Infrastructure plan meets empty Treasury

Written by Frank N. Wilner, Contributing Editor
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For the Trump Administration to offer in a congressional election year a Cracker Jack box containing a prize of massive renewed infrastructure, yet absent a realistic funding source (as the Treasury cupboard is bare), is the equivalent of a Samaritan in a sinking boat offering a hand to a struggling swimmer.

The Trump infrastructure plan unveiled Feb. 12, alongside the Administration’s deficit-heavy fiscal-year 2019 budget request to Congress, is to spend $200 billion in federal funds over 10 years to stimulate $1.5 trillion in additional infrastructure investments (bridges, highways, transit and water systems) by the private sector and state and local governments—most of the latter two being in direr financial straits than the federal government.

Moreover, the challenge to a cash-strapped Congress of finding another $200 billion ($20 billion annually over 10 years) in its bare Treasury cupboard may actually be less difficult than enticing the private sector to pony up real dollars totaling $1.5 trillion, as corporate investment decisions rarely are driven by political objectives—even those to increase employment.

Almost simultaneously with the White House’s infrastructure plan announcement Feb. 12, CSX promised investors a $5 billion share buyback program and a 10% increase in its dividend aimed at boosting the stock price. Union Pacific and Norfolk Southern each have announced increased stock dividends, with Union Pacific telling analysts that its cash flow will increase by some $1 billion above its current $2.2 billion in free cash flow as a result of corporate tax reductions. None of the major railroads say they will increase infrastructure spending specifically because of tax rate reductions; CSX actually cut its capital expenditures for 2018 by a staggering 20%.

CNBC reports that American firms have repurchased almost $98 billion in stock since Jan. 1; and companies have announced $2.5 billion in bonuses since the new tax law was signed.

As for hopes that lower U.S. corporate tax rates will entice multi-national companies, holding profits abroad, to repatriate those sums for infrastructure investment, they may be just that—hopes. Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said last year, “I’m not quite sure how that would work.” His counterpart in the House, Ways and Means Committee Chairman Kevin Brady (D-Tex.), called it “premature” to assume how repatriated profits would be used.

Freight railroads, of course, pay their own infrastructure costs, including property taxes on them, plus provide for the policing and snow removal that competing motor carriers treat as an entitlement along with decades of their underpayment for the roads and bridges over which heavy commercial trucks travel.

Thus, we have an insolvent Highway Trust Fund (HTF) even though its creation more than half-a-century ago was to assure uninterrupted normalized maintenance. Political pressure has held the federal fuels tax at the same level since 1993, notwithstanding increased costs of all things related to construction, and improved fuel economy. More than $140 billion in federal funds that might otherwise have been used for defense or social programs have been transferred from the general Treasury to the HTF over the past eight years, and another $19 billion more is being sought even without consideration of the Administration’s infrastructure plan.

House Highways and Transit Subcommittee Chairman Sam Graves (R-Mo.), expected to succeed the retiring Bill Shuster (R-Pa.) in 2019 as chairman of the parent Transportation & Infrastructure Committee, says the anti-tax disposition in Congress makes it “very hard” to pass a fuels tax increase.

Economists long have recommended increased tolling of roads; a vehicle-miles-traveled tax; or a weight-distance user fee that matches miles traveled with gross weight, as weight is the dominant factor in infrastructure damage. But politically powerful trucking interests oppose those alternatives as they would cost them more—although those alternatives also would eliminate the existing 20% underpayment of the heavy-truck cost responsibility as estimated by the Department of Transportation.

Trucking interests also hope to add to any infrastructure plan a provision allowing for longer-and-heavier trucks to improve their productivity. But the American Society of Civil Engineers, which already gives near-failing grades to much of America’s highway and bridge infrastructure, says overall weight is the major contributor to highway bridge failure.

Rail competitive barges also benefit from underpayment of user charges to dredge inland waterways channels and to build, maintain and operate locks and dams. Commercial waterways operators also are looking for billions in infrastructure subsidies without supporting a user charge increase.

Transportation Secretary Elaine Chao last year said “it’s hard to get consensus” on new funding mechanisms. Investment banker Joel Moser, CEO of Aquamarine Investment Partners, said, “No one will invest in the replacement of defective bridges that have no tolls … unless a revenue stream is attached to those assets.”

Congressional Republicans appear to be waiting for more specifics from the Trump Administration before speaking out on the infrastructure plan. Congressional Democrats were quick to criticize it—especially a provision gutting environmental protections attached to new infrastructure projects.

Certain to complicate matters further is a Trump Administration recommendation that funds be raised for new infrastructure spending by selling off existing federal assets, such as the two major airports and two highways serving Washington, D.C., and power transmission facilities such as the Tennessee Valley Authority and Bonneville Power Administration.

Another wicked fight brewing is Trump’s desire to reduce deficits by halving federal funding of Amtrak, which would eliminate most intercity, long-distance routes. (Routes under 750-miles, subsidized by states, would not be affected.) Not included in the Trump plan, however, is one viable option still awaiting a congressional review—to lease Amtrak’s Northeast Corridor to a management organization, such as AIRNet-21, which would self-finance expansion and renewal and earn a profit through user charges assessed passenger and commuter trains, and commercial development.

Also problematic is a budget item ending transit “New Starts,” which the Wall Street Journal reports would complicate efforts to fund the Gateway Project to construct new rail tunnels under the Hudson River. Senate Minority Leader Chuck Schumer (D-N.Y.) has blocked Senate confirmation of a new Federal Railroad Administrator in an attempt at forcing federal funding of the project.

Without new funding sources—such as selling the federal silverware and ending previously untouchable social programs such as Medicare, which Trump promised to protect while campaigning for office—the federal government stands penniless in a pay-as-you-go buffet line. Estimates are that more than $4 trillion in infrastructure repairs and expansion await funding with the Treasury Department’s cupboard bare.

House Speaker Paul Ryan (R-Wisc.) sounded the loudest of tocsins seven years ago in 2011: “The United States is facing a crushing burden of debt [that may soon] capsize” the economy. Ryan was speaking of a $1.09 trillion deficit that year—during the nation’s financial crisis where unemployment was high. Yet Ryan and other Republicans stand silent today when, in a current environment of near full-employment and strong economic indicators, the annual budget deficit is projected for 2019 at $1.15 trillion.

Reported the Washington Post Feb. 12: “The White House projects a large gap between government spending and tax revenue over the next decade, adding at least $7 trillion to the debt over that time. In 2019 and 2020 alone, the government would add a combined $2 trillion in debt under the Trump plan.”

A frightening national dilemma, brewing for years, is now ready for transparent national debate running up to the November mid-term elections with the unveiling of the Trump infrastructure plan. Three observations may help frame this debate while identifying the underlying obstacles:

President Richard Nixon’s chief economic adviser Herb Stein: “If something cannot go on forever, it will stop.”

President William Howard Taft: “[Infrastructure] is as necessary to the life and health and comfort of the people of this country as are the arteries of the human body.”

The late Sen. Russel B. Long (D-La.): “Don’t tax you. Don’t tax me. Tax the man behind the tree.”

Frank N. Wilner is author of six books, including, Amtrak: Past, Present, Future; Understanding the Railway Labor Act; and, Railroad Mergers: History, Analysis, Insight. He earned undergraduate and graduate degrees in economics and labor relations from Virginia Tech. He has been assistant vice president, policy, for the Association of American Railroads; a White House appointed chief of staff at the Surface Transportation Board; and director of public relations for the United Transportation Union. He is a past president of the Association of Transportation Law Professionals. Wilner drafted the railroad section of the Heritage Foundation’s Mandate for Change (Volumes I and II), which were policy blueprints for the two Reagan Administrations; and was a guest columnist for the Cato Institute’s Regulation magazine.

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