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Roads, transit lines, bridges and water pipes are all examples of infrastructure that get us through our daily lives. We need to make sure we invest strategically in these indispensable assets.
President Obama released an ambitious $4 trillion budget proposal earlier this week with the stated goal “to bring middle-class economics into the 21st Century.” The President’s proposal is the start to the annual federal budget process. Over the next few months, the proposal will be subject to a slew of debates and edits before Congress submits a revised appropriations bill to the President to be signed into law. In all likelihood, the implemented budget will differ from the proposal. However, that does not detract from the importance of the vision and the priorities presented here.
With growing wealth inequality and uneven job recovery, the budget outlined a wide range of initiatives to address some of the most basic and common challenges of everyday life from housing choices to education opportunities to, of course, infrastructure needs.
Infrastructure was repeatedly highlighted as an underlying driver for American economics and quality of life for all Americans. We need passable roads and working trains to travel to jobs. We also need water pipes to carry water and wastewater in and out of our houses and safe public buildings, from libraries to courthouses, to gather and conduct business. These seemingly mundane activities are all supported by our nation’s infrastructure system.
This isn't just a federal issue. Metropolitan Planning Council (MPC) recently conducted a survey of Illinoisans and found that our go-to transportation options—whether driving, taking transit, riding a bike or walking—rankle 50 percent of us at least once a day and irk most of us several times a week.
The president’s budget reminds us that infrastructure takes work and comes at a cost. Infrastructure spending as a share of U.S. gross domestic product has been stagnant since the 1980s. With an estimated $2 trillion in deferred maintenance, business as usual will not be able to meet the infrastructure needs of a growing economy. The budget proposal offers a dual track solution: Expand funding sources and change how we deliver infrastructure to encourage alternative delivery methods such as innovative financing and public-private partnerships. Here in Illinois, MPC is spearheading the Accelerate Illinois campaign to make transportation investment a 2015 priority for lawmakers in Springfield and creating regional intermediaries to improve innovative infrastructure financing and delivery.
Expand funding for surface transportation
One of the largest allocations in the budget is a $478 billion, six-year surface transportation reauthorization proposal to repair and modernize our transportation system including roads, bridges, public transportation, rail and much more. About half of the allocation would come from a one-time corporate tax on profits earned overseas. The remaining $240 billion of the total devoted to transportation would come from the Highway Trust Fund, which funds federal spending on surface transportation and infrastructure, to be reauthorized under this proposal.
Although the budget greatly expands the spending amount from the current transportation funding bill set to expire in May, the proposal remains controversial as a stop-gap measure to funding shortfalls. The one-time foreign income repatriation tax is 5 percent lower than the proposed 19 percent minimum tax on future foreign profits—in other words, the one-time application of the tax could cause the federal government to lose about $96 billion in revenue over the next decade. In addition, as MPC has discussed previously, the Highway Trust Fund has and will continue to face revenue troubles due to a gas tax rate that remains unchanged since the 1990s. The budget allocates around $93 billion in transfers to the Fund in order to achieve solvency over the next six years.
The good news is that this proposal recognizes transportation as a priority and opens the door for Congress and others to refine the solution. It may well take the creative use of new taxes and existing revenue streams to meet the goal of $487 billion.
Rethink how the nation delivers infrastructure projects
While private investment is not a substitute for government spending, the effective deployment of capital, whether public or private, is essential to meeting our nation’s infrastructure needs. Federal programs such as the Transportation Infrastructure Finance and Innovation Act have been shown to successfully leverage up to $30 in infrastructure investment for each dollar of federal funds spent. Building on President Obama’s Build America Investment Initiative announcements this summer, the budget includes several initiatives to support the rethinking of infrastructure delivery and to encourage strategies to more effectively deploy alternative financing. MPC believes that federal initiatives are essential to guiding alternative financing and project delivery, but a sustainable and successful implementation strategy will also require regional leadership.
- A National Infrastructure Bank will partner private and public capital to support infrastructure projects of national and regional significance. The creation and seeding of the bank will cost just under $2 billion through 2020.
- An Interagency Infrastructure Permitting Improvement Center to be housed at the U.S. Dept. of Transportation will help to modernize Federal permitting process for major infrastructure projects and lead reform efforts across nearly 20 agencies and bureaus.
- Under the Build America Investment Initiative, the budget will support the creation of sector-based investment centers at agencies including the U.S. Dept. of Transportation and the Environmental Protection Agency. These centers will work with local and regional governments to identify strategies to attract non-governmental capital into projects.
- Qualified Public Infrastructure Bonds, similar to existing Private Activity Bonds, will give public infrastructure projects access to low rates and federal tax benefits regardless of who is building the project. In an effort to level the playing field, these bonds help to shift the focus from how the work gets done or who does it to simply making sure the infrastructure gets built. Contrary to Private Activity Bonds—which have already exahusted about $10 billion of their $15 billion cap—these qualified public bonds will have no dollar cap and can be applied widely to infrastructure projects as long as they are governmentally owned.
- The America Fast Forward Bond Program will revive the Build America Bonds, which allowed governments to issue taxable debt and to receive a 35 percent rebate from the federal government. Build America Bonds proved quite popular and financed one-third of all new municipal bond issues, totaling over $180 billion in new infrastructure investments from 2009-2010.
The infrastructure package hones in on incentives, financial and otherwise, to encourage additional investments in infrastructure. The underlying argument is that public infrastructure is a public good regardless of whether it is a public sector or private company delivering the infrastructure. Let’s get past the labels and build some infrastructure.