December 5, 2017
By Former Gov. Ed Rendell
America no longer leads the world in infrastructure, and it didn’t need to be this way. Last Thursday, former U.S. Transportation Secretary Ray LaHood and I were invited to D.C. to talk to the bipartisan “Problem Solvers” congressional caucus. We were invited in our capacity as chairmen of Building America’s Future, to talk about infrastructure.
I had previously spoken out publicly about how a robust infrastructure investment had its best chance of being realized if it was done as part of tax reform. If we are giving people an income tax cut, it is much easier for them to absorb a $140 a year gas-tax increase, and the repatriation money could then be funneled towards infrastructure, as Congressman John Delaney (D-Md.) has suggested in his legislation.
As we spoke to the caucus, it was pretty clear that the ship had sailed and there was no interest in combining infrastructure and tax reform. We discussed some short-run ideas which could promote infrastructure investment without having much of an impact on the federal budget: removing the ban on tolling on interstate highways, raising the cap on Transportation Infrastructure Finance and Innovation Act funding to $1 billion annually, reauthorizing “Building America Bonds” but with the federal government paying only 28 percent of the debt service, rendering those taxable bonds as revenue neutral, changing the EB-5 program so that all foreign investment goes to funding an infrastructure bank, and reinstating private activity bonds, which the House tax reform bill would eliminate.
With the Trump administration relying so heavily on private investment for its infrastructure plan, it made absolutely no sense to emasculate private activity bonds, which are so often used in large private-public infrastructure projects. As we continued to talk about these ideas, it struck me that although they were useful, they could not help to generate anywhere near a $2 trillion investment in infrastructure that the American Society of Civil Engineers says we need over the next 10 years. They could not even generate anywhere near the $1 trillion investment that President Trump has talked about making.
So, I decided to try for a “Hail Mary” and bring out something I have been advocating for since I was mayor of Philadelphia and headed up an organization called Rebuild America. Truth is, we will never have an effective infrastructure revitalization plan until the federal government adopts a capital budget. Every political subdivision in the nation, every city, county and state, has a capital budget. Any business of any significant size at all has a line in its budget called “capex,” or capital expenditures, which is money they allocate for capital spending.
During President Clinton’s first term, he started a commission headed by Jon Corzine and Kathleen Brown to determine if the federal government needed a capital budget. I and many other officeholders testified to our strong belief that we did but Robert Rubin, then U.S. secretary of the Treasury, was the last witness and torpedoed our momentum. A quarter of a century later, the United States is the only developed nation that hasn’t undertaken a major infrastructure development plan and we have gone from being rated the best infrastructure in the world to not even being in the top 10 anymore, according to the World Economic Report.
It’s time to face up to the very clear reality that long-term infrastructure spending, which brings about significant benefits down the road, cannot compete in an operating budget that has such immediate needs as health care and defense. There are many impediments to the adoption of the federal capital budget but none of them are significant enough to stand in the way of this idea whose time has come.
One of the impediments that has to be changed is how we score under our budget act. The European Union has its own infrastructure bank where loans and loan guarantees are doled out to important projects. They charge a very modest interest rate, and they make a small profit. If we were to construct such an infrastructure bank, under current rules, those loans and loan guarantees would be scored as spending even though there would be a track record showing that the overall program never spends money but actually makes a small profit. In some ways, I feel like a lone voice in the wilderness (although I was happy to hear that the “Problem Solvers” congressional caucus may also recommend a federal capital budget), but it’s the only real solution.
For those who say, “let the states do it,” know that the states are trying. Twenty-five states, both red and blue, have increased their gas tax in the last three years. The states simply do not have enough money to do it alone. For those who say, “let the private sector do it,” they forget that the private sector must have a reasonable rate of return before it invests in anything, and most infrastructure projects cannot give them one. For example, there are 60,000 structurally deficient bridges in America. No more than 100 of them have enough traffic that could generate toll revenues enough to supply that return. This leaves 59,900 that need repair that must be done with government investment.
So, the conclusion is inescapable. We have two choices: adopt a federal capital budget, or sit by and watch the American infrastructure crumble bridge by bridge, pipeline by pipeline, water main by water main, and watch us fall behind economically because of an inadequate electrical power grid and insufficient broadband. Even for Washington, this should be a no-brainer.
Edward G. Rendell was the 45th governor of Pennsylvania, former mayor of Philadelphia, and former district attorney in that city. He served as chairman of the Democratic National Committee during the 2000 presidential election. He is now co-chairman of the Immigration Task Force at the Bipartisan Policy Center.