The Biggest Barrier to Rebuilding America’s Infrastructure Is Red Tape

President Trump promised a $1 trillion infrastructure program; he has yet to deliver. That’s a good thing. We don’t need billions of taxpayer dollars tossed at politically appetizing projects, as with President Obama’s $800 billion Stimulus boondoggle. What we need is thoughtful reform of the process through which we repair and replace our bridges and airports and an innovative approach to financing such efforts.

Only then should we open the spigots.

Polling shows that infrastructure spending is extremely popular, and for a good reason. Nothing could be more important in boosting our long-term growth and competitiveness. A Quinnipiac poll found 90 percent of Democrats, Republicans and Independents support such investments.

There’s no question that U.S. transit and roads are lagging. We spend 2.4 percent of GDP on such investments, compared to 5 percent in Europe and 9 percent in China. The American Society of Civil Engineers reports that “the U.S. has only been paying half of its infrastructure bill for some time.” Those statistics won’t shock anyone who routinely faces hour-long delays driving to work or sits forever on the tarmac because of air traffic delays.  The cost of our decaying roads and tunnels is profound in lost productivity, lower incomes and sheer exasperation. Voters want action.

Given the overwhelming (and rare) bipartisan enthusiasm for infrastructure spending, it’s tempting for the Trump White House to charge ahead, on the assumption that this is one project that could move quickly through the legislative thicket.

Elaine Chao, Secretary of Transportation, is not going to make that mistake. Instead, she is focused on two objectives: streamlining the cumbersome red tape that drives up the costs of building our tunnels and rails and pushing for new financing models to ease the burden on the federal government. In the long run, attaining those goals will prove more important and enduring than a quick infusion of spending.

Speaking recently at the Milken Conference in Los Angeles, Ms. Chao said an infrastructure proposal is in the works, involving 16 different agencies (part of the problem), as well as state and local government bodies and representatives from the private sector. The plan will encompass spending in numerous areas, including energy development, water systems, broadband access, veterans’ hospitals and perhaps even workforce training. Ms. Chao says the ambition of the White House is to leverage some $200 billion of federal dollars over ten years in part through stimulating greater use of private funds and especially through public-private partnerships, known as P3s.

These partnerships do not denote privatization; rather, P3s involve a private funder taking an equity interest in a project such as a toll road. In return for investing in and in some instances managing the project, the equity partner expects to earn a profit. The approach is widely used in Europe and in other OECD countries, where it accounts for about 10 percent of outlays. By contrast, in the U.S., most infrastructure spending has historically been financed through municipal bonds, with only about 1 percent coming from P3s.

But, as many states and municipalities have become financially stressed, the use of P3s has expanded. Between 2000 and 2008, the number of municipal bonds outstanding increased by more than $2 trillion, or 138 percent. The Great Recession caused local tax revenues to slump, restraining most cities and states from issuing even more bonds. Hence, some turned to private funders; many states, however, have yet to authorize the use of P3s.

Not all Democrats approve of P3s since the projects are managed for a profit, which some claim will exceed the expected return to bondholders and end up costing taxpayers more. Democrat Senator Martin Heinrich of New Mexico, for instance, writes on his website that not all projects can attract private financing and that in particular rural projects (presumably like some in his state) might be left behind. Also, since private managers can sometimes skirt labor rules imposed on public entities, they tend to pay workers less.

Nonetheless, Virginia’s Democrat governor Terry McAuliffe, also speaking at the Milken Conference, boasts that his state leads the nation in using P3s and that they have proved essential.

Countering one of Heinrich’s objections, Ms. Chao emphasized that the Trump White House was focused on non-urban ventures. That’s where federal dollars might be needed, and that is, after all, where a lot of Trump voters live.

The expected funding breakdown ($200 billion from the feds seeding a trillion-dollar program over ten years) is close to the breakdown of spending today; some 16 percent of infrastructure outlays come from Washington, with the balance from state, local and private sources. The federal investment will be used for developments unable to attract private money and as an incentive (possibly through tax credits) to get projects moving quickly.

McAuliffe says he needs help from the federal government in streamlining the permit process and providing “fast-lane” grants. It can take up to a decade to obtain permits for projects — delays which add significantly to costs.  Partly the delays result from too many overlapping bureaucracies. Philip Howard, regulatory reform activist and a participant in President Trump’s forum on infrastructure innovation, says, “To fix America’s infrastructure, shine the spotlight on Congress. It needs to cut through the red tape by creating clear lines of authority.”

Other countries, especially Canada and Australia, have successfully enacted measures to speed approvals for projects. The U.S. needs to follow suit. Though Democrats will likely decry streamlining the permit process as an end-run around environmental and work safety rules, Republicans can point to enormous waste in the current process. After all, even President Obama advocated cutting through red tape.

Pressed on when we might actually see an infrastructure proposal, Ms. Chao noted that the legislative calendar is jammed with healthcare and tax reform. While the country (and especially long-suffering commuters) is impatient, the delay may give Ms. Chao time to get her program right. Nothing could be more important.

Published on TheFiscalTimes.com.