats are unlikely to support paying for the infrastructure plan through spending cuts. Democrats believe that infrastructure investment should be through public expenditures (i.e., paid for by government). Republicans and Trump approach infrastructure investment from the starting point of using federal government funds to create seed capital that would incentivize states, localities, and private companies to provide additional investment.
Private Investment and Public-Private Partnerships (PPPs)
Trump’s infrastructure plans did not address the underlying issue of the inadequacy of the federal gasoline tax and the looming Highway Trust Fund insolvency. Instead, Trump has shown preference for drawing in money from the private sector to pay for infrastructure priorities. The idea behind his infrastructure plans is to offer financial incentives to private companies, relying mostly on a public-private partnerships (PPP) model. This reliance on private investment and PPPs has its own set of challenges.
A key issue is that PPPs are not authorized in every state. A 2016 report by the National League of Cities (NLC) found that 32 states had some variation of PPP enabling legislation, with an additional two states considering such legislation. Furthermore, there is a high degree of uncertainty with PPPs, due to their complexity and the unpredictable nature of the underpinning revenue streams. While infrastructure PPPs have been widespread in other countries, there appear to be fewer applications of PPPs in the US and even fewer documented cases of successful PPPs. But, even in situations where PPPs may be successful, challenges remain in terms of public values such as accountability, transparency, and public participation.
States, Localities, and Devolution of Responsibility
Only a small portion of Trump’s proposed infrastructure investment would come from direct federal spending; in the February 2018 plan the federal funding was $200 billion of the $1.5 trillion investment in infrastructure. States and localities wanting federal funding are expected to match the funding by at least a four-to-one ratio. So, while states and localities have assumed more of the responsibility for funding infrastructure, Trump wants them to assume even greater responsibility more quickly.
In contrast, states and localities have indicated that sustained federal funding for infrastructure is a priority. For example, in 2017 the American Association of State Highway and Transportation Officials (AASHTO), representing state departments of transportation, highlighted that “at a minimum, the infrastructure package address the funding shortfall in the Highway Trust Fund with a long-term and sustainable revenue solution.” AASHTO also emphasized that any infrastructure plan should utilize the existing federal program structure to distribute federal funding to enable flow of infrastructure investments to every part of the country. The NLC proposed an infrastructure framework for the federal government to work collaboratively with cities. The framework included six principles, two of which relate specifically to federal investment in infrastructure. Under the sustainable investment principle, the NLC identified the need to reestablish long-term funding. Under the principle of federal-local partnership the NLC states “Cities are already paying their fair share and need a steady federal partner to fund existing national programs and make significant capital investments.”
In response to the February 2018 infrastructure plan, the National Governors Association emphasized that “President Trump and Congress have an opportunity to not only invigorate our approach to infrastructure spending, but to stabilize the funding streams that state and local governments depend on the most.” AASHTO’s response, similarly highlighted the need to address the long-term viability of the Highway Trust Fund.
Trump’s approach to infrastructure would have the federal government shifting much of the responsibility for funding infrastructure toward states and localities, accelerating the devolution trend I noted earlier. Yet these same states and localities are already challenged in terms of generating enough money themselves to pay for infrastructure. Private sector involvement may help states and localities with projects that have revenue-earning potential (for example, projects where tolls or user fees can be collected), but such projects are typically associated with new construction and are few and far between. There are significant infrastructure needs, such as repair and maintenance of existing infrastructure, which will remain the responsibility of states and localities.
Maintenance and Repair
The national and state highway systems, and the local roads that feed them, have reached maturity and significant resources are needed for basic maintenance and repair. However, according to Smart Growth America and Taxpayers for Common Sense, decades of disproportionate spending on road expansion at the expense of repair and maintenance has left many roads in poor condition. Greater reliance on infrastructure investment via PPPs will not address the need for repair and maintenance, and instead will perpetuate the disproportionate spending on ‘new infrastructure.’
The study by Smart Growth America and Taxpayers for Common Sense found that in 2011, states would need to spend $45 billion annually for 20 years to upgrade roads that were in poor condition while maintaining existing systems; nearly three times what states currently spend on repair. States and cities generally pay for maintenance from annual operating budgets, where maintenance and repair must compete with other annual funding priorities. Infrastructure projects involving maintenance and repair are unlikely to be of interest to the private sector, so such projects will likely remain the responsibility of states and localities.
Trump’s infrastructure plan is dead in the water
As of today, Trump’s infrastructure plan appears to be going nowhere. However, dissecting key elements of Trump’s approach to infrastructure and situating these elements within the current infrastructure landscape in the US gives us a foundation for assessing future plans.
- States and localities that have, for years, asked for more federal funding for infrastructure, will not get much new money from the federal government,
- But they could get help building projects more easily (less regulation) and quickly,
- The private sector is expected to be the white knight in solving the country’s infrastructure needs, and they will be incentivized to better participate in infrastructure investment,
- The emphasis remains on new infrastructure, leaving unanswered the challenges of maintenance and repair of our currently aging infrastructure.
Note: This article gives the views of the author, and not the position of USAPP– American Politics and Policy, nor of the London School of Economics.
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About the author
Juita-Elena (Wie) Yusuf – Old Dominion University
Wie Yusuf is Associate Professor of Public Service in the Strome College of Business at Old Dominion University, Norfolk, Virginia. Her research focuses on issues at the intersection of government, nonprofits, business, and society, with particular focus on policies related to transportation, public finance, and climate change and sea level rise.