As recently as Monday, few campaign promises looked deader than Donald Trump’s trillion-dollar infrastructure plan.
How dead? So dead that the market for municipal bonds, which had cratered in the two weeks after election day, had come crawling back as bond-buyers realized that no big plans were afoot. “Investors are less optimistic that the administration will implement its pro-growth agenda that includes hefty spending on infrastructure at the state and local level and tax reform,” the Financial Times wrote last week. They were worried that he’d actually go through with it, flooding the market with newer, higher-rate bonds, and maybe even eliminating the tax exemption that makes municipal bonds such an attractive investment. Then they stopped worrying.
And then on Tuesday, Trump went and quietly released an infrastructure plan, of sorts: a six-page document that Transportation Secretary Elaine Chao told reporters served as a guide to a legislative package that would come later this year.
It’s a short document, and like the rest of the budget, no more than a statement of intent for Congress to grapple with. (The White House decision to eliminate Amtrak long-distance routes and cut the popular TIGER infrastructure grant program, for example, part of a 13-percent slice out of the Department of Transportation budget, are unlikely to find favor in Congress.)
But it shows Trump’s two big goals: a smaller federal role in planning and funding (including expedited environmental reviews), and more private money in both new and existing infrastructure.
First, the plan calls for several well-known privatization projects. Airport traffic control would be corporatized. The lines, towers, and substations of the Power Marketing Administration, which helps the government sell hydroelectric power across the south and west, would be sold off. The administration also argues for tolls and private investment at rest stops on interstate highways, and congestion management strategies for urban areas.
But that’s just the beginning. The most significant signal of the Trump Administration’s goals may lie in the document’s other and more nebulous key principle: “Align Infrastructure Investment with Entities Best Suited to Provide Sustained and Efficient Investment.”
There, the administration says it will look for “opportunities to appropriately divest from certain functions, which will provide better services for citizens, and potentially generate budgetary savings. The Federal Government can also be more efficient about disposing underused capital assets, ensuring those assets are put to their highest and best use.” (Bolding mine.)
According to the Washington Post, the administration would like to begin a program of “asset recycling,” whereby cities, counties and states sell or lease their public assets to investment banks or private equity groups in exchange for upfront payments that can be invested in newer, less profit-friendly infrastructure. The administration may pay localities a bonus to privatize their assets, the Post reports:
“Instead of people in cities and states and municipalities coming to us and saying, ‘Please give us money to build a project,’ and not knowing if it will get maintained, and not knowing if it will get built, we say, ‘Hey, take a project you have right now, sell it off, privatize it, we know it will get maintained, and we’ll reward you for privatizing it,’ ” [Gary] Cohn told executives at the White House. “The bigger the thing you privatize, the more money we’ll give you.”
The document also calls for targeted federal spending, using public money as leverage for private money, and encouraging local initiatives—broad ideas with which few pols would disagree, at least in theory.
The administration wants more money for TIFIA and WIFIA, federal programs that fund, respectively, transportation projects and water infrastructure. Each uses a relatively small amount of federal money to tap private dollars for assets like toll roads that generate user fees. The document also calls for more Private Activity Bonds, which help raise money for companies building certain types of infrastructure, such as airport and port upgrades. (More typical municipal bonds can only be issued for public projects, which limits the ways, for better and for worse, that private investors can get involved in water, sewer, school, and road projects.)
There’s plenty of debate about the wisdom of unleashing private money in public infrastructure. Sometimes the public gets ripped off, as when Chicago Mayor Richard M. Daley leased the city’s parking meters in 2008 to Morgan Stanley, shoring up the city’s operating budget but losing taxpayers nearly $1 billion over the deal’s 99-year term. Sometimes consultants inflate projects’ viability, which leaves public partners holding the bag when revenues don’t pencil out. (Of course, public infrastructure can be expensive and unnecessary too.)
More of a problem for the Trump administration: Only some big project types in the U.S. have been successful as public-private partnerships. Investors haven’t rushed to build new schools or hospitals. Building nuclear power plants in the Southeast U.S. proved too difficult for Westinghouse Electric, which filed for bankruptcy in March. Texas 130, a tolled highway between Austin and San Antonio built with $430 million in TIFIA-backed loans, went bankrupt in October—one of three TIFIA-backed toll roads to do so in recent years.
That’s where Trump’s “asset recycling” might come in, as cities and counties would be paid (by Washington, and by the buyer) to transfer their profitable public assets to private equity groups. The megafunds aiming at American infrastructure investment, like a Saudi-backed $40 billion fund run by Blackstone, whose CEO Steve Schwarzman heads Trump’s business council, could buy airports or bridges, while local governments use the new cash to pay for the new projects—like pipes for Flint—that the private market can’t or won’t provide. In the long term, governments would be left with money-losing assets while Wall Street runs more lucrative public assets such as bridges, airports, utilities, and prisons.