What the Trump Infrastructure Plan Gets Right
There are strong arguments for its proposals that would remove barriers to innovative financing and streamline the regulatory process.
One can summarize the reactions to the White House's proposal that Congress stimulate $1.5 trillion in infrastructure investment in a few ways. There are those who point out the obvious challenges in President Trump's long-awaited plan, which was released last week: that state and local governments already make most infrastructure investment and this proposal would do little to change that. Others make a similarly on-the-nose observation: that there is inadequate funding for U.S. infrastructure and we all should aspire for much, much more.
But those who might dismiss the White House's plan out of hand would do well to look beyond what has gotten most of the attention, the $200 billion increase in federal funding that it proposes. Some of the plan's provisions would go a long way toward changing for the better how we finance infrastructure projects and get them done.
The most significant of these is the nudge to infrastructure development that takes the form of "asset recycling," where a government can lease a piece of infrastructure to a private company and reinvest the proceeds from that deal into other infrastructure projects. The largest of these opportunities, addressed in last week's announcement, involves our nation's airports, many of which are state or locally owned and exist as potential engines of wider infrastructure investment.
Years ago during my time as mayor of Indianapolis, I worked to privatize the management of the city's airport. Service delivery improved significantly, but federal law prevented the city from capturing any of the newly created value. A subsequent federal change authorized a limited number of pilot programs allowing cities to roll newly created value from an airport into other local infrastructure assets, but a cap on the number of pilot airports and restrictions of airline approvals limited such reinvestment. The administration's new proposal could make airport asset recycling much more accessible. Around the country, even a midsized, non-hub city could realize over $500 million while still not raising costs to airlines or their customers. (Disclosure: I advise cities and funds involved in airport management and ownership.)
The administration plan also makes room for private companies to more easily invest money and talent at a lower cost through better access to tax-exempt private activity bonds (PABs). The plan would eliminate certain per-state annual caps on the issuance of PABs and increase the ability of municipalities to benefit from this highly competitive source of financing. If comprehensively implemented, this aspect of the infrastructure proposal would correct a glaring anomaly that affects several kinds of city assets: A privately designed and built public asset -- such as a road or airport or water-treatment facility -- often cannot access public tax-exempt debt markets even when the asset has wholly public purposes.
By addressing this anomaly, the administration proposal would relieve one of the harshest penalties imposed on cities and counties when they transfer an asset to a private operator who guarantees savings: Currently in such cases, tax-exempt debt must be paid off prematurely -- "defeased," in the parlance of the industry -- even when there is no policy or economic rationale for that requirement. Allowing privately financed infrastructure projects to more easily utilize tax-exempt financing would increase infrastructure investment and reduce local costs.
Another important area of progress captured in the White House proposal has to do with the needed streamlining of redundant, time-consuming and ineffective regulatory reviews. Every local official can provide some horror story of delays from federally required approvals. A friend recently recounted to me the story of a simple project approval for a bridge in need of structural repair. The environmental review process was so long delayed that a colleague of his had not one but two children in the interim. I believe that one can be a hard-core environmentalist while still wishing for more expeditious processes that focus regulators on the environmental impacts that genuinely matter. The new proposal paves the way to a new, expedited review structure and would authorize a pilot program through which agencies could experiment with better regulatory processes.
State and local governments have long led the charge on many of our nation's most vital infrastructure projects. By outlining sensible paths forward for leveraging private capital and decreasing the drag of unnecessary regulation, the proposals announced last week stand to make their efforts more than a little bit easier.