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Hullabaloo


Saturday, January 28, 2017

 

Trump's infrastructure tolls for thee

by Tom Sullivan


Photo by freakapotimus via Wikimedia Commons.

"With infrastructure, the devil is in the details," writes Business Insider's Linette Lopez. Joel Moser of the Columbia Business School, an infrastructure investor, puts it bluntly in Forbes last November:

"Use whatever tools, direct government spending or borrowing, private finance, any flavor of fees and/or taxes, to get it done," he added. "This is the approach the new administration must adopt if it is serious about making something happen."

To be fair to the Democrats, Schumer has 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. "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."
Which is why public infrastructure should remain public. Not to mention that public anger over a "unanimously reviled" state plan to pay for widening I-77 north of Charlotte involving public-private toll lanes cost Pat McCrory tens of thousands of votes there and the NC governorship in 2016. File that away.

Why involve private investors at all? asks Paul Krugman. It's not as if the government cannot borrow the money at rock-bottom rates:
Second, how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream? Toll roads are not the main thing we need right now; what about sewage systems, making up for deferred maintenance, and so on? You could bring in private investors by guaranteeing them future government money — say, paying rent in perpetuity for the use of a water system built by a private consortium. But this, even more than having someone else collect tolls, would simply be government borrowing through the back door — with much less transparency, and hence greater opportunities for giveaways to favored interests.
Which, after decades of Republicans demonizing government spending, is just the point. They don't care how much government spends, just whose pockets get lined. Conservatives zealots like Grover Norquist made raising taxes a reelection killer. Fees for service gets infrastructure built without them, and if taxpayers end up with even less in their pockets at the end of the year, well, they won't notice and at least they can't blame us for their taxes going up. So, tolls:
Any infrastructure initiative should include rebuilding and expanding U.S. interstates, constructed in the 1950s, and addressing the almost 58,500 structurally deficient bridges, said Robert Poole, director of transportation policy at the Reason Foundation, a nonprofit in Los Angeles that advocates for free markets. To do so, Congress would need to give states the opportunity to levy tolls on existing federal interstates, a practice which is prohibited in current law, he said.
Taxes: bad. Fee for service: better. (Ask Pat McCrory what he thinks of that now.) What most reporting on Trump's infrastructure plan(?) fails to tell Trump's red-hatters is into whose pockets the indirect taxes they'll be paying will go.

With investment at the scale being discussed, it will be nearly impossible to follow the "two simple rules" Trump laid out in his inaugural address: "buy American and hire American." Construction work will go to Americans, sure. But the ownership of the assets and the decades of tolls is less certain, writes The American Interest:
Trump has not commented on how and whether foreign interests might be involved in the infrastructure plans. But Qatar won’t be the only foreign interest knocking on the doors of Trump Tower/the White House, nor will overseas assistance come only in the form of capital investment offers. Much of the privatization expertise is in Europe, which has decades of experience with the kinds of private-public partnerships Trump will likely pursue. Companies like Spain’s Cintra already have deals to construct and operate highway projects with American state governments. American firms and investors are at a disadvantage because they don’t have competencies in evaluating and participating in these kinds of deals.
So large multinational investors and foreign constructors, firms such as Cintra (Spain) or Macquarie (Australia) or Ferrovial (Spain) or AECOM (US). Or water privatization companies such as Suez (France) or Veolia (France). Between those two, they "command a 24% share of the global market, while the current five largest companies account for 35% of the global market in population served terms.” Buy American and hire American? Try keeping your eye on the pea under the walnut shell. These kinds of infrastructure contracts are highly complex just so less-sophisticated government bureaucrats cannot. Guess who has the better lawyers?

We've covered this ground here before. The "private equity" portion of highway deals tends to be largely federally backed Transportation Infrastructure Finance and Innovation Act (TIFIA) loans that leave taxpayers on the hook when within 15 years of decades-long contracts toll revenues go south and the shell companies file for bankruptcy:
Beginning with the contracting stage, the evidence suggests toll operating public private partnerships are transportation shell companies for international financiers and contractors who blueprint future bankruptcies. Because Uncle Sam generally guarantees the bonds – by far the largest chunk of "private" money – if and when the private toll road or tunnel partner goes bankrupt, taxpayers are forced to pay off the bonds while absorbing all loans the state and federal governments gave the private shell company and any accumulated depreciation. Yet the shell company's parent firms get to keep years of actual toll income, on top of millions in design-build cost overruns.
These are just the kinds of "deals" Trump loves to cut for himself. Think he won't find a way to cut himself in?

As Krugman asks, why involve private investors at all? The Democrats' $1 trillion plan will keep more money at home. Brad Plumer writes at Vox, Democrats want to keep the public in public infrastructure:
The Democratic proposal is more old-fashioned — the federal government would mostly send money directly to states for public works. The biggest concern with a plan like this, Glaeser told me last fall, is that in the past, a lot of federal spending on infrastructure has been wasted on unnecessary new roads (or white elephant transit projects) rather than upgrading aging but valuable infrastructure.

The proposal — backed by Democratic Sens. Schumer, Tom Carper, Sherrod Brown, Bernie Sanders, Bill Nelson, Maria Cantwell, and Ron Wyden — steers away from new road construction and focuses more on repairing existing roads. It also has billions for transit, ports, the electric grid, and other projects. Here’s a more precise breakdown:
  • $210 billion to “repair crumbling roads and bridges.” This would include an expansion of the Obama administration’s TIGER grants, which offered money to cities trying to solve key environmental issues via transportation.
  • $110 billion to upgrade local water and sewer systems by providing local communities and taxpayers with federal grants, rather than loans.
  • $180 billion to replace and expand existing rail and bus systems.
  • $75 billion to rebuild schools (these projects are typically financed through local property taxes).
  • $70 billion to “modernize America’s Ports, Airports, & Waterways.”
  • $20 billion to expand high-speed broadband in unserved and underserved areas.
  • $100 billion in new funding for energy infrastructure and grid modernization. This would also include reforming tax incentives for renewable energy. Also: “A permanent incentive would be given for electricity generation, transportation fuels, and energy efficiency improvements.”
  • $200 billion for “a new Vital Infrastructure Projects program that will direct major federal investments to the most critical national projects.”
  • $20 billion in funding to “address critical infrastructure backlogs on Public Lands and in Indian country.”
  • $10 billion to “construct new Veterans Administration Hospitals & Extended Care Facilities for our nation's heroes, and upgrade Army National Guard Readiness Centers.”
  • $10 billion to “support the creation of New Innovative Financing tools aimed at unlocking private pools of capital and increasing infrastructure investment.”
  • It proposes the creation of a new infrastructure finance entity (“I-Bank”) that would unlock private pools of capital to provide low-cost loans or loan guarantees for infrastructure projects across a broad range of sectors, including transportation, energy, affordable housing, and water infrastructure.
Trump supporters thinking their champion will "make America great again" could be in for a great surprise. David Cohen writes at The American Prospect, besides financial risks, public-private partnership deals carry risks of loss of public control, profit rather than need driving decision making, reduced labor standards, for some, loss of access to infrastructure their taxes paid for, and loss of transparency. One week in, the last is already a hallmark of the Trump administration.

I say the world is in the grip of an economic cult for good reason. Especially with preserving access to clean, unprivatized water, but beyond that, with privatization we are dealing with people for whom no essential for life is beyond finance. We are dealing with people who would sell you the air you breathe if they could control how it gets to your nose. And if you cannot afford to buy their air, well, you should have worked harder, planned better, and saved more.

Let's rebuild, but keep the public in public infrastructure.