Top 5 Issues for 2018: Transportation & Infrastructure: The Changing Federal Role in Transportation and the Potential Role for the Private Sector
Issue: Infrastructure investment was expected to be a key policy goal of the Trump administration. While the administration did not produce a comprehensive plan to accomplish that in 2017—it’s now expected after the State of the Union in late January—details of the administration’s priorities that have emerged suggested an emphasis on more targeted federal investments, the use of federal dollars to encourage states that help themselves by seeking additional transportation revenues, and an effort to leverage private sector investment. In late September, the president appeared to sour on how big a role public-private partnerships, or P3s, could play in a federal investment package, but many continue to believe P3s could play a significant, if limited, role in facilitating some infrastructure projects.
President Donald Trump’s Infrastructure Priorities
Included with Trump’s 2018 budget proposal released in spring 2017 was a fact sheet that offered a glimpse at his infrastructure initiative. The document listed four key principles:
- Make targeted federal investments;
- Encourage self-help;
- Align infrastructure investment with entities best suited to provide sustained and efficient investment; and
- Leverage the private sector.
The private sector had long been expected to play a big part in the president’s plan to invest $1 trillion in the nation’s infrastructure. In September, it was reported that the president wanted to use $200 billion in proposed direct federal spending over 10 years to leverage $800 billion in new state, local and private sector investment and reach the magic $1 trillion figure.
But later in the month, the president seemed to contradict what was known about his infrastructure plans when he suggested to members of Congress that a public-private approach to improving the nation’s infrastructure won’t work and can’t be a silver bullet for the nation’s infrastructure problems.
The change in philosophy seemed to put the president’s infrastructure plan up in the air. News accounts suggested the administration would seek to force states and localities to foot most of the bill for a major infrastructure investment.
The administration has pointed to the growing number of state and local infrastructure funding measures in recent years as evidence of the wisdom of such an approach. But while many states have increased available transportation revenues in recent years, they continue to rely heavily on the contribution of the federal government for a substantial portion of overall transportation funding. Moreover, many of the states that have authorized the collection of additional state revenues have done so in order to meet federal matching requirements or to pay for needed transportation improvements that federal funds won’t cover.
As 2017 wound down, the passage of a major tax overhaul seemed to present new challenges for moving forward with efforts to finance infrastructure investment. While the tax-exempt status of municipal bonds was preserved in the tax legislation, some predicted the relative yield on municipal bonds will have to rise in order for them to remain competitive as an investment choice, making infrastructure financing more expensive. The legislation also raised uncertainty regarding the future tax-exempt status of Private Activity Bonds. The new cap on federal tax deductions for state and local taxes could also hurt the taxing capacity of cities and states, some believe. Moreover, some state and local officials around the country have said the tax changes will complicate their efforts to balance their existing budgets and make it more difficult to create additional revenue sources for transportation projects, something the administration sees as a prerequisite for tapping federal dollars in the future.
Many also believe Congress could have significant difficulty coming up with the $200 billion federal contribution to the $1 trillion infrastructure plan, whether through revenue generation or budget offsets. A federal gas tax increase would appear unlikely in an election year and an idea once thought promising to pay for infrastructure with revenue from repatriation—where corporations agree to pay a lower tax rate when they return earnings stored overseas—was nixed when it was included as part of the tax package instead.
As explanation for his initial souring on the potential for public-private partnerships (P3s) in transportation, Trump pointed to Vice President Mike Pence’s home state of Indiana. As governor in 2014, Pence arranged a deal with an inexperienced Spanish construction firm and a Canadian pension fund to extend I-69 in the southern part of the state. When the project fell behind schedule, the state was forced to dissolve the partnership in 2017 and make plans to issue public debt to finish the 40 percent of the project that remained incomplete.
Another Indiana project—the Indiana Toll Road in the northern part of the state—has also been at the center of the debate over P3s for years. Under a 2006 deal, the road was leased to an Australian investment bank and another Spanish firm for $3.8 billion. The state used the money to fund 10 years-worth of road projects all over the state. But the investment group took on too much debt and during the recession, with fewer drivers on the roads, the road did not live up to traffic and toll revenue projections. The group filed for bankruptcy in 2015. A new operator has taken over the toll road and is now collecting fees from drivers that are more than double what they once were in some instances.
The Indiana Toll Road most recently was touted as an example of a concept called asset recycling that Australian officials were promoting in conversations with the vice president and others in the administration in 2017. But there is disagreement as to whether that P3, one of the earliest transportation P3s in the United States, was a good deal for all parties involved and in any case, it did not become the P3 model followed by other deals in the decade plus since it was executed.
Meanwhile, a number of other states, despite some past successes with P3s, appear to be reassessing their value in some cases.
Increasingly toll-averse Texas lawmakers in 2017 declined to approve 18 highway projects proposed by the Texas Department of Transportation because they were proposed as public-private partnerships.
Virginia, an early P3 pioneer, is taking a harder look at the model after assuming too much risk on a deal to build a proposed 55-mile toll road connecting the Norfolk area to I-95 that failed to pass environmental muster and left the commonwealth nearly $290 million in the hole.
Virginia also drew some criticism in 2017 when tolls on the recently opened I-66 express lanes reached $40 for traveling a 10-mile stretch—one of the highest prices for any toll road in the country.
Such cautionary tales haven’t stopped other states from ploughing ahead with P3s. The governor of Maryland, Virginia’s neighbor, said recently he wants to use a P3 to pursue a $9 billion traffic relief plan that would add toll lanes and traffic capacity on three heavily-used highways in the Washington, D.C., area. Michigan in 2017 announced plans to partner with the private sector to finish a $1 billion state highway modernization project.
But policymakers have long pointed out that while P3s can be a great “tool in the toolbox” for a state to have and can be successful on certain projects, they generally work best for megaprojects on which the private sector can seek a return on their investment through tolls. There are far fewer of these kinds of megaprojects around the country than there are road resurfacing and bridge repair projects that don’t necessarily lend themselves to establishing revenue streams. Projects in rural communities without large populations and lots of traffic would likely be of less interest to investors. Administration officials have countered that the $200 billion federal share could include block grants for rural areas in addition to funding for “self-help” states and localities, funding for existing federal loan programs and money for projects deemed “transformational.”
But analysts also note that for states with good credit ratings that are willing to borrow project funding, the municipal bond market presents a much better deal right now due to low interest rates than seeking a loan at a higher interest rate from the private sector just so their investors can make more money.
One P3 project that some hope can become a model for the country in dealing with major infrastructure needs and that could have some utility in more rural areas is the Pennsylvania Rapid Bridge Project. The commonwealth partnered with a private contractor in 2014 for the replacement of 558 structurally deficient bridges all over the state in just three years as part of a $900 million arrangement. In October, Pennsylvania officials said the contractor is expected to deliver the bridge bundle on time in 2018. The bridges won’t be tolled. Following substantial completion of the project, the Pennsylvania Department of Transportation will make periodic, performance-based payments in return for the development and ongoing maintenance of the bridges over the 25-year term of the contract.
What’s Ahead for 2018?
With a Trump infrastructure package not yet fully fleshed out as of this writing, it remains to be seen how much the administration is considering any of these state examples, how much of a role public-private partnerships could play in the package and the degree to which rethinking their importance may have altered the package. What’s also unclear is the degree to which states will be left holding the bag or be counted on to pick up the slack. It was reported in December that the package would pivot back to the original promise of a $1 trillion infrastructure package including $800 billion in private investment. And a report just last week said the administration’s plan now taking shape involves $200 billion in federal funding that would be spread out over 10 years and divided into four pools of funds--$100 billion for cost-sharing projects with local governments, $50 billion earmarked for rural projects, $25 billion for existing federal infrastructure loan programs that seek to spur private investment and $25 billion for so-called transformative projects.
Politico reported in October that frustration was mounting among those in the transportation industry who were initially excited that infrastructure was one of Trump’s policy priorities. Some infrastructure advocates fear that what’s likely to be a contentious midterm election season could significantly reduce its chances for success and what was once expected to be an issue that could win bipartisan support could fall victim to an increasingly poisonous political environment in the nation’s Capital this year.
As 2018 began and Congress returned to work, reports emerged that Trump has suggested increasing the federal gas tax to 50 cents a gallon to help fund an infrastructure overhaul but that Republicans lawmakers rejected the suggestion. Trump has also urged Congress to bring back earmarks to help build support for infrastructure legislation, a strategy they abandoned in 2011. It also appeared that the release of Trump’s detailed infrastructure plan, once expected prior to the State of the Union in late January, could be pushed back to February. Contradictory comments by the president and his chief economic adviser Gary Cohn at a meeting with Republican leaders in early January at Camp David only seemed to add to the confusion about whether the president actually supports the plan his administration is working on.
Also in early 2018, the chairman of the U.S. House Transportation and Infrastructure Committee, Bill Shuster of Pennsylvania, announced that he would step down at the end of his current term. Shuster said he would spend his last year in Congress focusing on passing “a much-needed infrastructure bill to rebuild America.”
- “Recent Updates on Trump Infrastructure Plan, Autonomous Vehicle Policy,” CSG Blog Post, September 28, 2017.
- “CSG West Transportation & Infrastructure Committee Session Summary,” Meeting Summary, August 18, 2017.
Further Reading: Trump Infrastructure Plan
- “Chamber makes case for gas tax increase to fund infrastructure,” The Hill, January 18, 2018.
- “Trump administration’s infrastructure plan taking shape,” Reuters, January 18, 2018.
- “White House can’t guarantee infrastructure plan by SOTU,” CNN, January 17, 2018.
- “Dem senator: I’m optimistic we can pass an infrastructure bill,” The Hill, January 17, 2018.
- “U.S. Chamber of Commerce to push Trump, Congress to raise the gas tax to fund infrastructure,” The Washington Post, January 16, 2018.
- “50-Cent Gas Tax Increase Ruled-Out by GOP Congressional Leaders,” Planetizen, January 12, 2018.
- “Trump Urges Congress to Again Use Earmarks to Help Smooth Legislation,” AASHTO Journal, January 12, 2018.
- “Bipartisan Report Underscores Hard Truths About Infrastructure Funding,” Route Fifty, January 11, 2018.
- “Release of Trump infrastructure plan may slip past January,” Politico, January 9, 2018.
- “Mixed signals on infrastructure plan emerge from Trump retreat,” The Washington Post, January 7, 2018.
- “New Year’s Resolutions for the 2018 Infrastructure Plan,” Bipartisan Policy Center, January 5, 2018.
- “Why Trump’s Infrastructure Push Might Stall Again,” Bloomberg Businessweek, January 5, 2018.
- “Wright: AASHTO Waiting for Infrastructure Plan, Sees Need for New Federal Funding,” AASHTO Journal, January 5, 2018.
- “Groups Urge Infrastructure Plan That Maintains, Strengthens Current Investment System,” AASHTO Journal, January 5, 2018.
- “Can Trump Make His Infrastructure Plan a Bipartisan Reality?” Newsweek, January 3, 2018.
- “Shuster to retire from Congress,” Politico, January 2, 2018.
- “’Waiting on an Opportunity to Work With the Administration’ on Infrastructure,” Route Fifty, January 2, 2018.
- “Trump’s infrastructure plan: A deal doomed from the start?” Curbed, December 28, 2017.
- “Five imperatives for transportation infrastructure funding,” The Hill, December 28, 2017.
- “Five obstacles to Trump’s infrastructure ambitions,” The Hill, December 28, 2017.
- “The New $1 Trillion Infrastructure Plan Could Pressure Struggling Cities,” CityLab, December 27, 2017.
- “Trump Calls for Bipartisan Cooperation on Infrastructure Plan,” U.S. News & World Report, December 22, 2017.
- “States see Trump’s infrastructure promise slipping away,” CNN Money, December 19, 2017.
- “Cutting Dems out on infrastructure could cost key votes,” The Hill, December 17, 2017.
- “White House still eyeing gas tax hike to pay for infrastructure plan,” The Hill, December 15, 2017.
- “Democrats cool to Trump’s infrastructure pitch,” Politico, December 14, 2017.
- “Private Investment Back in Trump’s Infrastructure Plan,” Reason.com, December 12, 2017.
- “Trump officials push application overhaul for infrastructure projects,” The Hill, December 12, 2017.
- “Trump huddles with transportation leaders ahead of expected infrastructure plan,” The Hill, December 11, 2017.
- “Trump to Release Infrastructure Plan in January, Official Says,” Bloomberg, December 7, 2017.
- “Trump to release infrastructure plan next month,” The Hill, December 7, 2017.
- “After cutting taxes, Trump looking to localities to raise revenue for infrastructure,” The Washington Post, December 7, 2017.
- “Chao predicts infrastructure initiative launch in January,” Politico Morning Transportation, December 6, 2017.
- “White House Wants States and Localities to ‘Engage in More Self Help’ With Infrastructure,” Route Fifty, December 4, 2017.
- “Bipartisan lawmakers ready infrastructure report amid questions over White House plan,” The Hill, November 30, 2017.
- “Uncertainty mounts over timing of Trump’s infrastructure plan,” The Hill, November 28, 2017.
- “For Trump, GOP tax bill could have big downside,” The Hill, November 26, 2017.
- “Chuck Schumer Says No to Gas Tax Hike, Complicating Trump’s Infrastructure Push,” The Daily Beast, November 23, 2017.
- “GOP chairman: No appetite for gas tax hike now in House,” The Hill, October 26, 2017.
- “White House says it’s considering increasing the federal gas tax for infrastructure,” The Washington Post, October 26, 2017.
- “White House eyes 7-cent gas tax hike for infrastructure plan,” The Hill, October 25, 2017.
- “Reports: Trump Tells Senators Tax Reform Can Pay for Infrastructure Plan,” AASHTO Journal, October 20, 2017.
- “Trump officials assure Republicans an infrastructure plan is coming,” The Hill, October 18, 2017.
- “Trump’s Transportation Chief Just Hyped His $1 Trillion Infrastructure Plan Again. But She Offered Few Details,” Fortune, October 11, 2017.
- “9 Months Into Presidency, Trump Still Hasn’t Offered Infrastructure Plan,” NPR, October 9, 2017.
- “White House meets with lawmakers on infrastructure plan,” The Hill, October 5, 2017.
- “Dems release own infrastructure principles in absence of Trump plan,” The Hill, October 4, 2017.
- “Infrastructure spending bill sliding down agenda,” The Hill, October 4, 2017.
- “Trump’s Change of Heart Puts $1 Trillion Building Plan in Limbo,” Transport Topics, October 2, 2017.
- “Trump Reportedly Turns Bearish on Infrastructure P3s,” Engineering News-Record, September 29, 2017.
- “Chao: Administration Expects Congress to Take Up Infrastructure After Tax Reform,” AASHTO Journal, September 29, 2017.
- “Trump’s pivot on infrastructure may kick Wall Street to the curb,” Fox Business, September 28, 2017.
- “Senate Democrats push for $500 billion in infrastructure investment,” The Washington Post, September 28, 2017.
- “Trump backs off vow that private sector should help pay for infrastructure package,” The Washington Post, September 26, 2017.
- “WSJ Report: Trump Officials Want to ‘Upend’ Current Public Works Funding Methods,” AASHTO Journal, September 8, 2017.
- “Trump Wants States and Cities to Pay More for Infrastructure,” Governing, August 31, 2017.
- “Fact Sheet 2018 Budget: Infrastructure Initiative,” The White House, May 2017.
Further Reading: Federal Transportation Funding
- “Lawmakers Consider Ways to Restore Congressionally Directed Project Earmarks,” AASHTO Journal, January 19, 2018.
- “The Benefits of NEPA: How Environmental Review Empowers Communities and Produces Better Projects,” Center for American Progress, January 16, 2018.
- “Rebuilding America’s Infrastructure,” Problem Solvers Caucus, January 10, 2018.
- “How GOP tax overhaul makes it harder to pay for infrastructure in U.S.,” CBS News, December 28, 2017.
- “How the new tax bill will cut infrastructure investment,” Brookings, December 26, 2017.
- “New ATRI Research Provides Clear Guidance on Infrastructure Investment,” American Transportation Research Institute, November 8, 2017.
- “Key Democrats Press for Infrastructure Funding Amid Tax Reform Debate,” Transport Topics, November 2, 2017.
- “Highway Trust Fund Excise Tax Receipts Showed No Growth in Fiscal 2017,” AASHTO Journal, October 27, 2017.
- “Stakeholders agree federal funds necessary for infrastructure investment,” American Shipper, October 19, 2017.
- “House committee chair says US must explore all options to improve infrastructure,” The Eagle, September 19, 2017.
- “How the Humble Gas Tax Became an American Bogeyman,” Wired, May 9, 2017.
Further Reading: Public-Private Partnerships & Tolling
- “North Texas transit leaders say tolls are a matter of choice, necessity in plans for LBJ East improvements,” Dallas News, January 14, 2018.
- “Gov. Terry McAuliffe’s last transportation deal: 10 more miles of toll lanes on Interstate 95,” The Washington Post, January 10, 2018.
- “New, Higher Tolls for 2018,” Stateline, January 9, 2018.
- “The Pa. Turnpike keeps increasing tolls, and now it’s under review amid ‘grave concerns,’” York Daily Record, January 4, 2018.
- “As Major Cities Try to Combat Traffic Congestion, Texas State Legislature Limits Their Options,” Reason Foundation, January 3, 2018.
- “State’s pushback on toll roads rankles Houston-area leaders,” Houston Chronicle, December 22, 2017.
- “New Hampshire governor puts brakes on toll hike plan,” Sioux City Journal, December 21, 2017.
- “Toll hike included in new 10-year transportation plan,” Concord Monitor, December 20, 2017.
- “Malloy tight-lipped on whether he will propose tolls,” The CT Mirror, December 20, 2017.
- “Virginia took a bold step in tolling I-66. And it’s likely to pay off.” The Washington Post, December 15, 2017.
- “New toll lanes tables, for now, after state transportation vote (Texas),” KXAN, December 14, 2017.
- “The Revival of Revenue-Risk Highway Public-Private Partnerships,” Reason Foundation, December 12, 2017.
- “I-66 Shows the Cost of Urban Roadway Access—And It Isn’t Cheap,” Eno Transportation Weekly, December 8, 2017.
- “’Dynamic tolls’: How highways can charge $40 for driving just 10 miles,” USA Today, December 7, 2017.
- “Should government work more with private sector to build roads and bridges?” Michigan Radio, December 1, 2017.
- “Governor Abbott: ‘No more tolls in Texas,’” KVUE-TV, November 18, 2017.
- “House panel declines to restore infrastructure financing tool in GOP tax bill,” The Hill, November 8, 2017.
- “Investors bullish on potential for sustainable infrastructure,” Green Biz, November 7, 2017.
- “P3s and the Forthcoming Infrastructure Plan,” Reason Foundation, November 6, 2017.
- “Republicans Push to End Muni Sales by Businesses, Stadiums,” Bloomberg, November 2, 2017.
- “House Republicans’ Tax Bill Threatens Private Infrastructure Investment,” Reason Foundation, November 2, 2017.
- “Availability Payment or Revenue-Risk P3 Concessions? Pros and Cons for Highway Infrastructure,” Reason Foundation, November 2017.
- “Private investors line up to support infrastructure projects without Trump,” Washington Examiner, October 30, 2017.
- “Indiana interstate tolling study advances with a request for proposals,” Northwest Indiana Times, October 19, 2017.
- “Six Kentucky banks launch $150 million infrastructure fund to advance public-private partnerships,” Insider Louisville, October 10, 2017.
- “How to Make Private Investment in Infrastructure Really Work,” CityLab, October 9, 2017.
- “St. Louis Could Be New Testing Ground for Airport Privatization,” Next City, October 9, 2017.
- “Designed wisely, express lanes can reduce travel time, bring revenue,” The Baltimore Sun, October 8, 2017.
- “Virginia’s latest experiment with toll lanes to test thousands of commuters on I-66,” The Washington Post, October 7, 2017.
- “On infrastructure, now what? Trump’s sudden turn away from public-private model brings uncertainty,” Marketplace, October 5, 2017.
- “What’s Behind the Removal of Public-Private Partnerships from Trump’s Infrastructure Plan?” Planetizen, October 4, 2017.
- “MI to use P3 to cut $1B highway project schedule by 10 years,” Construction Dive, October 2, 2017.
- “State expects contractor to wrap up ambitious 558-bridge bundle on time,” CNHI, October 2, 2017.
- “Trump Upends His Own Infrastructure Plan With PPP Comments to Democrats,” Eno Transportation Weekly, September 29, 2017.
- “Other states find highway tolls the road to revenue,” CT Post, September 29, 2017.
- “What Trump Finally Got Right About Infrastructure,” Forbes, September 27, 2017.
- “Trump Reverses Course on Relying on Private Money for Roads,” Bloomberg, September 27, 2017.
- “If President Trump Abandons Support for Public-Private Partnerships, He’ll Have Trouble Delivering on Infrastructure Promises,” Reason Foundation, September 27, 2017.
- “A $9 Billion Highway That Promises to Pay for Itself,” CityLab, September 26, 2017.
- “Trump backs off vow that private sector should help pay for $1 trillion infrastructure package,” Chicago Tribune, September 26, 2017.
- “Maryland Seeks Largest North American P3 to Sharply Boost Capacity on Major Highways,” AASHTO Journal, September 22, 2017.
- “Putting Private Capital to Work in Rural Infrastructure,” Bipartisan Policy Center, September 2017.
- “How to pay for billion-dollar I-10 Bridge as Alabama turns to private sector,” AL.com, August 28, 2017.
- “Getting There: To toll or not to toll, that is major question for U.S. transportation system,” The Free Lance-Star, August 20, 2017.
- “Indiana Can Serve as a Model for Private Infrastructure Investment,” Reason Foundation, August 14, 2017.
- “Denver’s 34-year deal at DIA might be the city’s first big public-private partnership, but don’t expect it to be the last,” The Denver Post, August 13, 2017.
- “Private sector ready to rebuild the country’s aging infrastructure,” The Hill, July 22, 2017.
- “Widening of Alabama Bridge Shows Private Infrastructure Ownership Works,” Reason Foundation, July 21, 2017.
- “Editorial: 3 lessons from the I-69 fiasco,” Indianapolis Star, July 7, 2017.
- “Mike Pence’s infrastructure mess: What went wrong with I-69?” Indianapolis Star, June 18, 2017.
- “INDOT moves toward more highway tolling,” Associated Press, June 9, 2017.
- “Public-Private Projects Where the Public Pays and Pays,” The New York Times, June 6, 2017.
- “Virginia’s Layne Tells Senators About Risks in Planning, Negotiating P3 Projects,” AASHTO Journal, May 19, 2017.
- “Public-Private Partnerships Will Not Save U.S. Infrastructure,” Streetsblog USA, May 17, 2017.
- “Guide to Financial Literacy Vol. 3: Understanding the Risks & Rewards of Public-Private Partnerships,” Governing.