In his first address to a Joint Session of Congress, President Donald Trump laid out his 2017 wish list. If the order of appearance indicates importance, then infrastructure spending is the president’s third priority, trailing only corporate tax reform and a new immigration program. The president specifically called on Congress to enact “legislation that produces a $1 trillion investment in infrastructure of the United States -- financed through both public and private capital -- creating millions of new jobs.”
In his speech, President Trump also harkened back to one of President Eisenhower’s landmark accomplishments: construction of the interstate highway system. As reported by the Department of Transportation, the funding for this project came primarily from the newly created Highway Trust Fund, with states making up the difference. The Highway Trust Fund is bankrolled mainly through the federal gas tax. Thus, the quintessential public works project which today’s president appears to want to emulate did not require any private capital to succeed.
Many Democrats are likely to oppose President Trump’s proposal, due in no small part to the fact that the president is looking to fund this project partially using private funds. There are many reasons for this resistance, both ideological and practical. So why use private funds at all?
There are several explanations as to why the success of the publicly funded Interstate Highway System is not reproducible today. Most have to do with the current deficit and Congress’s reluctance to raise taxes. Over the past several decades, the scope of what the Highway Trust Fund covers has spiraled out of control and the fund frequently flirts with bankruptcy, according to the Wall Street Journal. The fund is ill-equipped to finance another major project. Without raising taxes, the money would have to come from somewhere else in the budget -- which as we have seen with the president’s latest request to shift federal agency funding to defense, is never an easy thing to do. Something else will have to bridge the gap, and the president’s choice is private sector investment.
The ideological objections to private funding come from a desire to preserve federal control over the nation’s infrastructure. While it is true that even Senator Bernie Sanders (D-VT) supports the use of private funds, as seen on his campaign website, he would only be willing to make that compromise if the government funneled the money through a National Infrastructure Bank that has yet to be created. Such an institution would function as a guarantor of loans from the private sector. This method of using private capital is distinct from just turning management and ownership of the infrastructure over to the private sector in exchange for financial backing, which Senator Sanders would most assuredly oppose. Whether or not President Trump’s plan includes a provision for a National Infrastructure Bank remains to be seen, but it may be crucial to securing bi-partisan support.
The practical reason to oppose private capital involvement in infrastructure spending is that allowing it limits the number of projects that get funded, according to the Congressional Budget Office. Any company looking to invest in an infrastructure project will want to know that their investment has a mechanism for generating financial returns after completion. Highway tolls are a perfect example of such a feature. A firm may choose to invest in the creation of a new turnpike with the promise that future driver fees would either be sent directly to the firm or used to pay back the original loan. This barrier for funding presents a problem when the proposed project has no such potential source of income. A dilapidated stretch of road, devoid of tolls, offers nothing beyond the goodwill of the public to a financial backer willing to invest in repairs. Turning on the spigot of private sector money would leave some of the most neglected sections of our transportation and utility grid in the same state of decay as before.
To get an infrastructure bill through Congress, President Trump will need to ensure the plan is acceptable to at least half the House and at least sixty senators. To ensure the bill is successful in achieving its goal, the president will need to combine both public and private capital. Drive up the deficit or raise taxes, and he loses Republican support. Turn over the deed for our highways to corporations, and he loses Democrat support. Failure to resolve these conflicts, however, could derail the plan entirely.
