President-elect Donald Trump said he would spend twice as much as Hillary Clinton on our crumbling infrastructure.
We have a new president-elect. After a bruising, and at times off-putting, campaign, Donald Trump has crossed the finish line, and we breathe a sigh of relief that a shrill campaign season has come to an end. And after all the battling and fingerpointing, there was one -only one – topic they agreed on: infrastructure spending.
Some economists and politicians are again pushing the idea that billions of dollars in infrastructure spending will lift the U.S. economy out of the doldrums, spurring growth and raising employment and incomes. With government borrowing rates low, deficit finance amounts to a free lunch. But during her campaign, Hillary Clinton promised the biggest, most forward-looking investments in infrastructure in 50 years, or $250 billion over five years, paid for with higher corporate taxes. She also wanted to set aside $25 billion for a national “infrastructure bank” to highly leverage private spending on infrastructure projects.
Not to be outdone, Trump promoted his plan that would at least double the dollar figure of the Clinton plan, amounting to roughly $1 trillion in infrastructure investment over 10 years. Unlike the Clinton plan, Trump’s plan won’t rely on corporate taxes and government lending, but rather tax credits and private lending.
Spending wisely
So now we have a winner. And now a huge pot of additional money earmarked for infrastructure, on top of the recently passed $305 billion five-year highway bill, will unleash a scramble in Congress to secure funds for the home turf, as every major infrastructure project does. Unfortunately, we have made only small gains in tighter cost-benefit tests and oversight to assure that projects like the Alaskan “Bridge to Nowhere” does not get appropriated.
Most federal infrastructure spending is done by sending funds to state and local governments. For highway programs, the ratio is usually 80% federal, 20% state and local. But that means every local district has an incentive to press the federal authorities to fund projects with poor national returns. Detractors to this decades-old method of allocating infrastructure spending complain that attempting to stimulate the economy through federal matching funds gives state and local officials a powerful incentive to wait and see if they can get a federal grant, rather than just going ahead with their own project.
Also, our politicians should resist the dangerous temptation to use infrastructure spending for social engineering. California Gov. Jerry Brown, for example, has used $3 billion in subsidies from the 2009 Obama stimulus package to launch what will likely prove to be the biggest white elephant in state history. The so-called bullet train between San Francisco and Los Angeles saw its speed cut sharply and projected cost double to $68 billion before construction started.
Let’s avoid a boondoggle
So our policymakers should be careful before jumping on the infrastructure-spending bandwagon, and avoid turning it into a huge boondoggle. Trump and Congress should make sure the $305 billion highway bill is wisely spent, and a well-designed, rigorously vetted, steadily funded program addressing infrastructure needs of national importance would be far better than a hastily passed bill that is likely to end in disappointment.
Infrastructure spending has been an orphaned area of need by both the federal government and the states since long before the Great Recession. Only recently have many state budgets finally stabilized, allowing them to turn their eyes toward much needed, and long-deferred, projects to improve streets and highways, bridges, public buildings, and major utility, water, and wastewater systems. Hopefully, when the mantle of power is passed on to our newly elected president in January, he and the newly elected Congress can turn their eyes toward one of the most badly neglected areas of our economy.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.