$2 trillion infrastructure deal far from certain as lawmakers weigh how to pay for it

WASHINGTON (Sinclair Broadcast Group) — Members of Congress say infrastructure is one of the policy areas most ripe for bipartisan action, but even with President Donald Trump and Democrats reportedly agreeing on a dollar amount they want to spend, wide differences remain over the financing of a plan and lawmakers may struggle to resolve them in the weeks ahead.

“It’s always easy to agree on how much you want to spend on infrastructure. The hard part is figuring out how to pay for it,” said Rep. Matt Gaetz, R-Fla.

For now, Democrats are leaving that challenge in President Trump’s hands, saying he proposed $2 trillion in spending over ten years during a White House meeting Tuesday and they expect him to figure out where the money comes from.

“I spoke to him since the meeting and he said he would be putting together what some of the acceptable pay-fors are to him, and we look forward to hearing what he has to say,” said House Speaker Nancy Pelosi, D-Calif., at a news conference Thursday.

The tentative agreement reached Tuesday leaves much unresolved. It is not yet clear whether the $200 billion a year would include any of the $130 billion the government currently devotes to grants and investments for non-defense capital spending.

One thing everyone in Washington seems to agree on is that new infrastructure investment is needed in this country. How much, how it is paid for, and how it is spent have proven more complicated.

“This is so important. It’s about commerce. It’s about clean air, clean water, so it’s a public health issue. It’s about the jobs, but also the commerce it would create. It’s a quality of life issue for people,” Pelosi said Thursday.

The National Academies of Sciences, Engineering, and Medicine estimated in a recent study that up to $70 billion per year may be needed over the next decade just to fix the country’s interstate highways, nearly triple the $25 billion spent annually now. The American Society of Civil Engineers estimated in 2016 that failure to address the nation’s crumbling infrastructure could cost $3.9 trillion in GDP and $7 trillion in business sales by 2025, and it calculated an additional $206 billion in federal and state spending per year is necessary to avert those losses.

“I think there is wide recognition from the federal government to municipal governments that there is a desperate need to rebuild and improve our nation’s infrastructure,” said Craig Stevens, former senior adviser to Energy Secretary Sam Bodman and a spokesperson for Grow America’s Infrastructure Now.

The White House and Congress have several ways to pay for infrastructure projects, and they vary in the level of federal obligation and financial risk involved. None is a silver bullet solution, and all of them would likely face pushback from one side or the other in a highly polarized Washington.

Fuel taxes currently provide most of the money in the Highway Trust Fund, which is used to pay for highway and transit construction and maintenance. The fund has already been experiencing significant shortfalls over the last decade, requiring tens of billions of dollars in transfers from the U.S. Treasury’s general fund.

“Certainly, increasing the fuel tax and indexing that to inflation, that probably has as wide bipartisan support as any revenue generator can get,” Stevens said.

Nearly 30 states have raised their gas taxes in the last five years, but it has been more than 25 years since federal fuel taxes were last increased in 1993. Trump has signaled he would consider such an increase in the past, but he has not included it in infrastructure proposals since taking office.

According to the Joint Commission on Taxation, a 15-cent gas tax increase would generate $237 billion in additional revenue over the next decade, and a 35-cent hike would bring in $516 billion. In 2015, the Congressional Budget Office estimated the tax would need to be increased by ten cents just to pay off the highway fund’s existing obligations.

Raising the tax by that much would create additional concerns, though. According to John Peters, a professor of finance and data analytics at the College of Staten Island, low-income families spend 10 to 15% of their money on fuel while the wealthiest households spend about 1%, so higher gas prices hit the poor hardest.

“The challenge with the gas tax is it's quite a bit regressive,” he said.

The CBO has also looked at a vehicle-miles-traveled tax, which would charge drivers for their actual road usage. It found such a policy would encourage more efficient highway use, but it poses significant logistical and privacy questions and would be similarly regressive.

The notion of a gas tax hike has already encountered political resistance. Some Republicans are objecting to any new taxes, and Democrats are demanding President Trump also agree to repeal some of the tax cuts included in the 2017 tax reform bill if the gas tax goes up.

“If Democrats insist on rolling back some of the tax cuts and tax law changes as their buy-in, it’s not going to go anywhere,” said Jeff Davis, a senior fellow at the Eno Center for Transportation.

Realistically, Rep. Rodney Davis, R-Ill., said raising the gas tax will not bring in enough revenue to cover the kind of infrastructure investment the president is talking about, especially as more fuel-efficient vehicles reduce the amount of fuel drivers need.

“We have to diversify how we pay for it now,” Rep. Davis said.

Sen. Amy Klobuchar, D-Minn., the first Democratic 2020 presidential candidate to unveil an infrastructure plan, is proposing $650 billion in federal spending over ten years, offset by raising the corporate tax rate to 25 percent and introducing new fees on large banks. Klobuchar’s plan also includes establishing an independent Infrastructure Financing Authority to support $250 to $300 billion in loans, loan guarantees, and credit enhancement based on $25 billion in seed money.

The Klobuchar proposal would revive and expand upon “Build America Bonds”—an Obama-era subsidy for state and local governments to finance public infrastructure projects—and allocate tax credits for the private sector too. According to her campaign, an $8 billion federal investment would support $200 billion in spending over ten years.

President Trump’s proposed infrastructure initiatives have leaned much more heavily on local and private investment. All three of his budgets have included $200 billion in federal spending over ten years that the administration projects would spur up to $1.3 trillion in additional public and private investments.

Experts see benefits and disadvantages for the government in partnering with the private sector to build and repair infrastructure.

“It helps prioritize some of these projects, so this isn’t just a jobs program,” Stevens said. “It’s actually going toward projects that need to happen.”

It will only go toward projects that are profitable, though, and it sometimes requires a higher financial risk for taxpayers. Private sector partners have at times been unable to pay back debts because they overestimated the revenues a project would produce.

“The private companies will invest if they can make money,” Peters said.

According to the CBO, public-private partnerships generally speed up funding, but they rarely result in additional financing. They often involve tax-exempt bonds and credits that reduce the cost for private partners at the expense of the government.

Federal loans and loan guarantees can incentivize state and local governments to borrow funds for new infrastructure projects, although this again shifts financial risk to the federal government. Transportation Infrastructure Finance and Innovation Act loans can be used for up to 49% of a project’s cost, giving lenders up to 35 years to pay off the debt at relatively low interest rates.

“The problem is you have to pay loans back someday,” said Jeff Davis, noting that these programs have been most effective in areas where there is a lot of traffic that can generate revenue streams through tolls and other mechanisms.

The Trump administration has sought to shift responsibility for local infrastructure projects away from the federal government, claiming that state and local governments sometimes delay construction in the hope that they will get federal funds. The White House also says reliance on federal grants serves as a disincentive to private financing.

“The feds have been trying to find a way to run away from funding infrastructure nationally,” Peters said.

Although there is skepticism that incentives can attract public and private investment on the scale the Trump administration has predicted, experts say they could go a long way toward addressing the nation’s infrastructure needs if properly designed.

“$2 trillion could turn into $8 trillion or $10 trillion over the next ten years if it’s a good enough incentive,” Stevens said.

President Trump is set to meet with Democrats in three weeks to discuss payment options. Though many on both sides of the aisle have expressed doubt the talks will amount to much, Stevens said Republicans and Democrats both have incentives to not be seen as the party responsible for killing a massive investment in American communities.

“If you look at a 2020 map for the president, you’re looking at places like Pennsylvania, Michigan, and Ohio If you’re the Democrats, you have to get labor back in your camp in 2020,” he said.