Taxpayers Lose and Banks Win in This Trump Infrastructure Deal

A story out of Rhode Island highlights the risks of the Trump administration's approach to infrastructure funding.

In one year, the cost of the Route 95 Viaduct Reconstruction project in Rhode Island increased more than 50 percent. Photo:  Rhode Island DOT
In one year, the cost of the Route 95 Viaduct Reconstruction project in Rhode Island increased more than 50 percent. Photo: Rhode Island DOT

The Trump administration’s insistence on paying for infrastructure with private finance risks draining public coffers to pad profits for banks. In fact, a story from Rhode Island suggests that’s already happening.

The projected cost of a local highway project — the Route 95 viaduct — has ballooned more than 50 percent in a year, the Providence Journal reports. Much of the increase is due to special perks for private lenders that the state hopes will win favor from the Trump DOT.

The Journal’s Patrick Anderson reports:

The state last month applied for a $60-million grant from the U.S. Department of Transportation’s [Trump Administration-enacted] “INFRA” program for the reconstruction of the Route 95 Northbound Providence Viaduct, roughly the same project it sought a $59-million grant for a year ago under the Obama administration’s predecessor “FASTLANE” program.

But the estimated cost of the underlying project — replacing the decrepit Route 95 North bridges and interchange in the center of the city while adding new travel lanes — has grown from $226.1 million to $342.9 million, according to the respective grant applications from the Rhode Island Department of Transportation.

A big chunk of that cost increase is connected to financing and the private part of the project. This year’s grant application says the “estimated design-build cost” is $264 million. The new plan then adds interest on a $45-million private loan and a “15-percent return to the private partner.”

Why would Rhode Island spend all that money on private financing when it can borrow directly at a lower rate? There aren’t even tolls on this stretch of highway, so there is no projected-related revenue stream to pay back the loan.

Rhode Island DOT spokeswoman Lisbeth Pettengill admitted to the Journal that including the loan will help the agency win a federal grant. She told Anderson:

The new [Trump-era] guidelines encourage states to find private partners and to take more of a role in funding projects. With these guidelines in mind, we redefined the project to fit those new grant requirements.

Private finance deals are often sold as a way to get more infrastructure for the public’s money. But as this case demonstrates, they often just funnel more money into bankers’ pockets at the public’s expense.

Hat tip to former Streetsblog reporter Stephen Miller for catching this story.

  • Joe R.

    When will we realize there is just as much inefficiency in the private sector as in the public sector, perhaps even more? Excessive executive salaries, high payments to shareholders, lavish offices, unnecessary business travel, and do nothing jobs for relatives of connected people are but some examples of this.

  • SFnative74

    Very true…additionally, incredibly shoddy work can come out of the private sector.

  • TakeFive

    This appears to be quite incomplete and misleading. It’s hard to decipher but I am familiar with Colorado’s CDOT new executed contract with a P3 consortium led by Kiewit Meridian Partners on their Central 70 $1.2 billion project. The reason that CDOT uses a P3 is they are poorly funded and their partner is coming up with over half the cost through loans which increases the costs to $1.3 billion including an equity participation of $65 million @ 9.5%.

    For one thing costs often go up a they get further along in design percentage; the article does point out the original figure was only a rough estimate. Plus construction costs have been reportedly going up like a jack rabbit. This would have nothing to do with their P3 partner.

    The new plan then adds interest on a $45-million private loan and a “15-percent return to the private partner.”

    Why would Rhode Island spend all that money on private financing when it can borrow directly at a lower rate?

    I think you’re mis-reading that although the syntax is not the best. I would read that the private partner is to get a 15% project return and not 15% on the loan.

  • TakeFive

    I wouldn’t know about back east but West of the Mississippi like in Colorado and Arizona contractors save agencies a bundle of money and time. In Colorado recent projects are design, build, operate, maintain and repair so if the quality is not there… Also understand that both ADOT and CDOT do perform their own quality checks throughout the construction process.

  • There is a certain segment of the population who will never lose faith that the magic capitalist machine will magically fix all the evil problems of socialism. The key is in ignoring (and not electing) those people.

  • Nobody is saying that the public sector is perfect, but the private sector isn’t necessarily better, the solution is to, first, acknowledge that there will always be some corruption, and the goal should be to limit it to reasonable amounts. Second, aim to find the best solutions, based on evidence, and evaluation, without assuming that private is better or public is better, or being seduced by new ideas, or being conservative and assuming the old ways are automatically better. Third, be careful what you measure.

  • TakeFive

    It’s too easy to conflate issues and I’m a practical guy.

    Even w/o a P3 agencies rely on the private sector to build things. Problem in the NE is that contractors, bcuz of unions have much less control over costs and time. Out west we don’t have those issues to any significant degree. Design-build contracts have proven to be both more efficient and cost-saving.

    In CO/Denver the advantages of design-build, operate, maintain and repair has many (financial) advantages over the public sector.

    With respect to ‘best solutions’ whose bias do you favor?

  • Joe R.

    The repaving jobs on most NYC streets are perfect examples of that.

  • Design-Build (and even larger Manage, Operate etc.) contracts are sometimes better.

    We should not “favour” one bias or another. We should look at the specific context and choose the best options in each case. The world does not simply to a “design-build as always better” rule. Even in CO/Denver, you’ll find some projects are suited to design build, some won’t be.

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