Public-Private Partnerships and the Forthcoming Trump Infrastructure Plan

Commentary

Public-Private Partnerships and the Forthcoming Trump Infrastructure Plan

Although the specifics of the White House infrastructure plan are still murky

Although the specifics of the White House infrastructure plan are still murky, I’m going speculate on what seems to be likely at this point in time.

First, the plan will include efforts to expand the use of Public-Private Partnerships (P3) concessions by state and local governments that own and operate nearly all transportation and water/wastewater systems. Evidence for this is manifold:

• The Washington Examiner (Oct. 16, 2017) quoted an unnamed White House official (whom many of us know) saying that private investment will be part of “an all-of-the-above” strategy.

• The just-released U.S. DOT strategic plan for 2018-2022 calls for “encouraging partnerships between the public and private sectors,” and stresses P3s in several places.

• Chairman Bill Shuster (R, PA) of the House Transportation & Infrastructure Committee, an early Trump supporter, continues to stress P3s as an integral part of the expected infrastructure program.

Second, we continuously see references to key themes in the White House’s six-page May 2017 Fact Sheet on its Infrastructure Initiative. This initiative includes leveraging state and local funding (in addition to private capital), re-evaluating the role of the federal government concerning state/local infrastructure, and reforming the federal government’s own infrastructure (the air traffic control system, the power marketing administrations, and the inland waterways system).

Third, there is more bipartisan interest in P3s than has been apparent in the recent over-reaction to the President’s disparaging comments. Back in 2014, when the parties were not so polarized, a bipartisan special panel of the House Transportation & Infrastructure Committee issued a report, “Public-Private Partnerships: Balancing the Needs of the Public and Private Sectors to Finance the Nation’s Infrastructure.” It represented a consensus among panel members from both parties, including Ranking Member Peter DeFazio (D, OR).

There are at least three bipartisan caucuses in the House whose focus includes infrastructure and seek to move beyond the extremely partisan nature of recent congressional debates: the new Congressional Infrastructure Caucus, the Problem Solvers Caucus, and the New Democrats’ 21st Century Infrastructure Task Force (whose proposal includes P3s).

Rather than bad-mouthing P3s in an attempt to reach out to Democratic members, the President should be stressing continuity with the Obama Administration’s support for P3 infrastructure. The Department of Transportation (DOT) strategic plan for 2014-2018, produced under former Secretary Foxx, highlighted a larger role for P3s in addressing this country’s inadequate infrastructure. That Administration set up the Build America Bureau in DOT in response to a provision in the bipartisan Fixing America’s Surface Transportation (FAST) Act to coordinate DOT infrastructure credit programs and to develop and promote best practices for innovative financing and P3 procurements.

And in a breathtaking development, President Obama proposed a vast expansion of the small and limited Private Activity Bond (PAB) program for surface transportation P3 infrastructure. Qualified Public Infrastructure Bonds (QPIBs) would create a level financial playing field for P3s in an array of public-purpose infrastructure. Like PABs, interest on QPIBs would be exempt from federal taxation, but in addition, there would be no limit on the amount issued, and QPIBs would be exempt from the alternative minimum tax (AMT). Even more remarkable, the U.S. Treasury (which has historically opposed any expansion of tax-exempt bonding) endorsed the proposal and issued reports supportive of increased P3 infrastructure.

Since any bipartisan infrastructure bill (or even a solely Republican bill) will have to provide something meaningful for rural states, an important October development was President Trump’s suggestion that a portion of the proceeds from tax reform should be used for the net-new federal dollars section of the infrastructure program. One possible source is revenue from repatriation of overseas profits of U.S. corporations, as long championed by Rep. John Delaney (D, MD), a member of the New Dems Infrastructure Task Force.

At this juncture, my advice for advocates of P3 infrastructure is two-fold. First, put more emphasis on the above history of bipartisan support for combining private and public capital investment to increase and better target large-scale infrastructure modernization. And second, present a persuasive case showing how long-term P3 concessions will improve our infrastructure. It is not simply a matter of increased spending, though that is part of it. It is also wiser spending, for a number of reasons:

• Better project selection, based on return-on-investment screening;

• Getting much-needed mega-projects done many years sooner, thanks to being able to finance them and have users pay for them over time, as they enjoy the benefits;

• Better value for the money spent, due to a Design-Build-Finance-Operate-Maintain (DBFOM) process that minimizes life-cycle cost rather than initial cost;

• Significant risk transfer from taxpayers to investors, including risks of cost overruns, late completion, and inadequate traffic and revenue; and,

• Guaranteed maintenance over the long term of the concession agreement, addressing the very large problem of deferred maintenance.

Readers of Public Works Financing know these benefits, but most policymakers and opinion leaders do not. It’s up to us to make this case—in interviews with reporters, media appearances, white papers, and—yes—lobbying. Think tanks (such as AEI, Brookings, ENO, and Reason) do a lot of heavy lifting on P3s, creating policy papers, educating reporters, holding events, and sometimes providing legislative testimony. But think tanks generally don’t lobby. The P3 industry needs to be more vocal on the merits of the case and should direct its political efforts accordingly.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.