While the impact upon municipal governments from a Trump Presidency will not be known for some time, there appears to be at least two areas which, according to press reports, could be impacted: infrastructure and municipal debt. Infrastructure improvements could have a major impact on municipals governments, in particular, their budgets.
During his victory speech in the early morning hours of Wednesday November 9, 2016, President-Elect Trump stated that among the things to be done by his administration will be to “rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it.” This build-out of transportation, water, telecommunications and energy infrastructure across the country is estimated to cost $1 trillion over the next decade. The plan proposes providing tax credits to private developers to build roads and bridges, among other projects, with the developer then owning the infrastructure and collecting any fees imposed for usage (tolls etc.).
Many have questioned whether Trump’s infrastructure proposal is feasible, including Forbes, which noted that many infrastructure needs will not generate revenue. New York State Senator Chuck Schumer, just this week, stated that direct federal spending must be part of any proposed infrastructure investment. Since private development would presumably only be utilized where revenue is generated and/or in support of larger developments, direct federal spending allows governments to use funds on needed projects that otherwise may not attract such investment.
Earlier this year at his State of the State address, Governor Cuomo announced a series of infrastructure initiatives. As reported on the NYMuniBlog, it has been more than 50 years since this country last saw an “infrastructure boom” and that infrastructure has mostly reached the end of its useful life. As bridges and roads age, ongoing repairs and maintenance becomes more time consuming and costly. However, funding infrastructure improvements, let alone upgrading and replacing an entire bridge, road, or tunnel, is also extremely expensive.
As noted in a recent New York Times article, while our national infrastructure may be in poor condition, it is uncertain how much economic growth investment in infrastructure really creates. Perhaps as important, the article notes that the federal gas tax has not changed from 18.4 cents per gallon since 1993 while inflation and fuel efficiency improvements have resulted in a reduction of available funding for infrastructure maintenance, a reduction which is, in turn, met by contributions from other sources.
Some states have their own gas tax to pay for infrastructure or increased their sales tax, as Virginia has, to pay for infrastructure. The current governor of Michigan Rick Snyder (R-MI), has proposed raising taxes to spend an additional $1 billion a year on infrastructure. Congressman John Delaney (D-MD), has proposed a tax break to those firms that repatriate foreign profits if a portion of those funds are spent on infrastructure bonds.
In New York, a 2009 research brief published by the Office of the State Comptroller stated 33% of local bridges were “structurally deficient or functionally obsolete” and that there was an underfunding of approximately $80 billion for water, sewer and transportation infrastructure. A follow up from 2012 concluded that the infrastructure funding gap had risen by $9 billion and an additional study in 2014 concluded that annual spending statewide was $2 billion below the annual need. A 2015 report of the American Society of Civil Engineers’ New York State Council stated that more than 50% of bridges statewide are more than 75 years old (400 are 100 years old; and 100 are closed) and 33% of “major highways” were in “poor or fair condition”.
Other creative ideas for funding infrastructure have been floated by multiple government entities. For example, in 2014, it was reported that Governors Cuomo and Christie were considering utilizing the EB-5 visa program to finance infrastructure projects, including the Tappan Zee Bridge. The EB-5 program offers fast-track citizenship to non-U.S. persons who invest at least $500,000 in approved projects that last more than two years and create the required number of new jobs. Real estate developers have increasingly been tapping the EB-5 capital because the interest rates on the funds are lower than traditional bank loans. Although EB-5 funds were not ultimately used for the Tappan Zee Bridge project, the EB-5 program financed infrastructure improvements related to the Barclays Center in Brooklyn and was recently estimated to be part of no less than 100 development projects within the state.
Infrastructure repair and improvement is a priority item for the Trump presidency, but how it will ultimately be financed and which projects will get prioritized, remains to be seen.