Department of confused infrastructure policy: “White House looks to states to hike taxes for their own improvements, as it pushes a tax bill that punishes local governments for raising more revenue.”
Even as President Trump and Republicans in Congress seek to cut federal taxes, the White House has quietly come up with a very different plan for infrastructure: It wants to reward states and localities willing to raise taxes or other revenue to pay for new projects.
The dynamic is key to the Trump administration’s latest thinking on an infrastructure bill aimed at spurring a $1 trillion investment in the nation’s ailing roads, bridges, rail lines and airports. Originally touted by Trump as a first-100-days initiative — and one with the prospect for bipartisan support — it has stalled amid other bruising legislative battles.
The approach now being contemplated is considered innovative by some infrastructure experts but also carries considerable political and economic risks for Trump.
While some in his own party remain wary of any new spending, many state and local officials and Democrats in Congress would like to see a more robust federal investment. Washington would cover only $200 billion of the $1 trillion tab under the legislation being developed. Some also worry that taxes and fees raised at the local level could cancel out any potential benefits of a federal tax bill for their constituents.
“The state and local sector as a whole is already feeling beleaguered,” said Tracy Gordon, a senior fellow with the Urban-Brookings Tax Policy Center. She added that she is eager to see how much of a “sweetener” the federal government will provide. “I’m not sure this is going to go over very well,” she said.
As described by White House aides familiar with Trump’s initiative, additional federal funding would be available on a competitive basis for states and localities that submit plans outlining how they plan to raise new revenue dedicated to infrastructure.
Jurisdictions could raise their gas or sales tax rates, for example, or increase revenue flowing to infrastructure projects in a variety of other ways, such as imposing new tolls on roads or selling off existing assets to the private sector to generate money for new projects.
“We will be agnostic as to the type of revenue, as long as it is new and dedicated to infrastructure,” said one White House official, who spoke on the condition of anonymity to speak more freely about a plan the administration is not yet prepared to announce.
The White House’s vision of how to move forward on infrastructure has evolved over the past year, and officials say there could still be other changes before a bill is formally unveiled, likely early next year.
The $200 billion in federal funding would be spent over the coming decade, with the aim of leveraging at least another $800 billion from state and local governments and the private sector.
Earlier in Trump’s tenure, aides said that public-private partnerships would be key to spurring new projects. But Trump has since soured on the concept. Under the current thinking, jurisdictions could still engage in such partnerships but they would be no more likely to win federal incentive money than those that choose to raise taxes.
The White House also envisions setting aside some of the $200 billion federal investment for projects in rural areas, which would be eligible for more generous grants. Another aspect of the plan — which Trump has taken steps to implement through executive action — calls for streamlining environmental and other regulations with the aim of speeding up construction.
R. Richard Geddes, director of the Cornell Program in Infrastructure Policy, said the plan has potential to spur more creative solutions to funding transportation on the local level and lessen dependence on the gas tax.
With Americans driving less, and the advent of electric cars, some argue that it’s more equitable to come up with user-based fees, such as tolls. Geddes said asset recycling — which has been tried in Australia — is a promising approach. Under the scheme, governments can sell or lease assets such as roads and airports to the private sector and invest the proceeds in new infrastructure projects.
“To the degree that the federal government can incentivize states to think about alternatives, I’m happy,” Geddes said.
White House aides say their plan will be ready to debut after a tax bill is signed, but questions about both the substance and politics remain plentiful — including how exactly it will be paid for, particularly in the wake of a tax bill expected to add $1.5 trillion to the deficit over 10 years.
Unlike Trump’s legislative efforts on health care and taxes, he will need the support of some Democrats in Congress to succeed on infrastructure.
Aware of that, the administration has been reaching out to state and local officials across the country, including Democrats, as it puts together its plan and prepares to sell it to lawmakers in Washington, who have yet to focus much on the issue.
Some observers see a tough sell.
Jim Manley, a lobbyist who previously was a longtime aide to Senate Minority Leader Harry M. Reid (D-Nev.), said he has a hard time envisioning many Republicans embracing a plan that provides an incentive for localities to raise taxes.
“I believe that is going to be a deal-killer for a lot of Republicans,” he said, adding that many Democrats, meanwhile, are likely to be skeptical of “sticking it to the states.”
An infrastructure bill unveiled earlier this year by Senate Democrats called for five times as much direct federal investment in local projects around the country.
A White House official downplayed concerns about incentivizing localities to raise taxes, noting that “is only one of the options they have for raising revenue.”
“We think Republicans will be in favor of ensuring that future infrastructure projects are fiscally responsible,” the official said.
Local officials have also raised concerns that the GOP tax bills pending in Congress would curtail the ability of Americans to deduct state and local taxes on their federal returns. If those provisions become law, it becomes more difficult for states and localities to turn to constituents for more revenue for infrastructure.
And local officials are watching nervously to see whether a provision in the House tax bill remains in the final version sent to Trump’s desk. The provision would eliminate a tax exemption for private activity bonds, which are used to finance infrastructure projects. Such a move would “increase financing costs for projects and inhibit much-needed infrastructure,” accord to an assessment by Moody’s Investors Service.
As outlined, the administration’s overall approach would be somewhat reminiscent of an initiative of President Obama, said Beth Osborne, senior policy adviser for the advocacy group Transportation for America and a former senior transportation official in the Obama administration.
The Transportation Investment Generating Economic Recovery (TIGER) program, part of the broader 2009 stimulus legislation, offers federal grant money to states and localities on a competitive basis for investments in transportation projects.
The program offers “a thoughtful approach to build on,” Osborne said.
Unlike the TIGER program, however, Trump aides envision judging state and local submissions primarily on the proposed revenue stream that would fund projects rather than the projects themselves.
White House aides said existing government departments would pick the winning jurisdictions. It remains unclear how large the federal supplement would be for the new revenue being raised on the state or local level.
Another unresolved problem, the White House acknowledged, is how to be fair to jurisdictions that have invested heavily in infrastructure in recent years without federal prodding.
“Do you only reward laggards?” asked Osborne.
A White House official acknowledged this is a valid concern, saying: “We do not want anyone to punished for having taken on this initiative by themselves, or to incentivize anyone to wait on critical infrastructure projects until the bill is passed.”