Finding an Answer to the Funding Question

While infrastructure funding remains a widely discussed question, there are many practical solutions that can, and should, be employed right now

By Governor Ed Rendell

In early October I received a call from Congressman Earl Blumenauer asking me to set up a meeting with key members of Pennsylvania’s infrastructure community. I have known Congressman Blumenauer for over a decade and he has been one of the most enthusiastic advocates for infrastructure revitalization in the United States Congress. He is now a senior member of the Ways and Means Committee and he wanted their ideas on what should be in the new infrastructure legislation, because if the Democrats took control of Congress, they intended to make this one of their first major legislative initiatives. He said hearings would begin in late January with an eye to having a bill voted on in June.

Hearing this was music to my ears because one of my biggest disappointments with President Trump is his failure to move forward on infrastructure revitalization. We had the meeting and I asked leaders of our mass transit agencies to attend along with state PennDOT officials, engineers who work to build roads and bridges, union members, and some of our congressional candidates who I believed would win and take office in January.

There was still a great deal of uncertainty as to whether the bill will be big enough to have an impact on our infrastructure needs; everyone in that room knew that you cannot effectively do infrastructure revitalization on the cheap.

The first real test will be if the committee can come up with real revenue that, combined with revenue from state government, local government, and the private sector, will be enough to bring about meaningful impact. The easiest way to do it is to raise the federal gas tax which has not been raised since 1993 — which is insane when you consider comparables such as movie ticket prices which were four dollars at the time the tax was raised and are over $12 today. Currently, the gas tax sits at 18.4 cents per gallon. The US Chamber of Commerce and the AFL-CIO agree that the tax needs to be raised and have proposed a 25 cent-per-gallon increase. That is nothing short of amazing, considering that those two organizations would have a hard time agreeing that Christmas comes in December. Each penny of the federal gas tax produces $1.6 billion in revenue according to the CBO: revenue that goes to the Highway Trust Fund. The increase proposed would create $40 billion more a year. There was a bill in Congress during this current session that would have raised the gas tax 10 cents per gallon, but would have adjusted the tax for inflation going forward, creating $16 billion a year.

Just for the sake of aurgument, assume the final gas tax hike was 12.5 cents a gallon. That would produce $20 billion in revenue per year, or $200 billion over the next 10 years. Put that on top of the $200 billion that President Trump suggested, which would make it $40 billion a year or $400 billion over a 10-year period. The American Society of Civil Engineers recommends that, to bring our infrastructure up to “fair” condition, we have to spend over $2 trillion over the next 10 years, above what we are currently spending. That $400 billion falls significantly short of this recommendation, but that shortfall is made up in great part by the fact that 26 state governments have stepped up and raised their gas tax over the past three years.

Additionally, there are ways that we can increase infrastructure spending that would have a practical effect of not raising the budget deficit at all.

  • Increase the TIFIA authorization to $1 billion annually. There is a backlog of TIFIA applications so the $1 billion would be a significant, immediate help. TIFIA is mostly loans and loan guarantees, although under the bizarre federal guidelines, these count as spending (even though during TIFIA’s lifespan, almost none of their loans or guarantees have been defaulted on). In real dollars there is almost no negative impact.
  • Lift the prohibition on state and local governments from tolling Interstate highways. If we are truly serious about involving private sector dollars, before they are invested they need a guaranteed, reasonable rate of return. Letting the states place tolls on these roadways would be the surest way to provide it.
  • Bring back Build America Bonds at a 28 percent subsidy rate. In the stimulus bill, BABs paid for 35 percent of the debt service that state and local governments incurred; even though they are taxable, it had a slight negative impact on the budget deficit. Dropping the rate from 35 percent to 28 percent would match the taxes that they would generate, and it would have no impact at all.
  • Establish a National Infrastructure Bank that would offer low-interest loans and credit guarantees to leverage local, state, or private investments. Since these are only loans and credit guarantees, it has no real impact on the federal deficit except for CBO scoring. We can resolve this by changing the EB-5 Visa Program so that loans could only be made to a National Infrastructure Bank.

If these four suggestions were adopted, it would raise hundreds of billions of dollars in private money to contribute to infrastructure over the next 10 years, and combined with the federal and state revenue, we would be able to spend a trillion dollars more then we are currently spending in order to change the transportation infrastructure of the county. Not exactly the $2 trillion that the ASCE recommends, but a fairly robust bill would go a long way to meet the challenges ahead.

If Congress still does not have the courage to enact this federal gas tax increase it makes our challenge far more difficult and leaves one way to produce that necessary revenue: the establishment of a federal capital budget. Every city, county, and state does infrastructure spending from a capital budget. The Federal Government is the only governmental entity in the country that does not have a capital budget. Almost every business of any considerable size has its own capital budget. In truth, infrastructure should be paid for from capital budgets because the spending creates assets, which produce value for decades, where an operating budget revenue is spent within the year it is budgeted for.

I recommend that Congress establish a federal commission to report back in four months about the efficacy of establishing a federal capital budget. This is the long-term answer to funding infrastructure. Forcing infrastructure to compete for funding with things like military spending and healthcare, as is the current state, will only insure that this problem will remain unsolved for decades.

Whatever program is created to fix this problem it must do so quickly because the problems facing our infrastructure cannot be put off any longer.

Edward G. Rendell, Pennsylvania’s 45th Governor, began a second term of office on January 16, 2007, following a landslide re-election victory. As Governor, Rendell served as chief executive of the nation’s 6th-most-populous state and oversaw a $27.5 billion budget. He currently serves as co-chair for Building America’s Future Educational Fund (BAF Ed Fund), a bipartisan coalition of elected officials dedicated to bringing about a new era of U.S. investment in infrastructure that enhances our nation’s prosperity and quality of life.

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