Ever since election day, there’s been talk that one Donald Trump policy proposal swiped from the Democratic playbook would be a massive program of federal spending to, as his website says, “pursue an ‘America’s Infrastructure First’ policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs.” Some local officials have responded enthusiastically, with New York Gov. Andrew Cuomo saying he hoped this would lead to increased funding for long-planned public transportation projects like bridges and airports.
According to an op-ed in Friday’s Washington Post, though, Trump’s actual plan wouldn’t actually involve any increased funding to public construction projects. Former Obama stimulus-spending czar Ronald Klain, citing a report by two Trump policy advisors, writes:
The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.
If you’re a regular reader of this site, this should be sounding familiar: Tax kickbacks to projects that might take place anyway are the M.O. that has helped create the $2-billion-a-year sports stadium and arena subsidy industry — not to mention a slew of other subsidies to businesses from auto plants to airplane factories, plus the innumerable construction projects that receive tax increment financing even though they’d still be built without it.
What would be new under the Trump plan would be a massive federal outlay for these kinds of privately built projects. (Right now the main way the federal government subsidizes local private construction projects like stadiums is via tax-exempt bonds, which amounts to a whole bunch of money, but not nearly as much as if the feds were subsidizing projects directly.) The Trump policy paper, by leveraged buyout king Wilbur Ross and UC-Irvine economist Peter Navarro, is maddeningly unspecific about what projects would qualify for Trump income tax credits. But given that the rebates would be limited to projects that private-sector builders were interested in building — and that it’s likely to be left up to local governments to determine what to use the tax credits for, as the Trump policy report promises to “provide maximum flexibility to the states” — don’t expect to see a whole lot of new bridges when there are for-profit housing developments and, yes, sports stadiums to be built that would be far more lucrative for their builders.
At minimum, the Trump plan would be a way to coerce state and local governments to deal in private developers on otherwise public projects, with the private contractors getting to extract a “10% pretax profit margin” (it’s unclear whether that’s a guarantee or just an estimate). But if it ends up just being a way to subsidize private construction projects by rebranding them as “infrastructure” — something that has already been used to justify local-level stadium subsidies in the past — then we could easily see a whole lot of sports team owners lining up with their hands out. If the Trump plan moves forward, we’re going to need to keep a super-close eye on the arcane details of how the eligibility rules are written; it’s either that or trust state and local government officials to decide what to use the federal tax rebates for, and we’ve seen how well that’s worked before.
Trump’s plan looks great! Get the infrastructure spending out of direct government control, where decision makers are beholden to activists and bureaucrats who have a history of delaying projects and adding bloat & cronyism.
And also give tax breaks to the folks that don’t really need them. Plus like Neil mentioned, this will be a way to subsidize private construction projects by rebranding them as “infrastructure”, something that has already been used to justify local-level stadium subsidies in the past. Basically, keep milking the tax payers so that construction companies and unions can fill their pockets.
Construction companies & unions charging above market prices for their services is precisely what I meant by “bloat & cronyism”, for the record.
Not entirely clear on how this would help keep costs down, though, since you’d be reducing the universe of potential bidders for jobs (since only private firms would be eligible, not public agencies).
I don’t have historical details, but I’d be very, very, very surprised if projects from “public agencies” (which really means “private contractors chosen by public agencies”) have a history of coming in below the typical cost of projects from private firms.
I congratulate you on your continued dedication to trolling this site.
What I don’t get is why. There are relatively few commenters and people don’t get that upset like they might on other boards.
Matt, I am upset and furthermore I suspected this might happen with Trump’s infrastructure plan even before I saw Neil’s new post.
Instead of “trolling”, it’s better viewed as satirical performance art.
An argument against “bloat and cronyism” from a frequent supporter of stadium subsidies is more than a little amusing.
@Ben
Infrastructure is public good, that, if directed or controlled by the private sector, it would:
a) never get done because there is either no money to made by selling it post-build or via post-build revenue streams
b) not get done for people who can’t afford to pay for it directly (I might be willing to build a bridge over a river in the Hamptons b/c the people there can pay the tolls, but I wouldn’t want to build a water plant in the middle of Arkansas b/c of the low avg income of the population.)
c) would result in a mess of airports, bridges, water lines, dams, utility lines, bus services, etc. as each private entity would attempt to build their own. (The closest current private example might be the oligopoly cellular network. Imagine that for city water, sewer, gas, airports, etc.)
IMO, The motivations of the private sector are no more noble than the influences on gov’t. It is the private sector who often pushes for infrastructure projects b/c they are the ones befitting from the work. Everyone on all sides has an army of lobbyists that they use to move the needle in their direction.
But getting to Neil’s main point…in trumps plan, stadiums could be construed as infrastructure, a public good which they are clearly not. So we would be losing ground in the publicly-funded stadium fight in a Trump tax incentive plan.
There are tremendous amounts of inefficiencies with indirectly giving money to private investors. There are inefficiencies in planning, coordination, motivation, production, “regressive benefits”, and more. I understand the emphasis on the problems of giving people public money for things they are already doing or have done as those are obvious flaws as well.
You say the projects have to be profitable? How many arenas would that eliminate?
Glad to be posting 4 blocks from the site of the magnificent Kanye-crater.
No, the private developer has to turn a profit. Whether the project as a whole turns a profit doesn’t matter.
I’m seeing this from a different perspective now. Hmm.
Donald J. Trump is my kind of kleptocrat and hence a great American. Money flowing into my pocket defined as a public good is *long* overdue, if you ask me. In fact, ask any billionaire sports team owner and the answer will be the same.
I love the smell of public stadium cash in the morning!