A lot of people have proposed that Congress create an infrastructure bank that would fund or finance the reconstruction and expansion of America’s transportation and other infrastructure. One problem is where the money would come from. Another problem is how would it be allocated.
Representative John Delaney (D-MD) thinks he has the answers to these two questions. He notes that, for tax reasons, American corporations have kept billions of dollars in foreign profits overseas so they don’t have to pay U.S. taxes on them. He proposes to drastically reduce the rate they would pay on this income, leading them to bring the funds back. The revenues from the lower rates (he proposes about 8 percent) that would then be paid would seed what he calls the American Infrastructure Fund.
Delaney is less clear about how the money would be spent. He proposes to create what amounts to a non-profit corporation called the American Infrastructure Fund. It would loan out the funds to state and local governments that would be obligated to pay them back at some low interest rate. Delaney has no expectation that most of these projects would generate enough user fees to repay the loans, thus leaving state and local taxpayers on the hook to repay them.
The congressman uncritically accepts claims that, since transportation spending in the past has generated more benefits than its costs, any transportation infrastructure spending in the future would do the same. Yet it is one thing to build an Interstate Highway System that dramatically increased travel speeds and safety while it reduced costs and, because it reached every major urban area in the country, increased convenience. It is quite another thing to build a slow, obsolete streetcar line that increases traffic congestion and repeatedly runs into other vehicles.
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Just as the Federal Transit Administration gladly funds bloated light-rail projects that cost $628 million per mile, there is no reason to think that the infrastructure fund would necessarily pick projects that will truly increase speed, economy, safety, and convenience. Its main criterion is likely to be the ability of the state or local government to repay the loans, which means the projects that are funded will depend on the state and local governments persuading taxpayers to cover those costs. This leads us back to the problem that politically funded programs tend to emphasize new construction while not providing enough funds for maintenance.
The Antiplanner remembers when the Washington Metro system was the envy of the nation. On my current trip to DC, I’ve encountered maintenance-related delays (such as failed brakes) of ten minutes or more on three of the five trips I’ve taken on the metro. “That’s the story of my life,” a young office worker told me. Rather than fix the system, politicians prefer to build more in the form of the Silver Line and now the Purple Line.
Delaney probably thinks he is very creative in proposing to use taxes on repatriated corporate profits to fund his infrastructure scheme. In fact, if that source of revenue is truly available, it should probably be used to reduce the federal debt. There is no particular connection between it and transportation infrastructure, which means that elected officials at all levels of government will be inclined to see it as free money.
Rather than develop complicated tests to insure that money is effectively spent, there is one simple test that works: Will the cost be covered by user fees? If users are willing to pay for something, then it is most likely to generate the huge benefits that advocates of increased federal spending claim for any infrastructure. User-funded infrastructure also tends to be well maintained as managers know that users will avoid poorly maintained systems if they have any alternatives.
Seen in this light, Delaney’s proposal is not that creative. It merely creates a slush fund that would no doubt end up being spent on political projects, meaning new projects, while leaving little to restore the aging infrastructure that we have.
“there is no reason to think that the infrastructure fund would necessarily pick projects that will truly increase speed, economy, safety, and convenience”
Agreed. To this I would add “environmentally beneficial.” Too many of these projects claim to be beneficial by being “sustainable” development but have no actual data to show how they are sustainable. Any project that claims sustainability should be able to show why it is a cost effective way of providing sustainability. For example, if the project claims a reduction in greenhouse gases it should show a cost effective way of doing this to be funded.
“He proposes to create what amounts to a non-profit corporation called the American Infrastructure Fund.”
Great! Another government-owned corporation!
Yes, what could possibly go wrong with that?!
Everyone knows that what the government runs is not afflicted by corruption, greed, or anything but just pure human goodness.
From the Honorable Congressman’s website:
As this Reason magazine article points out, the 2013 Report Card for America’s Infrastructure was written by the American Society of Civil Engineers, who stand to get a big chunk of that $750 billion that the Honorable Congressman intends to milk out of American taxpayers. And no doubt the civil contractors will be strip mined by state and local politicians for campaign contributions. Another big winner would probably be the Blackrock, Inc, the world’s largest asset manager with a huge stake in municipal bonds. Guess which company was the #1 contributor to Congressman Delaney’s campaign?
The Antiplanner wrote:
Delaney is less clear about how the money would be spent. He proposes to create what amounts to a non-profit corporation called the American Infrastructure Fund. It would loan out the funds to state and local governments that would be obligated to pay them back at some low interest rate. Delaney has no expectation that most of these projects would generate enough user fees to repay the loans, thus leaving state and local taxpayers on the hook to repay them.
There is experience with the federal government funding transportation projects in the past, and getting back the money loaned to state agencies to get new infrastructure built.
In particular, the earliest part of the Pennsylvania Turnpike from the years leading up to its 1940 opening were funded by in large part federal loans. Does this mean I support transit projects that require billions of capital dollars from taxpayers just to start constructing them? With no chance that the loans will be repaid by patrons?
This article kind of moves the discussion away from auto vs. bus vs. rail to free market vs. central planning.
http://www.nationalreview.com/article/414790/kings-road-kevin-d-williamson