In late April, President Trump and Democratic congressional leaders finally found something they agreed on: infrastructure. Outside the White House after a meeting with the president, House Speaker Nancy Pelosi, the California Democrat, issued the pronouncement, “Big and bold.” Senate Minority Leader Chuck Schumer, the Democrat from New York, echoed the takeaway: “We agreed on a number, which was very, very good, $2 trillion.” Trump himself has been publicly quiet but didn’t dispute that he told the Democrats he “like[s] the number.” By May, this renewed spirit of cooperation had fallen apart, at least temporarily, with a second meeting collapsing amid Mueller investigation recriminations. Still, though, conventional wisdom, whether under this Congress and president or another, sees a mega infrastructure initiative as a worthy bipartisan project.
Indeed, a nation now famous for its airport delays, potholed highways, “summer of hell” mass-transit crises, and leaded urban water may welcome the $2 trillion figure. Why not, as Schumer reiterated, “get something done … in a big and bold way?” So far, though, this trio is off to a bad start. America doesn’t need to be wowed by a figure in the trillions, a campaign marketing tool for both parties.
What it does need is a slow, sober assessment of its real-world infrastructure necessities and quiet, not-so-bold competence in getting the work actually done on time and on budget.
Yes, America has an infrastructure backlog, including several megaprojects that fit the bill of national importance. New York and New Jersey need to build a new rail tunnel under the Hudson River, at an estimated cost of at least $13 billion, both to keep hundreds of thousands of federal taxpayers on their way to and from work in Manhattan each day and to maintain Amtrak service between Washington and Boston, thereby keeping thousands of cars off already clogged highways. Out West, Las Vegas and Phoenix, just 300 miles apart, need an interstate to connect them. So as not to repeat the mistakes of the past, the project should include a high-speed rail line from the start, rather than waiting until traffic reaches Los Angeles levels to consider other options. That, too, would cost at least $10 billion. Houston needs sophisticated flood control to improve the effectiveness of 1940s-era dams and reservoirs that now must protect a vastly expanded population, another multibillion-dollar set of projects. All over the country, from the Connecticut interstate to the San Francisco subway to the Florida water supply, systems built decades ago for a much smaller population need repair, replacement, and expansion.
Trump, Schumer, Pelosi, and company should learn from history, though: It’s easy to do this wrong.
That’s what happened when the nation last tried a “bold” infrastructure package, the same word used by then-President Barack Obama in February 2009 when signing a $900 billion stimulus package. Back then, Obama promised to “remak[e] the American landscape with the largest new investment in our nation’s infrastructure since Eisenhower built an interstate highway system in the 1950s.” He pledged to “upgrade mass transit and build high-speed rail lines that will improve travel and commerce throughout the nation.”
Yet only $60 billion of the stimulus package went to traditional infrastructure, including $43 billion to transportation, far less than $1 billion per state. It was old-fashioned pork-barrel politics, trying to please everyone at once and pleasing no one. Legislators tried to spread $8 billion across 11 different high-speed rail regions, for example. More than a decade later, even California, the self-appointed demonstration project for 21st-century high-speed rail, has yet to see tangible results.
The good news, is that there’s plenty of time to do this right. In late 2015, Obama signed into law a $305 billion transportation bill, the Fixing America’s Surface Transportation, or FAST, Act, that funds highways and transit to the tune of $60 billion a year through the end of 2020. If Congress and Trump can’t agree on a good bill, it’s better to continue on the existing course, simply reauthorizing the terms of the FAST Act year by year, than to do something big, bold, and wrong.
So what would a good federal infrastructure bill look like? Drop the $2 trillion marketing, for starters. Apparently, the sticker price needed to impress the public graduated from billions to trillions sometime in the past decade. Nevertheless, a huge price tag doesn’t guarantee success, and an infrastructure bill designed around a big number is designed to fail.
The truth is we have no idea of the single number we need. What is the tally of the nation’s critical infrastructure needs, so unique that they must be funded by the federal government, not by state and local governments or the private sector, or some combination? True, the American Society of Civil Engineers does a detailed report of infrastructure shortfalls across the country, and it comes up neatly with a $2 trillion gap.
Yet the report doesn’t differentiate between federal, state, and local needs and funding, which particularly matters because the federal government isn’t responsible for much bread-and-butter infrastructure. According to the Congressional Budget Office, in 2017 — not an aberrant year — governments at all levels spent $174 billion on transportation and water infrastructure, with state and local governments providing $102 billion of that figure.
Nor should the federal government assume more responsibility for paving local streets and replacing water mains. These are traditionally and rightly state and local responsibilities, paid for largely through property tax bills and, in many municipalities, separate water bills. For Texas, for example, the American Society of Civil Engineers lists nearly $9 billion in drinking-water needs over the next two decades, but that’s largely because of the group’s projection of “unprecedented population growth.” It’s unclear why Texans, new and old, should not simply continue to pay for new pipeline connections, filtration plants, and the like through their local-level taxes and fees.
The report also fails to distinguish adequately between public and private infrastructure. It tallies up $3 billion in “aviation” needs in California, for example, and $11 billion in cargo port needs. Yet airports and ports are generally profit-making entities and do not, or should not, need government investment. Airline passengers and cargo shippers, whether directly or indirectly, pay for the terminals as well as gate and landing fees that make up airports and ports. For New York, the report identifies $4.7 billion in needed investment at the city’s three major airports: John F. Kennedy, LaGuardia, and Newark. But New York’s airports made half a billion dollars in operating profit in 2017. Private companies, not the government, are rebuilding LaGuardia and JFK airports, with repayment to come, indirectly, for airline leases as well as concessions.
On a smaller scale, in mid-May, the Department of Transportation awarded nearly $800 million in funding to smaller airports. One such grant of $10 million to the resort island of Hilton Head in South Carolina illustrates the deeper problem. The money will go toward an expanded terminal with new counters for Delta and United, the local press reported. But if Delta and United expect to make a profit in expanding their flights to the island, they should jointly fund this modest project rather than milk taxpayer largess.
Rightly, then, the next step in a good infrastructure program is to identify what is critical infrastructure in need of government-funded assistance. That means defining infrastructure down. Schumer wasn’t off to a good start at the April press conference when he lauded clean energy and broadband, implying that these industries should benefit from the $2 trillion infrastructure bill. “We can bring clean energy from one end of the country to the other,” he said.
Similarly, last year the Trump administration identified pipelines and power lines as projects that would benefit from an earlier attempt at an infrastructure agreement. But electricity, energy, water, wastewater, and communications are also all infrastructure that pays, or should pay, for itself, whether provided by a for-profit company, such as Consolidated Edison, or a municipal utility. People and companies pay for power and gas via utility bills and pay for water and wastewater either through fees for services or through local property tax bills. Fee-for-service infrastructure doesn’t preclude government mandates to cut emissions or pollution; users simply must pay the cost of such emission and pollution controls on their bills.
In extreme cases, a community is too poor or insufficiently populous to support its own day-to-day airport or utilities infrastructure. Flint, Mich., cannot pay for its own clean water, and many rural areas do not support for-profit broadband. To fund such projects, Congress and the president should repurpose the “Opportunity Zones” they created and expanded in the 2018 tax law. As written, the law awards tax breaks to companies and partnerships that invest in “economically distressed communities.” Critics, however, have rightly noted that similar “enterprise zones” simply have subsidized real estate and other development that would have occurred anyway in fast-improving cities and neighborhoods. Massive tax credits and subsidies to private companies that provide real water and broadband infrastructure to poor areas, or to nonprofit providers that could sell the tax credits, are far better than tax credits that go directly to real estate and business ventures that properly belong in the private sector. Such real estate and business ventures, after all, depend on solid utilities and broadband.
Therefore, states should provide a capital-needs assessment for work that doesn’t generally pay for itself, such as surface transportation, flood control, and national parks. Each state should be tasked to come up with a current productive value of its major physical assets and the private sector activity such infrastructure supports. For example, a subway line that supports 1.3 million riders a day is more productive than a bridge that carries 100,000 cars and trucks each day. Each state or grouping of states, as in the case of the rail tunnel between New York and New Jersey and the highway between Las Vegas and Phoenix, should attach a 10-year repair and replacement need to each asset.
State governments should have to list projects by priority: Absent federal funding nudging a state in a particular direction, which do they consider most important? Proposals for expansion should be based on reasonable projections of population and job growth, growth not distorted by other factors such as the availability of, for instance, federally subsidized flood insurance. Proposals should also acknowledge real-life construction constraints.
At the turn of the 21st century, with federal budget surpluses supposedly “as far as the eye could see,” the federal government approved major grants for New York City to begin building the Second Avenue Subway as well as the East Side Access project to build a new commuter-rail tunnel and station underneath Manhattan. At the same time, the city was building a massive water tunnel. The strain of building three large tunnels at the same time, a real demand on the labor and equipment required, pushed costs up. Today, America’s interstates, now more than 60 years old, need major repairs and rebuilding, but launching several multibillion-dollar projects at once only stimulates the demand for materials and labor, pushing costs up.
After tallying up realistic proposals, Congress and the president should reward self-help. One indicator of whether a state or city supports a project is if it is willing to tax or toll its own citizenry for it. Three years ago, for example, San Francisco-region voters approved a $3.5 billion bond for regional rail, and this year, New York approved $1.5 billion in annual congestion-pricing revenues. With the exception of the poorest communities, no project, whether modernizing the signals on a subway or building better flood protection around Houston, should proceed without a significant share paid for by state and local taxpayers, to illustrate their commitment, and without a specific proposal on how to provide such payment, such as a dedicated toll or property tax levy. Voters and residents should know what they’re paying for.
Along with self-help, Congress should also reward density, but without starting a yellow vest movement. America’s densest regions are its most economically productive. New Jersey, the nation’s densest state, generates 15% more in national gross domestic product than population alone would imply. Density does not mean skyscraper apartment buildings; it means zoning to discourage sprawl suburbs that leave people stranded far from commerce and education. Congress should favor states, cities, and suburbs that would prefer to buy fleets of commuter buses and offer tax credits to fill in older suburbs over places that would prefer to build more highway lanes and new exurbs.
At the same time, though, Congress should use carrots, not sticks, to support density. Slapping new tolls on existing rural or exurban highways or severely hiking the gas tax without a corresponding new tax credit for lower-income workers will only punish those with the longest commutes and no other options. Across France over the past year, protesters clad in bright yellow jackets have disrupted major French cities and highways, in part to demonstrate their anger at a now-canceled higher fuel levy. Many protesters noted that the French state would disproportionately punish people with no alternatives, those living far away from mass transit because they simply can’t afford property in denser regions, for their necessary use of petrol. A vehicle miles traveled tax to transform the highway system into a tolled network that pays for itself may be sound economic theory. Practically speaking, given limited mass-transportation options in much of the country, it’s also a multithousand-dollar-per-year tax hike on the middle class. Congress should use incentives to encourage state and local governments to reorient themselves around transit long before punishing areas that opt not to take advantage.
After figuring out what and where to build comes the hard part: doing it on time and on budget. American megaprojects are renowned for their delays and cost overruns. An 8-mile light-rail extension in Seattle, hardly the most technically difficult project in the country, is half a billion dollars, or 25%, over its original $2 billion budget. In central Florida, a $2.3 billion highway expansion project is also over budget and time. New York’s East Side Access project, to bring Long Island commuter trains to the East Side of Manhattan, was once supposed to cost less than $4 billion. It now will cost nearly three times that; the tunneling, along with that of the Second Avenue Subway on Manhattan’s East Side, represents some of the most expensive underground work per mile in the Western world.
Washington should offer bonuses, in the form of even higher reimbursement, for projects that come in early and below budget. It should accordingly offer penalties for projects that are late and more costly than expected or both. State and major local governments could accrue long-term reliability ratings, with states that demonstrate a consistent ability to do projects on time and on budget favored for future projects over those that don’t.
To help states keep to costs and schedules, though, Congress must give them and the public the tools to do so. This means helping states reform construction costs. Private sector construction firms and their workers do most public sector construction work on long-term contract. As such, they must follow government-set rules on pay. New York, for example, conforms to both federal and local “prevailing wage” laws that mandate pay to be about $100 an hour for basic laborers. But although federal and state law governs pay, federal and state taxpayers cannot see the contracts that govern the work rules under which construction workers labor. Congress and the White House should enact a provision that prohibits federal funding for any project for which full agreements between construction contractors and construction unions are kept private.
Taxpayers and transportation users deserve to see whether powerful construction unions are abusing work rules to drive up hours, overtime, and cost on critical public sector projects. States and cities should also have to make all their purchase prices of materials such as cement and steel public, so third-party observers can see if they conform to global commodity price indices or if some states and cities are, for some reason, paying inflated rates.
States and cities are good at building new projects but not so good at operating and maintaining them. A ride on Detroit’s QLine streetcar from Downtown to the museum district and to some near-lying suburbs illustrates the problem. The QLine, a hallmark of Detroit’s recovery from its 2013 municipal bankruptcy, was paid for via federal and state grants and private donations. The nearly $200 million project is only 2 years old, yet Detroit and others are pronouncing the project a failure. Already-low ridership is falling, not rising, and fares cover just 10% of operating costs. Building the project was easy; keeping it up is hard. Fare payment machines along the corridor are broken, doubtless deterring people who don’t have the smartphone app, itself a poorly explained option, from paying before they board. The streetcar, in real life if not on paper, comes only every 20 minutes or so, meaning that if a would-be passenger misses one, it makes far more sense to summon an Uber or Lyft than to wait 20 minutes and potentially double a short journey time.
State and local governments should, therefore, account for and commit to paying the regular annual operating costs of any new project. A new streetcar won’t lure people from their cars if a state or local government plans to run it infrequently and unreliably once the attendees of the ribbon-cutting have gone home.
A major factor, though, is costs. New York’s state-run Metropolitan Transportation Authority, responsible for subways, buses, and commuter rail, will spend nearly $2.1 billion on employee healthcare, a figure that has nearly tripled over 15 years. It’s crucial, then, that Congress and Trump recognize that America’s supposed infrastructure crisis is also a healthcare cost crisis. According to the Pew Trusts, states owe nearly $700 billion for future retiree healthcare obligations, money that otherwise could go to actual infrastructure.
Much of this obligation is for workers who retire before the age of 65, when Americans are eligible for Medicare. Any infrastructure bill should reward states that agree to stop rewarding workers for retiring early, with future public sector and construction worker contracts mandating that people who want to retire young provide for their own healthcare on the Obamacare marketplace. After age 65, public sector and union retirees should pay their own Medicare premiums out of their pensions or 401(k) investments, just as private sector workers do; their former employers should not continue to shoulder this burden.
Of course, any recommendations on a potential infrastructure bill should also come with a warning regarding how we will pay for it. The U.S. government is running a nearly $900 billion budget deficit for 2019, more than a fifth of annual revenues, and this during the boom times, not a recession. Deficits aren’t expected to narrow anytime soon. Instead, they will top $1 trillion annually in two years’ time and continue that trajectory for at least a decade.
Intellectuals can fairly advance the merits of raising the gas tax — satisfying Green New Deal ideas of reducing emissions as well as legacy conservative ideas of paying for services at the time such services are used, rather than leaving the task to future generations — of raising other taxes, or of cutting spending. Practically speaking, though, until the global investors who fund our deficits tire of our spending, we’ll pay for an infrastructure bill the way we pay for national defense, Medicare, and subsidies for everything from big agriculture to home
This piece originally appeared at Washington Examiner
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Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.
This piece originally appeared in Washington Examiner