If President Trump could actually muster $1 trillion for rebuilding the nation’s backbone, he’d find plenty of roads and bridges ready for repair. The problem is getting the money where it’s needed.
A key but underrecognized element of Trump’s infrastructure plan is the role of private funding, rather than taxpayer money, would play. To encourage $1 trillion worth of private infrastructure investment, Trump calls for around $137 billion in taxpayer funding over 10 years, through tax credits issued to private investors who put their money into such projects. The rest of the money would come from investors earning annual returns of perhaps 9% or 10% on their money. Trump further asserts that the government would earn back the $137 billion in tax credits, through higher tax revenue generated by newly employed workers and contractors profiting on the projects.
The concept is theoretically sound (if a little too convenient), except for one thing—political realities likely to get in the way. Projects funded by private money would require tolls or other user fees going back to investors as a revenue stream, a funding model that has caught on in Europe and Australia, but not here. “Even though we call ourselves a country that admires free enterprise, we create a lot of barriers when it comes to what have been free public services that now have to be monetized,” says Henry Cisneros, who was secretary of Housing and Urban Development in the Clinton administration and is now a partner at infrastructure-finance firm Siebert Cisneros Shank.
Cisneros outlines three basic barriers to private funding for infrastructure: a mish-mash of rules that vary by state, reluctance to turn over public services to private investors, and investors themselves who don’t yet see a viable return on American projects. “We’ve got to get over those humps to compete with Europe and Australia and China, where they’re building 200-mile-per-hour rail systems,” he says. “We can’t even come close to that.”
Trump would have to improve on this to make his private-funding plan viable. One thing he could do is set standards and establish a system for investing in multiple projects, rather than the one-at-a-time approach that prevails now. That would scale up the likely returns for investors, and generate more interest. Many analysts favor a national “infrastructure bank” that might help with this and would prioritize projects, especially big ones that span multiple states or cities.
States would have to do their part, adopting some national standards and setting up their own infrastructure banks working in concert with the national one. There would also have to be a lot of public persuasion by Trump and other elected officials, to convince voters that it’s in their interest to let Wall Street-style investors make a profit off the roads, bridges, airports, waterways and public assets they use every day.
That might sound like a hard sell, but there may be no other choice—no matter who’s president—given the lack of traditional funding for projects in Washington, and many state budgets that are stressed as well. “We’re going to need, as a country, private capital,” Cisneros says. “There’s isn’t any [other] money. “It’s going to have to come out of the private sector.”
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman