Why Infrastructure Costs May Rise Thanks to Trump’s Cronyism

The American Dream Meadowlands, a subsidized mall in northern New Jersey, has been beset by delays, cost overruns, bribery, and racketeering -- a case of cronyism that may prefigure the new normal in Trump's America.
The American Dream Meadowlands, a subsidized mall in northern New Jersey, has been beset by delays, cost overruns, bribery, and racketeering -- a case of cronyism that may prefigure the new normal in Trump's America. Photo: Brad Miller via Wikimedia Commons

Donald Trump plans to spend a trillion dollars on America’s infrastructure. Such spending has tantalizing potential to promote long-term growth — or to facilitate immense corruption and waste, on a scale not previously seen in the U.S. Which of the two is likelier? The answer must be the latter: Trump’s actions suggest that cost-effective construction is his last concern, and his first is lining his own pockets.

Infrastructure construction is at its most cost-effective when the government avoids politicizing the process. It can do design in-house using a team of professional experts, but the construction involves bids by private companies, and these bids must be as fair as possible. This is unlikely to happen in a Trump administration. The transition team has been harassing companies in several ways, all of which are likely to lead to more graft and higher costs for the public.

Photo: Gage Skidmore/Flickr
Photo: Gage Skidmore/Flickr

First, Trump reacts poorly to criticism. In response to a media report that Boeing expressed displeasure with his proposals for trade barriers, he threatened to cancel the government’s contract with Boeing for a new Air Force One plane. He lashes out at every media outlet that criticizes him, and at union members. He invited many Silicon Valley tech leaders for a meeting about the future of technology, but did not invite anyone from Twitter; The Hill reports that this was because Twitter rejected a $5 million branded hashtag deal with Trump.

A contractor could endure all these humiliations if it was desperate to get work, but the best builders can work for the private sector, and do not need government funding. Trump’s bombastic behavior is making it difficult to do business with the government.

Second, beyond showmanship, Trump suggested formal rules for companies that do business with the federal government. The deal to retain Carrier jobs in Indiana was linked to a proposed rule against federal contractors offshoring production to other countries. Such rules may keep jobs in the US in the short run, but in the long run, they ensure that every company that judges it more profitable to offshore will choose not to do business with the federal government.

As a military contractor, Carrier has fewer private-sector options. But civil engineering contractors are often large, multinational corporations: For example, many Second Avenue Subway contracts were won by the Swedish firm Skanska. The more difficult the rules are for them, the more likely they are to just build infrastructure elsewhere.

Third, the Carrier deal itself, in which Carrier got tax breaks in exchange for agreeing to only offshore some of the jobs it wanted to, broadcasts a quid-pro-quo culture. If a company can threaten to offshore jobs and then get rewarded with tax breaks, what is the point of competing with it for contracts? And if a company is on the inside track, why should it bother to bid competitively?

Fourth and finally, the Trump transition team is displaying the same pay-to-play behavior that the media criticized the Clintons for during the election campaign. Foreign diplomats stay at Trump’s hotel when they visit Washington in order to curry favor. People can pay to meet with Ivanka. As with the quid-pro-quo nature of the Carrier deal, this makes it harder for contractors to compete on cost and quality, and raises the cost of doing business with the government.

Political interference has already raised U.S. costs: Last year, Senator Chuck Schumer, now the incoming minority leader, prematurely announced that Amtrak had chosen Alstom for its new high-speed rolling stock order, to be manufactured at Alstom’s factory in Hornell, New York. The order itself is about twice as expensive per train as comparable orders in Europe. There are several reasons behind this, but Schumer’s choice to interfere with the bid process to announce new jobs in upstate New York is one of them. Perhaps Schumer’s preference for wheel-greasing over good government explains why he’s so eager to work with Trump on infrastructure projects.

Infrastructure construction in the U.S. costs several times as much as in peer countries. And within the U.S., New York stands out for its expensive subways, which cost as much as 20 times more than is typical in other developed countries. The most promising explanation behind this phenomenon, offered by the Metropolitan Transportation Authority itself in 2010, mentions the difficult operating environment:

Our partners in the contracting community tell us that they are forced to charge more for our projects to protect against the perceived risks of working with the MTA.

This is not just the physical environment, but also the legal and political environment. New York State procurement law requires public agencies to accept the lowest bid. To deter dishonest or incompetent builders from skimping, public agencies have exacting requirements, but the red tape involved only leads to higher costs and lower quality.

Trump is not very interested in making or following rules, so red tape is unlikely. But the ways he bullies everyone he comes across have the same effect. He can intimidate shoddy contractors into doing as he says. But the effect of such intimidation on the no-nonsense construction companies the U.S. should want to do business with is to deter them from bidding, driving up costs.

The higher costs that a Trump-branded infrastructure plan would lead to would not go to the workers. When contractors bid high because of political and legal risk, they don’t share the money with their employees; the money goes to the bottom line. Extra fees coming from pay-to-play would go directly to the Trump family. Such is the way of corruption: Someone always benefits, but it is never the public.

  • war_on_hugs

    Alon, it’s disappointing that Streetsblog of all places is repeating the falsehood that Trump “wants to spend $1 trillion” on infrastructure. From what details of his plans exist, it’s more accurate to say he wants to offer $100 billion in tax credits (over 10 years) to private investors who will then turn that into financing for infrastructure projects. Revenue-producing infrastructure projects, at that, as there would be no profit incentive otherwise.

    This is problematic for several reasons. To relate to this article, there is strong potential for waste and cronyism in such an indirect scheme. It’s possible that, thanks to Trump’s proposed tax credits, a private infrastructure company would only have to put up a small percentage of the funds needed to a build, say, a bridge or toll road, borrowing the rest while securing all future revenues.

    This is, in effect, a large-scale privatization of public assets, which is worrisome on its face but especially so as public entities don’t have a good track record of bargaining for good deals (see: Indiana toll road, Chicago parking meters).

    Paul Krugman breaks it down in more detail.

  • Haggie

    Trump’s plan is WORSE than payouts to win construction bids. He plans on privatizing infrastructure. That means he will PERMANENTLY sell-off infrastructure assets to his cronies, not just over-pay for them to build infrastructure which is then owned by the Federal government.

    You could end up paying a toll to cross a bridge or drive down a street and that toll money will go to a Trump crony who will do no more to maintain or repair the infrastructure than government is already doing today.

    Your scam thinks too small. Trump scams are HUGE! They are the best scams because he has the best SCAMMERS!

  • J. Geoff Rove

    His tweeting about the Lockheed F-35 is another example. Their stock fell from $259 on the previous Friday to $252 on the Monday that He tweeted on. Now some critic about this plane is warranted, but how much before hand knowledge did Trump’s cronny inner circle have about this ?? Loading up on stock (put) options would have made insiders a lot of money on a stock price drop.

  • Batboy

    Political drivel on streetsblog. So sad. I really enjoy the genuine articles about public transportation polices. Now it’s just an anti-trump rant.

  • roger

    If it’s pay to play, then start playing. California High Speed Rail would bridge the gap between Bakersfield and LA Union Station, in the process creating a situation where LA-Vegas HSR becomes feasible. Trump Hotel Las Vegas is directly adjacent a UPRR Right-Of-Way, and 350,000 people use the LA Metro daily. It’s even easier on the east coast, where Trump’s numerous holdings in NYC give him a bonafide reason to invest in NYC-area transit improvements. Make a deal.

  • roger

    Privatizing public infrastructure is great, considering that most of it already is except our Interstate freeway system. Privatizing it would be a huge gain not only for the environment but also for land-use reform and transit utilization. Tolls are good and should absolutely be promoted.

  • Miles Bader

    Privatization can be done well, for things where the resulting private entity would truly provide a better and more cost-effective service, and preserve the goals which led to a public service in the first place.

    It can also be done badly, where it’s poorly conceived, planned, and executed, and is done merely as a paean to ideology (e.g. British Rail) or as a way to shovel money to those with connections. This sort, unsurprisingly, doesn’t tend to end well for the service or those who use it.

    The first sort of privatization requires a lot of hard work and careful planning, and requires the political will to say “no” if it turns out that keeping the service in the government’s hands would be in the public’s best interests. Even if privatizing something could be beneficial, it’s of course perfectly possible to screw up the execution.

    You can probably guess which sort Trump is likely to preside over… ><

  • Was there an actual point(s) in the article you found to false or misleading?

    Or are you just another Trumpus crybaby?

  • Trumpus says one thing at a rally, another on twitter, another in an interview, another in a press conference…..wait scratch that last one, he doesn’t do those, less control.
    In other words nothing Trumpus says matters since he is all over an imaginary map. We will see how the failed casino operator does in practice managing a super-power nation soon enough. Talk is cheap. Trumpus is cheap.

  • Batboy

    1 – not a trump fan, but calling me a trump crybaby is hilarious. I think the crybaby tag would be reserved for those whining about losing the election (i.e., you)

    2 – the author points out this problem crosses party lines (schumer, clinton pay-to-play example). Yet, all we see is a headline that clearly points fingers at Trump. And it also speculates beyond belief rather than waiting for ex-post analysis.

    This blog needs to get its act together. It needs to return to roots focusing on transportation issues and recommendations of polices rather than political criticisms.

  • crazyvag

    I haven’t heard from Trump how he intends to pay for that infrastructure. While the government directly provides the $100 billion via funds or tax credits, the money must come from somewhere.

  • war_on_hugs

    Good point. I think the idea on the table is repatriation (taxing of overseas profits brought back to U.S. at a discounted tax rate). Obama also proposed this and predictably it went over like a lead balloon.

  • war_on_hugs

    True, but in this case his infrastructure plan is one of the few that has an actual position paper behind it, in moderate detail no less. Doesn’t mean he’ll stick with it, of course, but it’s at least something to go on.

  • JK

    The author is simply wrong that “New York State procurement law requires public agencies to accept the lowest bid.” That is only true for agencies purchasing commodities like salt, tires, rails etc — and there is NO state procurement standard that authorities — like MTA — have to follow. Authorities are required to have a procurement policy that the Authorities Budget Office approves — if they bother looking.

    For construction services MTA procurement policy and state agency procurement rules specifically call for considering proposals based on price and “Delivery performance, quality, and ability to meet bid specifications.” Clearly there is a heck of a lot wrong with MTA capital construction and purchasing — but it’s not price only procurement.

  • Alon Levy

    Yes, I know that the plan involves a byzantine leverage system. However, I believe that contra Krugman, any $1 trillion infrastructure plan will necessarily involve close to $1 trillion in actual government funding, rather than $180 billion in public funding and the rest in private funding.

    The reason is that the sort of corruption Trump engages in, while unheard of for the US federal government, is not unheard of at the state and local level. Remember Rod Blagojevich? The upshot is that we can look at local precedents. As far as I can tell, when the government says it’ll totes get private funding, it’s either lying to you or lying to itself.

    Examples: California promised that 1/3 of the cost of high-speed rail would be paid by the private sector. Eight years later, not a cent of private money is forthcoming, while public funding approaches the amount promised for total state + federal funding back in 2008. Under Bloomberg, New York built the 7 extension promising that extra property taxes would pay off the initial cost. Subsequently the administration had to actually give tax breaks to Hudson Yards developers to get them to build anything.

    Finally, on a more political note, my reading of Ryan and McConnell is that they will either fold to Trump or obstruct. I don’t think they’ll water his plans down, the way a moderate Republican like Susan Collins might. If Ryan and McConnell really believe in austerity economics, they’ll obstruct Trump’s infrastructure plan, or perhaps he’ll just forget about it. If they just want to cut taxes and don’t care about extra spending, they’ll give Trump what he wants and not worry about deficit size. What this means is that the political system right now is relatively insensitive to $180 billion versus $1 trillion. So if Trump chooses to pursue this, with Ryan’s blessing, the likely result will be an announcement “we’ll make $1 trillion available for infra using private-sector leverage,” and then when the private sector lols, the government will spend $1 trillion of public money.

  • Alon Levy

    Okay, so I’ve looked, and you’re right. City services and Port Authority award contracts lowest-bid, but the MTA doesn’t. (By the way, Port Authority costs are even higher than MTA costs, although this wasn’t the case in the late 1990s.) But the part about the overexacting specs down to the materials used is still true.

    Do you know how if the MTA uses a consistent scheme for awarding major construction projects, like 70% cost/30% technical for California HSR (or 50% technical, and either 30% cost and 20% time or the reverse for Madrid, I forget which)?

  • Mcass777

    And Bill Clinton’s was out giving speeches in far flung countries while HRC was secretary of state. They are all the same

  • Guy Ross

    Ok, and presently we are discussing preexisting conflicts and the likely scenario of the spending priorities and projects of the upcoming administration.

    Stay focused, sir.

  • Guy Ross

    LA – LV HSR would be hard to justify on a subsidy basis and would be a total flop if user supported without subsidy. Where is the density in Either LA or LV to allow this, and is there a single stop along the way to justify the train to even slow? investing in HSP or any other train connections makes no sense if we encourage ever decreasing density of our population. Has nothing to do with Trump, if feel.

  • Guy Ross

    ‘It needs to return to roots focusing on transportation issues and recommendations of polices rather than political criticisms.’

    Ok, the title was provocative and it obviously got under your skin but this article does indeed focus on transportation issues and recommendations. Yes, it is not about a 3 block bike lane but rather about transportation policy, project allocation, funding and execution and what that may look like under a Trump presidency on a national level. Absolutely no details, or even a broad overview have been given by him or any of his spokespeople at any point so conjecture must be made in lieu of any actual direction. This is not to say it is a blank slate. The article looks to past pracitces and how Trump Inc. opperates and the man himself has said that is how his administration will operate.

    About pointing fingers, the article focuses on Trump while also describing faults of the past because, well, Trump will be president and his party will have control of both houses and the judiciary. Who else should be looked into? The Democratic leadership of Texas?

    I think the Blog is great and its mission and culture are more aligned with the left than the right – Or is safe streets, reducing the reliance on fossil fuels and increasing street level quality of life issues part of the Republican’s platform? That it doesn’t fit the mold of those who never want to leave the comfort of their SUV is only logical.

  • Guy Ross

    You forgot an important aspect. The stock price plummeted BEFORE he tweeted.

  • Guy Ross

    Come again? Which part of public infrastructure is already privatized? The Interstate is about the only thing I can think of that is somewhat privatized.

    Government services have been increasingly privatized, infrastructure not so much.

  • Guy Ross

    Growth. You don’t need to pay for it because the growth it generates pays for it in the form of more economic activity. I could and does sometimes work but unfortunately the theory has basically been used by republicans to keep spending while dropping taxes on the wealthy. (Reagan, Bush)

  • Batboy

    This is not a thought piece (which could have been fair even with criticisms of Trump) – it is accusatory. Read the last paragraph.

    By the way, I live in Chicago – a democratic stronghold where corruption mixed with public contracts is accepted.

    It’s great to scrutinize this issue on the national level, but what about the municipal level where it’s a bigger problem? NYC, Chicago, Boston – look at the cost overruns of big projects in these cities. You think Trump has a hand in those?

  • neroden

    Um, LA’s the third-densest city in the entire US, and is getting denser. Maybe you haven’t actually bothered to look up the numbers in recent years.

    LA may look low-rise, but it’s *packed*. You can see some of the better from overhead, when you realize that in the “single family” areas, nobody’s house has a side yard and there’s another house in the backyard. The miles and miles of four-story apartment buildings contribute as well.

    For a true understanding of population density, you have to look at population-weighted population density; otherwise the totally empty tracts of forest reserve (for example) distort the picture.

    http://www.citylab.com/housing/2012/10/americas-truly-densest-metros/3450/

    LA is the third-densest metro area in the US, after NY and SF.

    Las Vegas is number 11 (I checked the dataset).

    So, you just have your facts completely wrong. LA and LV are super ultra mega dense.

  • neroden

    The pop-weighted density stats are fascinating, by the way: the densest city with no passenger rail service of any sort is Laredo.

  • neroden

    Trump’s cronyism is not in dispute. The problem does cross party lines, but Trump shows an especially extreme and obvious case of chronic cronyism. So it’s appropriate to mention him.

    There are good sides to cronyism as well. We did get the transcontinental railroads and the Erie Canal built with very high degrees of cronyism. That would be a honest counterargument to this article.

  • neroden

    OK, so it’s fair to say that maybe crony-corruption works out OK. A good discussion would be “Why do things get done at reasonable cost in Chicago even with crony-corruption? Will this apply to Trump or not?”

  • neroden

    Actually, the federal government can print money. It doesn’t have to come from anywhere. It’s sufficiently little in the broad scheme of things that it would not cause inflation.

    However, Republicans like to pretend that money needs to come from somewhere (really, it’s printed at the Bureau of Engraving and Printing, but they like to pretend that it isn’t, in order to mislead people into thinking that we “can’t afford” things which we definitely can afford) so they’ll probably come up with some byzantine scheme which is basically money-printing but doesn’t look like it.

  • Batboy

    Agreed. that would have been fair.

  • Guy Ross

    Visualization helps. Here is a great tool

    https://www.arcgis.com/home/webmap/viewer.html?useExisting=1&layers=302d4e6025ef41fa8d3525b7fc31963a

    The LA metro is denser than most areas in the U.S. However it is still super spread out with multiple clusters of super dense but very few as dense as large swaths of SF and NYC….. Also look at Chicago. LV is brutal and on par with a prairie town.

    Pouring massive amounts of money to plow a rail link through a barren desert is foolhardy with so much better low hanging fruit. Now, you talk about SD-LA-SF-Sacramento-central valley and you have me. But not to take pressure off a single interstate to go between cities in which you need a car in both.

  • Guy Ross

    I’m captivated! Yeah, it is a great tool – some huge surprises I wasn’t expecting: Minneapolis! I know the place fairly well but never got the feeling of such density. Improving the pathetic Amtrak there to Chicago would be totally viable and enrich both cities. That train is currently always full and runs twice a day and is slow and half a day late.

  • Tom Stone

    The fact that he threatened to get a cheaper contract from Boeing and succeeded before he ever took step into office is somehow a bad thing? Terrible opinion pieces like this one are the reason he won. Ignoring the huge Bernie crowds was the democratic parties biggest mistake that got us here. Clinton doesn’t have the charisma or energy to put on big events needed to rally young voters. Just my opinion. Next up, the F35 jet.

  • Mcass777

    Sorry for confusing readers with something that happened and the elements in the article that are based on conjecture.

  • war_on_hugs

    Thanks for the constructive response! I realize that blog posts need to be succinct, but I do suggest you try and incorporate some of this nuance when you write about the subject in the future.

    Personally, I don’t see any possible scenario where Congress puts $1 trillion in new spending toward anything, even infrastructure. Something along Trump’s lines – tax credits, possibly paid for by some form of repatriation or “tax reform” – seems much more likely. It allows Trump/Republicans to claim they’re addressing the problem without “government waste.”

    Sure, it won’t add up to $1 trillion in the end – not even close. But Obama’s “$1 trillion” stimulus only included about $50 billion for infrastructure, which no one remembers. Trump only cares about optics, anyway, and mainstream news is already covering his plan as worth $1 trillion regardless of the details.

    Plus, the tax credit plan is very appealing to politically-connected construction firms.

    Worth noting that the two lead architects of Trump’s infrastructure plan during the campaign were Peter Navarro and Wilbur Ross. Ross is the nominee for Secretary of Commerce; it was announced this week that Navarro will head a “National Infrastructure Council.” So I wouldn’t dismiss the stated plan too quickly.

  • socaldano

    Wow, what a work of fiction…. Does anyone really stop and ask stupid questions like…
    How come cities and states owned by the democrats have these problems…and it is the fault of the republicans.

    That is like when a car is stopped at a red light gets rear ended and the driver that did not stop starts blaming the guy stopped for the red light…

    The problem already exists predominately where liberals are in control….. so it is the fault of the conservatives REALLY

  • socaldano

    no HRC is the FIRST to form a foundation to redirect the ill gotten gains. As ALL gifts to the secretary of state is to be given to the treasury… Bill gets 5 times the going rate for a fmr President, and the clinton foundation gets tens of millions because Hillery gives access to the state department for a price….

    anywhere else that is called soliciting bribes on an unprecedented scale

  • socaldano

    BUT almost nobody travels from LA to Bakersfield… so its a white elephant from the gate

  • socaldano

    not true.. for a fratction of the price they can have high speed rail from LA to vegas and onto salt lake city… and would not need subsidies.
    the environmentalists pressured the NPS to NOT do the study to allow the semi high speed train to vegas… see with high quality rails, Amtrak can travel 125mph… an from the top of the cajon pass to vegas it can do 125mph most of the way (I would have it start at union station, stop at San Bernadino, Bartow, State line, and clark county then go on to salt lake…at 125 mph in rural areas, that means the train would take about 2.5 hours from San Bernadino, and about 3.5 hours from union station

  • socaldano

    more importantly tens of thousands of cars travel from LA to vegas each weekend and back. So a 125 mph amtrack train from la to vegas leaving every two hours would be an excellent success…and faster and far cheaper than the bullet train which nobody would use.
    AND the amtrack train hits the metrolink so Metrolink can easily feed this train

  • Sam Gallaher

    I live in Orlando, FL. Here, getting funding for transit projects, or even bike infrastructure projects for that matter, is incredibly difficult. Our governor, Republican, has continually cut funding for projects that provide more equity to our transportation system and incentivize sustainable and economically-productive development. However, we are continually having to fight the Republican-controlled DOT who keep enlarging the highways instead, spending billions of dollars, and exacerbating traffic issues within the city and incentivizing auto-oriented development which strains local municipal budgets.

    The Tampa Bay area has had virtually every transit project killed before it could ever see the light of day, but FDOT is pushing a $6 billion highway widening project that accomplishes absolutely nothing.

    If cities were completely in control of how transportation money is invested in their city, we wouldn’t have many of the issues we do. The problem mostly comes from the state DOTs and their obsession of spending all our money on widening highways instead of maintaining our existing infrastructure and diversifying our transportation options.

  • neroden

    Alon Levy has spent 20 years figuring out what’s going on with construction costs. He knows what he’s talking about.

    Texas is just as bad on construction costs as most of the US. Republicans cause these problems too.

  • neroden

    There are thousands of people commuting from Bakersfield to LA daily. You obviously know nothing about the area.

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