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Seven Ways Trump and Congress Can Improve Infrastructure without Spending a Dime of Taxpayer Money

Ryan Bourne

“Infrastructure Week” sees the U.S. Chamber of Commerce, unions,
the American Society of Civil Engineers, and many others telling
Congress that “It’s Time To Build.” Yet a quick perusal of
Infrastructure Week’s website suggests a more accurate description
of their demand is, “It’s Time to Spend More Taxpayer Money.”

This is a shame. With President Trump pledging $1 trillion of new public and private
investment
across a decade and Democrats preferring direct federal spending, the group
could be pushing at an open door. But the cross-party obsession on
federal spending levels ignores opportunities to make
infrastructure development more efficient without increasing
demands on taxpayers.

In order to get the biggest “bang for our buck”, infrastructure
policy should encourage innovation, cost-effective provision, and
investment where it is most economically beneficial. This means
putting aside short-term concerns about “creating jobs” and
“shovel-ready projects,” and focusing on long-run growth. Here are
seven ways to do that:

In order to get the
biggest “bang for our buck”, infrastructure policy should encourage
innovation, cost-effective provision, and investment where it is
most economically beneficial.

  1. Government should only be involved in projects where there are
    high social returns that the private sector would not provide. We
    are way beyond this in the United States. Other countries show the
    possibility of having well-run and maintained privatized airports
    (the United Kingdom), air traffic control systems (Canada) and
    railways (Japan). Many areas of U.S. infrastructure are ripe for
    privatization, and the experience of the U.K. and elsewhere suggests
    this could lower prices for consumers without compromising
    quality.
  2. The burden of responsibility for spending and taxation on
    projects should be shifted towards states. Federal aid often
    distributes money to the detriment of economic growth. The Highway
    Trust Fund, for example, disproportionately benefits large,
    relatively underpopulated areas, rather than investing in areas of
    rapid growth. Harvard economist Ed Glaeser has outlined how
    “Alaska received $484 million in the 2015 highway-aid apportionment
    … about $657 for each Alaskan” while “New York State received $1.62
    billion, or $82 per person.” Clearly, this does not reflect
    economic demands.
  3. The federal government should remove barriers to user charging,
    such as tolling restrictions on interstate highways and the cap on
    passenger facility charges at airports. User charging provides
    incentives to reduce congestion and ensure development closely
    aligns with demand. Having clear revenue streams associated with
    assets also makes private sector investment more likely. The
    economic benefits could be substantial. The Federal Highway
    Administration estimates congestion pricing could reduce the amount
    of capital investment required to meet the same goals for the
    highway system by around 30 percent.
  4. Decisions on what government projects to undertake given scarce
    resources should be decided by selecting those with the highest
    benefit/cost ratios. Though governments around the world tend to be
    overoptimistic about the benefits of major projects generally, the
    Federal Highway Administration has estimated selecting highway
    projects on this basis could see the same level of benefits
    delivered for about 25 percent less cost.
  5. The tax bias towards government debt financing of projects
    should be ended. Under present federal income tax law, the interest
    income you receive from investing in municipal bonds is free from
    federal income taxes, which is not the case for private debt. This
    tips the deck in favor of government investment and deters private
    infrastructure ventures.
  6. Environmental regulations which delay and raise the cost of
    projects should be streamlined. A report for the outgoing Obama administration estimated that
    “the average time to complete a [National Environmental Policy Act]
    study increased from 2.2 years in the 1970s … to 6.6 years in
    2011.” This increases costs and adds significant uncertainty to a
    project, deterring private investment. Imposing time limits for
    agency decisions or narrowing the Act are two crude ways to curb
    this trend.
  7. Finally, regulations which raise the cost of providing
    infrastructure should be repealed. The federal Davis-Bacon Act
    commits federal construction projects to pay “prevailing wages” for
    construction workers, often meaning union rates at a significantly
    higher cost. Repealing the Act could have saved taxpayers $13 billion between 2015 and 2023, according to
    the CBO. Likewise, Buy America regulations impose requirements that
    federal construction projects use American steel, iron, and other
    products in highway construction unless waivers are granted, which
    also raises costs. This could get worse of course, if the Trump
    administration imposes further import restrictions on steel
    imports.

Trump has a huge opportunity to overhaul all these areas to
improve infrastructure for generations to come. But if he is to do
so, he will need to cast aside the notion from “Infrastructure
Week” and advocacy groups that improving infrastructure is all
about more spending, and instead focus on getting the structures
and institutions right.

Ryan Bourne is the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato