Trump’s infrastructure plan rests on some rickety assumptions

Experts greeted the long-awaited details of President Donald Trump’s promise to unleash a US$1.5 trillion wave of new infrastructure spending with skepticism.

There’s widespread concern about whether his plan can deliver because it puts only $200 billion in federal funding on the table, which Democrats say is roughly equal to the money that the White House has been trying to cut from similar programs, such as the Highway Trust Fund. There are also ample questions from the lawmakers who need to approve that money about where even that sum will come from.

As expected, Trump wants to rely on states, local governments and, most importantly, private investors to foot most of the bill. As researchers studying ways to boost private infrastructure spending, we believe that it will fall short of the target investment because it does not address private investors’ key concerns, and it would not work for many kinds of high-priority projects.

Matching and mismatching

Half the proposed new federal funding – $100 billion – would cover the cost of making direct grants to local governments intended to spur more infrastructure spending. Another $50 billion would cover the cost of new block grants for rural projects. Some $20 billion would support what the White House calls new “transformative projects.” The remaining $30 billion would help pay for miscellaneous existing infrastructure programs.

Trump’s plan would also streamline and expedite the process now required for legally mandated environmental reviews. It would also make it easier for states to raise money through tolls, user fees and the sale of land and other assets.

Overall, the plan rests on the premise that the government can leverage private investment to help pay the nation’s infrastructure bill.

That is why his plan favorspublic-private partnerships,” or P3s, the most common way governments attract and leverage private investment.

Here’s how they work. A public sponsor – either the federal government agency or a state or local government agency – contracts out part or all of the financing, construction, maintenance and operation of a project to a group of private companies following a competitive bidding process.

P3 bottlenecks

The amount of infrastructure money in new U.S. P3s has waned in recent years. It fell to $710 million between 2011 and 2014 from higher levels seen a few years earlier, the most recent period for which data is available. And P3s only facilitated about 1.5 percent of the $4 trillion all levels of government spent on highways between 1989 and 2013, according to the nonpartisan Congressional Budget Office.

However, the number of pension funds and other institutional investors putting money into infrastructure has doubled.

What’s been holding things up?

Investors do not typically say that a lack of federal subsidies, like the $200 billion Trump seeks, is a big bottleneck. Instead, to draw much more private investment, the U.S. needs clear, consistent regulations that will help make projects more likely to withstand any shifts in political power – such as when the majority party changes at any level of government.

Establishing a more successful track record for these partnerships, which have often faltered, will also help.

These proposed changes could help raise money, but they would not help state or local governments reassure their constituents that P3s serve their best interest.

One step the U.S. could take now is to follow the examples set by Australia and Canada, where more infrastructure is being built through these partnerships.

Specialized P3 teams in those countries have developed uniform competitive bidding processes, standardized contracts and project pipelines all based on lessons learned from prior partnerships. They also help identify projects that will help the public the most, rather than those with the greatest potential to generate revenue.

A public-private partnership with the Australian government’s support will build a second international airport for travel to Sydney. Reuters/Jason Reed

Californian precedents

The spotty track record for some U.S. efforts to establish P3s underscores the importance of that kind of coordination.