Trump (Reportedly) Abandons Plan to Fund Infrastructure Plan With Private Money

Failing public good – or investment opportunity? Photo: Stephen Brashear/Getty Images

During his campaign, Donald Trump promised to deliver blue-collar jobs to the rural America by making a $1 trillion investment in our nation’s infrastructure. After winning election, his administration revealed that the bulk of this funding would come from the private sector: Rather than directly funding $1 trillion worth of public works, the federal government would encourage investors to bankroll for-profit construction projects by offering them a couple hundred billion in tax incentives.

There were a couple problems with this idea. For one thing, the administration’s plan did not have any mechanism for ensuring that the tax incentives wouldn’t be wasted on projects that would have been built without them. In fact, Trump’s framework would have allowed investors to collect tax breaks on projects that were already underway. Which is to say: The plan may have ultimately done more to decrease the tax liabilities of well-heeled investors than to generate the construction of vital infrastructure.

But even if the plan were amended to prevent its tax incentives from being grossly misallocated, a more fundamental problem remained: You can’t fund unprofitable infrastructure with private investment, and most infrastructure projects in small-town, rural America — i.e. where Trump’s “forgotten Americans” live — will be unprofitable. No one wants to build a toll road through small-town West Virginia, even if doing so would create good construction jobs and increase economic activity in the region. And, anyway, people hate toll roads.

Plus, there’s the dirty little secret that outsourcing projects to the private sector does not guarantee they’ll be more efficiently administered — as Mike Pence’s home state recently learned.

Apparently, these simple facts have finally dawned on our commander-in-chief. As Bloomberg reports:

President Donald Trump appeared to reverse course on a key element of his $1 trillion infrastructure plan, saying public-private partnerships aren’t the solution for building and repairing the nation’s highways, bridges and ports.

In a meeting Tuesday to discuss his plan to overhaul U.S. taxes, Trump told Republicans and Democrats on the House Ways and Means Committee that such projects don’t work, according to Democrats Brian Higgins of New York and Terri Sewell of Alabama, who attended the meeting.

… [Transportation secretary Elaine] Chao said as recently as Aug. 30 in a meeting with state officials that the administration’s goal is to use federal funds as an incentive, or “seed money,” to get projects underway and built more quickly. But lawmakers, including Republicans, have questioned how effective public-private partnerships can be in rural and or less-populated areas that can’t generate the tolls or fees needed to attract private investment.

While Trump didn’t go into detail about a specific project, he did cite Indiana’s experience with such deals under then-governor Mike Pence. The Indiana Finance Authority Announced in June that the state was taking back control of an expansion of Interstate 69 from a private consortium after delays and other problems.

Representative Higgins suggested to Bloomberg that Trump’s change of mind reflected his growing disillusionment with congressional Republicans — and concomitant interest in cutting deals with Democrats. That’s plausible. Although, even if Mitch McConnell had come through on Obamacare repeal, the GOP’s innate reluctance to invest in any new public goods might have led Trump to seek Democratic cooperation on infrastructure, anyway.

But it also seems possible that Trump has grown skeptical about funding infrastructure improvements in rural America with tax incentives for private investors because that is a dumb idea that obviously wouldn’t work.

Trump Rethinks Funding Infrastructure With Private Money