Could Public-Private Partnerships Have Solved Trump’s Infrastructure Problem?
When candidate Donald J. Trump told voters last year that he would “Make America Great Again,” he directed his promise, at least in part, toward the country’s potholed roads, ailing bridges and leaky waterways. He would fix it, he said — this sprawling, unwieldy, and chronically unfixed thing called infrastructure. This infrastructure that is so connected to the word “crumbling” that, put together, has become a cliche.
In the months after taking the oath of office, President Trump dangled a few rough elements of an infrastructure proposal. In February, he told a group of state governors: “We’re going to start spending on infrastructure. Big.” Then in early June, during “Infrastructure Week,” as his administration called it, the president promised to formally unveil his new plan.
With the administration failing to get traction on other issues, including an overhaul of Obamacare, infrastructure seemed a possible winner at a time when Trump needed one. Trump’s critics, meanwhile, pointed out that what the White House dubbed “Infrastructure Week” provided a handy distraction as James Comey, the recently fired FBI director, faced a battery of questions from the Senate Intelligence Committee over Russia’s possible meddling in the presidential election.
The administration touted the agenda as a “$1 trillion” initiative, making it sound like a fairly hefty chunk of federal dollars might be spent on the country’s airports and highways, among other projects. But the plan rested on a favored Trump concept — letting the private sector play a significantly larger role.
Skeptics chimed in immediately.
Trump’s “$1 trillion” plan would have leveraged $200 billion in federal funds, inviting the private sector to come up with the other $800 billion via public-private partnerships (PPPs or P3s). For starters, the figures were low. The American Society of Civil Engineers (ASCE) estimates the country needs to find $2 trillion over the next decade to close the “funding gap.” (ASCE estimates a need for total spending of $4.6 trillion.)
“The level of investment that’s needed at every level — federal, state, and local — is so much more significant than $200 billion,” said David Van Slyke, dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University. “The president anticipates that this $200 billion would act as a government equity investment to stimulate private investment, but it’s miniscule. Infrastructure is broad and vast. What do we even mean by infrastructure?”
Then, in late September, Trump reversed course, according to the Washington Post, telling Democratic members of the House Ways and Means Committee that a public-private approach wouldn’t work. A White House official told the newspaper that such approaches “are certainly not the silver bullet for all of our nation’s infrastructure problems.” Instead, the administration said, states would pay for most of the upgrades to the country’s infrastructure.
Van Slyke said that while Trump is right that P3s are not a solution to all infrastructure challenges, “to dismiss this policy tool as not useful under any conditions is a serious overreaction, further sending confusing signals to infrastructure investors, while devolving increasingly difficult investment decisions to states and localities that lack the fiscal resources to meet the needs and demands of their diverse stakeholder constituencies.”
A Rare Bipartisan Issue
For a businessman who made his name building things, notably towers with his name emblazoned on them, it’s not surprising that Trump first looked to the private sector for a solution. But public-private partnerships of the kind Trump had proposed are complex arrangements that take years to structure and negotiate.
Trump’s top economic adviser, Gary Cohn, told the New York Times after the initial plan was announced: “We like the template of not using taxpayer dollars to give taxpayers wins.”
While lawmakers in Washington agree on little, Democrats and Republicans do come together on the need to fix the country’s infrastructure, frequently pointing to annual “report cards” from the ASCE, which, in its latest, gave the country a D+. Infrastructure is a rare bipartisan issue.
Shortly after Trump publically pushed the seeds of his plan, at a speech on the banks of the Ohio River in June, members from both parties began asking for more specifics. The administration never offered up a detailed proposal, but could P3s have worked?
Ultimately, the greater challenge may not lie in a chronically divided legislature, but from wariness on both sides of any potential transaction. Luring investors means convincing them of public and political acceptance.
“The biggest obstacle to a P3 is the political uncertainty,” said Michele Nellenbach, director of strategic initiatives at the Bipartisan Policy Center. “Most projects aren’t the nightmare that takes 15 years, but if you’re a private investor that’s what you’re thinking about.”
Nellenbach advocates a rigorous screening process that looks, in part, at the politics in any given landscape. (If a current mayor is anti-P3, for example, what’s the possible position of the next mayor?)
Investors also need to be reassured of a return on their investment for the duration of their involvement. Large-scale infrastructure — a municipal subway, for example — only pays off over time.
“If I’m a private partner, I’m going to want to control it for a long time so I can recoup my costs,” Van Slyke said. “I want a stable rate of return for long time.”
On the other side of the transaction, local and state governments — historically reluctant to hand over management of a project to a private investor — also need to be convinced the public good is being served.
“There’s a little bit of hesitancy,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “States can borrow at low interest. They can do it more cheaply and get better returns on the bond market to borrow for projects. No state or locality wants to enter into a bad deal.”
An Idea Catches On
While the structure of these deals varies from project to project, fundamentally the private investor lays out the funds for the initial investment, providing an infusion of cash to municipalities and states in exchange for long-term management of the project — including proceeds and risks. The deals range from roadways (where the investor recoups costs from tolls), to wastewater treatment facilities (where ratepayers provide the returns), to airports (where the fees generate income).
In some parts of the world, including the U.K., Canada, and Australia, these partnerships are relatively common. But in the U.S., the public and its elected officials have long remained doubtful, largely because of a general distrust in any investor’s intention — a worry that a savvy investor will outfox a beleaguered public administration.
“There is concern that state and local governments don’t have the capacity to negotiate with a private, profit-motivated entity,” said Nellenbach. “And we would agree with them.”
Over the past decade or so, though, the idea has been catching on in the United States because proponents, including lawmakers, have pushed for better oversight as local and state budgets have become tighter. More than 30 states have passed laws that smooth the way for public-private partnerships. Virginia — a relative P3 pioneer — and Washington, D.C., have formed advisory offices to help review and screen deals, Sigritz said.
According to an analysis published by Harvard University, there were 48 infrastructure P3s between 2005 and 2014, with an aggregate value of $61 billion. Of those, 40 came to financial close.
DJ Gribbin, former national director for strategic consulting at HDR Group and now special assistant to the president on infrastructure, has said that a P3 project can cost a government up to 20 percent less than a traditional, publicly financed design-bid-build project.
Still the numbers aren’t going to cover the funding gap.
“The most you could get to is probably around 10 percent. Even countries like Canada and Great Britain — they’re really good at this, and they have screening processes — they’re still only at 15 or 20 percent,” Nellenbach said. “You’re still going to need a lot of public funding.”
Critics, meanwhile, have said that Trump’s original proposal amounted to a massive tax break — a giveaway to private investors who would embark on these projects anyway. One analysis said Trump’s proposal would have cost 55 percent more than traditional infrastructure spending. And some critics say that ratepayers would have been left holding the tab. An oft-cited example: On an Indiana toll road, run under a P3 deal, costs for drivers rose from $4.65 to $8.
Cohn, the White House economic advisor, told The New York Times that Trump had wanted to “get the most infrastructure improvements for the American citizens in the quickest fashion.”
Given the lack of clear signals from the administration, it’s anybody’s guess how quick that will be.
Citation for this content: ExecutiveMPA@Syracuse, The Online Executive Master of Public Administration from Syracuse University’s Maxwell School of Citizenship and Public Affairs.