Donald Trump has a plan to rebuild America’s infrastructure, for what he promises is no cost to the taxpayer. If true, it would be a heck of a deal. Not just new roads and bridges, but, as Trump’s advisers promise, new pipes to deliver clean water to the residents of cities such as Flint, Michigan.
It is hard to find an infrastructure expert in Washington, D.C., who believes Trump could deliver that.
Instead, many of those experts predict Trump’s plan could end up costing taxpayers a lot – and question whether it would really spur private companies to invest in places like Flint.
The advisers behind the Trump plan, Wilbur Ross and Peter Navarro, wrote last week that the federal government could encourage $1 trillion of private-sector infrastructure investment by offering about $140 billion in tax credits to companies willing to take on such projects. Those companies would then borrow money, hire workers and earn a profit of about 10 percent on their investment, they reasoned – and the resulting economic activity would create tax revenues that would make up for the cost of the initial credits.
“It’s totally self-financing,” Ross said in a recent interview, “makes the project cheaper, faster and no risk to the government, no cost to the government.”
Even if that forecast is accurate, Ross and Navarro said Trump’s plan would require a revenue stream to pay private companies financing the investments, meaning the plan would likely impose substantial costs in the form of tolls and fees on the people using the new infrastructure. As a result, maintenance and new construction would only occur in communities where it is urgently needed if private investors were convinced users could afford to pay.
Many economists, though, are skeptical of Trump’s claims. Douglas Holtz-Eakin, an economist and the president of the conservative American Action Forum, said that to the extent investors were putting money into new bridges, railroads and air traffic control towers, they would not be spending the money on other endeavors, offsetting a projected increase in tax revenues.
“This is not something that magically creates money,” Holtz-Eakin said. It’s very misleading to say, ‘We’re going to spend $1 trillion, and it’s free.’ “
Holtz-Eakin did not object to tolls as the basis for a major new investment in infrastructure. He pointed out that financing infrastructure with tolls and fees can sometimes be useful because the volume of traffic can provide informative data on the economic value of different projects.
On the other hand, Trump’s proposal does imply tens of millions of dollars or more every year in new tolls and fees, which is a controversial idea for several reasons. One is that projects without a lucrative revenue stream probably won’t get funded; that could well be the case for replacement pipes for a relatively low-income city such as Flint, where residents would not be able to afford steep rate hikes on their water bills.
Others worry that tolls and fees can be an inefficient way of funding infrastructure. Tolling facilities can be expensive to maintain, said Stephanie Kane, a spokeswoman for the Alliance for Toll-Free Interstates, which represents a coalition of trucking and shipping companies and corporations such as McDonald’s that oppose tolling on existing interstate highways.
She also argued that drivers often choose different roads to avoid tolls, simply diverting the cost of maintenance to local jurisdictions while causing losses for investors.
“It is very common for tolls not to meet their funding projections and their revenue projections,” Kane said. “Tolls are bad policy and should be avoided.”
Advisers to Democratic candidate Hillary Clinton say that if the projections from Trump’s advisers are accurate, the tax credits would amount to a windfall for wealthy investors. Yet those investors would likely already be investing in any project that could generate a 10 percent profit, and experts are skeptical that new infrastructure could yield such generous returns.
Her campaign, along with many Democrats and business lobbyists in Washington, prefers an infrastructure approach that would combine direct government spending with a so-called “infrastructure bank” that uses public money to support loans and loan guarantees to private companies.
“I see government money, federal funds, as a lot of the seed money that these projects need,” said Gabe Horwitz, vice president for economic programs at the centrist Democratic think tank Third Way. “That government capital can leverage a ton of private capital.”
Even issuing conventional government bonds could be more efficient than relying on a system of tax credits to draw private-sector investment.
Kevin DeGood of the liberal Center for American Progress said that borrowing cash is not a problem for policymakers looking to invest in infrastructure.
“The municipal bond market is enormous, it is robust, and it is very efficient,” he said. “What we have are state and local jurisdictions that don’t have enough tax revenue to repay large amounts of new borrowing.”