Safeguarding Infrastructure Investment

By Sean Kennedy

WasteWatcher, May 2017

As a candidate, President Trump pledged to invest in upgrading the country’s infrastructure.  While there is no formal plan to date from the White House, President Trump stated on May 1, 2017, that “If you have a job that you can't start within 90 days, we're not going to give you the money for it because it doesn't help. … We're going to be very strong on that.  They have to be able to start within 90 days.” 

Hopefully, the President is not trying emulate the (not-so-) “shovel-ready” standard that was attached by President Obama to the American Recovery and Reinvestment Act (ARRA) of 2009.  The results of that $862 billion expenditure demonstrated that the idea of a “shovel-ready” job is a myth.  Rather than picking a particular time frame to get going, or a vague standard that could include almost anything imaginable, the new infrastructure plan should fund projects that provide the highest long-term benefit at the best price.  A 2014 study of the Transportation Investment Generating Economic Recovery (TIGER) grant program that was included in the 2009 stimulus package found that the Department of Transportation ignored the cost-benefit analysis process, and awarded contracts on other, potentially political factors.

President Trump has also said that the plan should include public-private partnerships (PPP), and his fiscal year 2017 budget proposed the elimination of wasteful transportation programs such as the Essential Air Service. 

The package is supposed to contain about $1 trillion in spending, a price tag that has raised eyebrows from taxpayer watchdogs and many members of Congress.  To get across the finish line and signed into law, an infrastructure bill must incorporate several core principles to ensure the best value for taxpayers.

Congress should limit the federal role to interstate highways, and devolve funding to the state level.  Funding infrastructure projects at the federal level does not always reflect state and local government priorities.  The existing process creates perverse incentives for members of Congress:  the benefits of such projects are concentrated locally and the cost is spread out across the country, meaning legislators are not induced to control costs, or oppose nonessential projects.    

Infrastructure funding must be closely scrutinized and controlled, since these projects are routinely over budget.  A 2002 report, “Underestimating Costs in Public Works Projects,” which analyzed 258 such projects over 80 years, found average cost overruns of 44.7 percent for rail projects and 20.4 percent for road building.  Overall, projects cost 27.6 percent more than originally anticipated. 

Elected officials must take greater responsibility for ensuring that money is spent wisely.  A lax attitude can contribute to substantial cost overruns.  This is best illustrated by former Speaker of the Californian Assembly Willie Brown, who said in July 2013 in regard to the $300 million cost overrun for San Francisco’s Transbay Terminal, “We always knew the initial estimate was way under the real cost.  Just like we never had a real cost for the Central Subway or the Bay Bridge or any other massive construction project.  So get off it.  In the world of civic projects, the first budget is just a down payment.  If people knew the real cost from the start, nothing would ever be approved.  The idea is to get going.  Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”

Reduced revenue from the federal gas tax creates a perfect opportunity to fundamentally shift infrastructure spending.  The current tax of 18.4 cents on gasoline and 24.4 cents on diesel has been in place since 1993.  Increased fuel economy and inflation has resulted in diminished returns.  Elimination of the fuel tax and full devolution to states and local governments would reduce the cost and improve the efficiency of infrastructure spending. 

Increased use of PPPs would also provide a high return on investment for taxpayers.  Funding mechanisms such as toll roads on highways in such agreements would mean that those who use the finished result of an infrastructure project pay the cost.  Other user fees should be included whenever possible.

While it has not traditionally been considered as infrastructure, broadband funding is likely to be included in the infrastructure legislation.  Two bills introduced in the 115th Congress would create a “Dig Once” rule, which would require the installation of broadband infrastructure at the same time when roads are dug up.  A June 2012 Government Accountability Office study found that when “conduit and fiber installation is coordinated with a road or utility project, savings range from 25-33 percent” in urban regions, and approximately 16 percent in rural areas.  To the extent that broadband enters the larger infrastructure debate, “Dig Once” policies make economic sense.

Regulations should also be cut in any infrastructure deal.  Infrastructure projects must comply with both federal and state rules.  Regulations implemented by some states include prevailing wage laws, which prevent the utilization of less-skilled labor, and preferential treatment for in-state firms when other options might cost less.  Decreasing regulations would also help facilitate increased use of PPP agreements to provide funding for projects.

New thinking about infrastructure must include eliminating old, ineffective programs, like the Essential Air Service, subsidies for Amtrak, and various parochial, low-impact, high-cost projects, such as the Bridge to Nowhere. 

The lessons provided by the shortcomings of the ARRA must be accounted for during the upcoming debate of President Trump’s infrastructure proposal.  This type of spending inevitably entails messy, politically-oriented decision-making, and vast sums of money.  By devolving the process to states, deregulating, and increasing the role of the private sector, members of Congress can most effectively safeguard against wasteful spending and ensure the highest value on the taxpayers’ investment.

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