As the House and Senate get closer to unveiling their respective transportation proposals, it’s crunch time for figuring out how to pay for infrastructure investment moving forward. Senator Max Baucus (D-MT), who has let slip that he’s in favor of a two-year reauthorization because of current funding constraints, chaired a hearing in the Finance Committee today to examine options for financing. No one panacea emerged, and conservatives on the committee and among the witnesses quickly countered most of the suggestions raised.
Top committee Republican Orrin Hatch of Utah said the president’s push for infrastructure building is just a “Carter-era message of tax-and-spend” that’s been re-branded and spun to be “more palatable to the American people.”
“What used to be called raising taxes is now called shared sacrifice,” Hatch said. “And what used to be called government spending has now been dubbed investments.”
Former Pennsylvania Gov. Ed Rendell took Hatch to task for that. “I respectfully disagree, and I think the American people disagree that spending on infrastructure is not investment,” he said. “They see it as investment; they see it as worthwhile; they see it as providing value to them; they see it as improving the quality of their life, their safety, and our nation’s economic competiveness.”
He sees new construction as a potential jobs program for troops returning from Iraq and Afghanistan, saying infrastructure investment should be looked at as a “new GI bill” to put those vets back to work here. He suggested using money saved by drawing down military efforts in those countries to rebuild this one.
Rendell’s words were a good antidote to Gabriel Roth, a conservative transportation economist from the Independent Institute, whose entire testimony was devoted to the proposition that the federal government shouldn’t be financing any infrastructure whatsoever outside of the revenues of the Highway Trust Fund. “Matters ought to be handled by the smallest, lowest, or least centralized competent authority,” he asserted.
Roth said federal funding leads to a variety of ills: it forces road users to pay for non-road projects, for one. It increases highway costs because those damn feds won’t let states pay slave wages on public works projects. Plus, he said, the federal government favors some states over others, and its money comes with strings attached (like speed limits).
Rendell disagreed. “I think the federal government should, as is done in every other developed nation in the world, have a significant role in infrastructure spending,” he said, adding that the private sector won’t finance projects that aren’t profitable and federal authority is needed for many projects that cross state lines. As for how to pay for them, Rendell had an endless supply of ideas. First and foremost was a change in the way the nation budgets for infrastructure:
We should have a federal capital budget. It’s nuts! There is no corporation in America that doesn’t separate operating and capital costs, and there is no other political subdivision in America – every city, every state, every county – has a capital budget. Building a bridge which has a 40 or 50 year lifespan shouldn’t be paid for like paperclips that have a 40 or 50 day lifespan.
He was pessimistic that Congress would heed his call, however, so he moved on to more low-hanging fruit. He wanted more flexibility for states to toll roads to pay for maintenance, which the federal government currently prohibits. He wanted Congress to take steps to “unleash the private sector.” He wanted Build America Bonds or Transportation and Regional Infrastructure Bonds (as they might be renamed) to help pay for infrastructure projects. He asked Congress to quintuple the TIFIA loan program, which he said should have a CBO score of zero or better since the program actually earns a little bit of money for the government. He wants an infrastructure bank that would find a way to finance projects of national and regional significance.
Roth said an infrastructure bank makes sense but it could be completely private like any other commercial bank. He even recommended Ed Rendell as the man to run it.
Rendell said he never aspired to be a banker, and a public bank will help keep the cost of building infrastructure down, as it will charge far lower interest rates than the private sector would. Roth, meanwhile, expressed his concern that a national infrastructure bank could actually reduce the amount of private involvement because high demand would lead to delays. Plus, he said, the bank would be run by politicians who wouldn’t just be looking for good projects, but they’d have to be fair. He predicted litigation over the rural set-aside in Senator Kerry’s infrastructure bank bill – after all, who’s to decide what’s rural?
Indeed, many have criticized proposals, like the president’s and the Rockefeller/Lautenberg bill, which would create an I-bank within the walls of the Department of Transportation. John Kerry spoke at today’s committee hearing about the need to create an independent bank. It’ll be “privately run by bankers,” he said. “All we do is charter it. It won’t even issue stock. It’s not for profit – unlike Fannie Mae and Freddie Mac – completely different. And $10 billion can leverage maybe $650 billion of private sector investment that comes in to help build America.”
Kerry, normally stiff and professorial (as you may recall from his 2004 presidential campaign), spoke with uncharacteristic passion and candor. “We’re not going to build anything in America right now,” he said. “We’re not building. We’re falling behind almost every other country in the world… There aren’t great building projects in America right now, not many of them.”
Kerry’s frustration was apparent:
Nobody on that side of the aisle will vote for any increase in revenue, no matter where it might come from, apparently. So what are we going to build? Are we going to keep cutting everything? Then Americans are going to turn around and say, why doesn’t this work, why doesn’t my school work, why can’t we fill the potholes? I mean it’s just crazy, honestly. It really is crazy. We’re in a crazy place right now.
Predictably, conservatives went after the non-highway spending in the Highway Trust Fund. Oklahoma Republican Tom Coburn even baited Gov. Rendell into the game by saying, “When you look at the last significant funding bill for the Highway Trust Fund, fully almost a third of that didn’t go to build highways, bridges or mass transit.” (I’ve asked his office to explain that assertion. I’ll let you know if I get a response.) Rendell gave in on that score.
Coburn specifically asked, “Do you think it’s wise that we take and wall off 10 percent* of all the Highway Trust Fund money that has to be spent on enhancements when you have 5,500 bridges [in Pennsylvania] that are in disrepair? And Oklahoma has close to 8,000? Do you think it’s wise that we make things beautiful or we make things safe?”
Rendell: “That’s an area where I would leave it to the states to decide, absolutely.”
Coburn: “So you would agree that we rescind this mandate and let the states decide – and if they want to spend it on beautification and enhancement, they can.”
Rendell: “The mandate, yes.”
Sen. Ben Cardin (D-MD), always a staunch defender of transit and active transportation, jumped in with some necessary relief from all the bashing of transportation options. He got Sen. Hatch to agree that transit is “critically important to this country” and that it saves money, even highway money.
* Again, some fuzzy math here. Transportation enhancements (which fund multi-use trails that people use to get to work – not just “beautification” projects) make up 10 percent of the surface transportation program, which is less than a quarter of the entire federal aid highway program. Enhancements actually make up about two percent of all federal highway aid.