Believe me, I’m all for upgrading our dilapidated infrastructure. I devoted 50 pages of my 2019 book Enlightened Public Finance to America’s $4 trillion public works deficiency and the intergovernmental financing challenges it poses. Nobody wants more than to see unsafe bridges replaced, roads modernized, antiquated buildings refurbished, obsolete water and sewer mains replaced, and public hospital capacity expanded. But we need to do it right and pay for it sensibly, not irresponsibly.
So let's get past the idea of spending trillions now on a crash infrastructure program to put workers idled by the coronavirus pandemic back on payrolls. For starters, the labor force that builds infrastructure has very little to do with the millions of workers reflected in the surging COVID-19 unemployment claims. That’s a complete skills-and-aptitude mismatch. Show me the hotel concierge or movie ticket-taker who can drive a backhoe or a bulldozer. Show me the retail counter clerk who will dig trenches, lay drainage pipe and shovel gravel.
You know where available construction workers will be when America’s COVID-19 shutdown ends? They will be fully employed by the nation’s homebuilders erecting single-family suburban houses for young families who now can’t wait to get out of the cities. Full employment will bounce back quickly for the construction trades without a penny from Capitol Hill.
Why, then, would Congress now greenlight the executive branch to run a massive infrastructure program, given its spotty track record of project management and its obvious preoccupation with the pandemic and re-election? Why not wait until next year, when the election and hopefully the pandemic will be behind us and there will be time for sensible planning for longer-term economic recovery?
Were we to rush into panic-driven infrastructure spending, critics fear not unreasonably that the White House would waste billions of dollars on campaign donors’ pet projects and allocate too much to favored governors. If officials on both sides of East Executive Avenue (which runs between the White House and the Treasury) cannot expedite less than a billion bucks worth of desperately needed virus testing kits, how on earth can they possibly manage a trillion dollars of infrastructure largess? Many congressional Democrats are understandably reluctant to fuel more TV episodes of President Trump posturing himself as a grand patron dispensing federal resources. They cringe at the mere thought of scores of eponymous bridges, highways and buildings.
To escape the contrived world of reality TV politics, a successful and efficient infrastructure program requires that both parties break from their accustomed political practices with:
- Advance federal planning and meticulous coordination with state and local governments. No more “ready, fire, aim.”
- Prioritization at the state level of cost-effective capital projects with long, useful lives. No pothole-filling and painting projects.
- An equitable allocation formula decided by Congress, not the White House.
- Cost-sharing with the state and local jurisdictions whose residents enjoy the new facilities. Giveaways inevitably flunk the cost-benefit test.
- A federal financing facility to enable the states and largest municipalities to access capital markets for permanent long-term financing at low rates.
- A revenue plan to pay for it. One example: In the coming 5G/electric vehicle era, new “e-toll” micropayments could help pay for road and bridge work, supplementing the inadequate gas tax.
Key policy points to consider:
Smarter timing and prioritization. A chronic problem with prior recession-fighting counter-cyclical construction programs is the policy implementation lag. It just takes too long to get money into the economy this way. COVID-19 herd immunity will arrive before any new infrastructure workers ever get paid. In all such programs over the past 40 years, we saw too many “federally funded” construction signs erected long after the economy had recovered. Nothing will be gained by rushing a bill to a 2020 vote that falsely promises quick, majestic results and invites half-baked, mismanaged projects.
Equitable, streamlined allocation. In the case of the first trillion dollars’ worth of total infrastructure spending that the federal government might authorize, I suggest it be kept as simple as possible. Appropriate the money to the states on a block grant, per capita basis. Don’t overcomplicate it or impose a thick federal rulebook with mountains of red tape.
And keep Congress and the White House out of the game of picking projects. No earmarks. No Beltway patronage. No direct funding to municipalities. All applications should go through the governors to centralize implementation at the state level. Nevertheless, a bipartisan rule should reserve a 50 percent sub-allocation for each state’s subdivisions to reflect their historical average portion of expenditures.
Intergovernmental cost-sharing. Congress should require that half of the funding for each project come from the state and/or its subdivisions. Thus, a $1 trillion national program would require $500 billion each from the feds and the states. How project sponsors raise the money is their business. If the matching funds are not available for one project, governors should find another project. Every state has plenty of needs to be met. Any project truly worth its while to residents will find a way to raise the capital.
A temporary financing vehicle for states. For the 50 percent match to work in quick time, Congress needs to authorize the Treasury to open its Federal Financing Bank window to the states. They thereby could immediately raise their share of infrastructure project costs through long-term FFB borrowings at the low interest rates that the U.S. enjoys in these depressed financial markets. Access to FFB overcomes the need for states and municipalities to raise their share of these project costs by going to voters for general obligation bond issues. FFB would complement the Federal Reserve’s new emergency liquidity facility by providing permanent financing, not just a temporary finger in the dike. It’s not free money — state and local taxpayers will still need to pay their share of infrastructure debt service — but it’s quick money.
Raising Uncle Sam’s share. Here are two ways: (1) with new infrastructure bonds that are inflation-adjusted to protect household savers and pension funds, and (2) with a new federal infrastructure tax and fee plan. In my next biweekly finance column, I’ll further explain where the money should come from and explore the long-term benefits if Congress waits until 2021.