On Tuesday Senate Minority Leader Chuck Schumer introduced a 10-year, $1 trillion infrastructure building plan — one that seems to jive with the kind of investment President Donald Trump talked about on the campaign trail.
“Senate Democrats are walking the walk on repairing and rebuilding our nation’s crumbling infrastructure,” Schumer said. “We ask President Trump to support this common sense, comprehensive approach.”
Sounds good, right? The President and his opposition agree on something. Should be easy for him to rally his party behind this and get something done.
Wrong. With infrastructure, the devil is in the details. And the details are not only about what gets built (though it should be something useful), but also (and more importantly for our purposes) how it’s paid for, and there’s a lot of disagreement between Democrats, congressional Republicans, and President Trump on that.
In his announcement, Schumer said that a spending bill that depends on tax credits and public/private partnerships to spur private investment in infrastructure would not be acceptable to Democrats. And, ladies and gentleman, that’s basically the only kind of financing Trump talks about in his plan (which, to be fair, seems unfinished and lacks a lot of important details).
Republicans, on the other hand, have already started dismissing Trump’s ideas on infrastructure overall. As early as December, Senate Majority Leader Mitch McConnell he hoped to “avoid a trillion-dollar stimulus.”
McConnell’s second in command in the Senate, John Cornyn of Texas, cited the national debt as a concern, saying that the plan would have to be paid for.
Well, yes. Any expert will tell you that all infrastructure is eventually paid for one way or another.
“When I teach my class in infrastructure development and finance, I usually conclude by providing my recommendation as to how to get a project financed. My advice: ‘whatever works,'” infrastructure investor and Columbia Business School professor Joel Moser wrote in Forbes a few months ago.
“Use whatever tools, direct government spending or borrowing, private finance, any flavour or fees and/or taxes, to get it done. This is the approach the new administration must adopt if it is serious about making something happen.”
Now, to be fair to the Democrats, Schumer does have a point in his opposition to financing this spending through tax breaks for the private sector: Projects that don’t generate revenue for the private sector generally don’t get financed.
“No amount of tax break will encourage investment in an asset that doesn’t produce revenue,” Moser wrote in his column. “No one will invest in the replacement of defective bridges that have no tolls, regardless of the tax abatement, unless a revenue stream is attached to those assets.”
And you can bet Americans have no interest in paying a toll for every little road and bridge that adds up to this $1 trillion tab. Meanwhile, no private company or investment firm wants to fix your town’s pot holes without getting a fat check from the government. Sorry.
There is an adult in this room
There is hope though, and that hope is in the form of 79 year-old billionaire and Trump’s nominee for commerce secretary Wilbur Ross. Based on how warmly he was received by both sides of the aisle at his Senate confirmation hearing last week, he will almost certainly be confirmed. He was even applauded for transparently divesting from his vast network of assets.
Ross acknowledged that the Trump plan only cites one kind of financing, and that it is incomplete. He hasn’t seen a list of “high priority” projects from the administration either. He does, however, believe in different kinds of financing.
One financing method is based on user fees like tolls, while other projects will need direct outlays from the government (especially in rural areas, he pointed out).
Then there’s the third way, which is for more complicated projects. That’s where the public/private partnerships and tax breaks come in. They’re not meant to replace the other kinds of financing; they’re meant to be “another tool.”
“All kinds of things have to be fixed if we’re going to be a truly competitive economy,” Ross said.
So you can see how this is already delicate, especially for a Washington outsider like Trump. Congressional Republicans — his allies — don’t have a plan, and don’t really seem to want one. Schumer has one the Republicans will hate, and Trump has no plan beyond “ok, here’s some stuff we should build.”
Meanwhile, as Morgan Stanley pointed out in a note recently, and as we’ve discussed on this site, Trump seems to be putting some tough political fights before infrastructure. First there’s repealing Obamacare, then there’s something Republicans actually want, tax reform. The latter is already turning into a dog fight.
“Tax reform is not a given,” Morgan Stanley’s Michael Zezas wrote this week.”…there’s rising risk that it becomes collateral damage of the debate over how to repeal the Affordable Care Act (ACA, or ‘Obamacare’). Rising displeasure among Republicans about the risk of increasing the uninsured if they repeal ACA without immediately replacing it risks delaying this legislative process, and tax reform as a consequence.”
Infrastructure is likely to come only after the dust settles from all those battles, unless Schumer really knows how to blow it up. Regardless, this is in no way going to be a breeze.
Listen to BI’s Linette Lopez and Josh Barro talk about how infrastructure projects go wrong on their podcast, Hard Pass.