Is Trump's $1 Trillion Privately Funded Infrastructure Plan Feasible?

Tyler Durden's picture

President-elect Trump has made a $1 trillion infrastructure investment one of his first priorities as president, promising in his victory speech early Wednesday morning to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.”  As Goldman's economics research team points out, Trump's plan, as detailed in a report released by his economic advisers Wilbur Ross and Peter Navarro, calls for $1 trillion of spending over 10 years to be funded largely by private sources which would be repaid with tax credits and usage taxes (i.e. toll roads). 

His infrastructure plan calls for up to $1 trillion in additional spending over ten years, most of it privately financed. A memo released in late October by Mr. Trump’s economic advisors Wilbur Ross and Peter Navarro detailed a plan to finance up to $1 trillion in infrastructure spending over ten years, equal to $100bn per year or about 0.5% of GDP. We previously estimated that a spending boost of this size would reduce the unemployment rate by about 0.3pp and raise inflation a touch, leading the Fed to eventually hike one or two more times by 2019 relative to a baseline without the infrastructure package.

 

The plan described by Ross and Navarro would be largely privately financed, but encouraged by tax credits. The plan would seek to incentivize the private sector to increase investment in infrastructure projects that would be supported by future usage fees, such as road tolls. Ross and Navarro suggest that 17% of the initial investments could be financed with equity and the remainder with debt. The government would then provide a tax credit equal to 82% of the equity to reduce the cost of financing. The large role of debt-financed private investment in Mr. Trump’s infrastructure plan implies that a significant increase in interest rates could be a hurdle for the plan’s feasibility.

While Trump would like to make his infrastructure plan a cornerstone of his presidency there are some questions about it's feasibility.  The first question is can such a massive infrastructure plan pass Congress.  Trump’s financial plan, if the numbers actually pencil, would essentially sidestep the political funding squabbles by focusing mostly on private investment, a concept that both parties generally support.  That said, as the Wall Street Journal points out, the plan could face some push back from Democrats who have been pushing for more public funding.

Mr. Trump appears to be more focused on infrastructure than many Republicans in Congress are. That said, his proposal, which relies on tax credits, might attract more Republican support than a spending plan of the same size. Moreover, there is significant Democratic support for additional infrastructure investment, which raises the possibility that it could be combined with the tax reform legislation discussed earlier to increase support for the overall package.

 

For now, members of Congress of both parties and transportation advocates say they are optimistic lawmakers can reach a bipartisan deal to provide some of the needed funding to update roads, power lines and airports. According to the McKinsey Global Institute, the U.S. needs to boost infrastructure spending by 0.7% of gross domestic product between now and 2030 to meet the demands of a growing economy.

Both parties have said they agree on the need for new spending on infrastructure, but the challenge has been finding the money to pay for it. An Obama administration proposal to use new revenue from a corporate tax overhaul didn’t get through Congress last year. In December, lawmakers cobbled together a $305 billion measure using a reserve account held by the Federal Reserve.

Infrastructure

 

The next question is whether Trump's plan can truly be funded without public dollars.  Trump's economics team argues that the proposed tax credits would be offset by income taxes paid by workers employed by new projects and corporate taxes paid by contractors.  That said, the assumption implies that those workers wouldn't otherwise already be working.   Moreover, while certain types of infrastructure projects lend themselves to private financing, projects like toll roads, airports or water systems where funds can be segregated and investors can be paid a return on invested capital, other projects like pure maintenance work are more difficult to fund privately. 

Ross and Navarro argue that the plan would be revenue neutral because the tax credit would be offset by revenue raised from taxes on income earned by workers employed by the infrastructure projects and on profits earned by contractors. However, their calculations both assume that the workers employed would not otherwise be earning taxable income and assume a tax rate that looks somewhat optimistic under the tax plan proposed by the Trump campaign. We expect that the Congressional Budget Office and Joint Tax Committee would find that the plan increased the deficit under their methodologies.

Meanwhile, as CNBC points out, the construction labor markets are already very tight so finding incremental labor for such massive projects could be tough.  That said, we suspect Trump knows where the find some unemployed auto workers in OH, PA, MI and WI that would love to have those jobs.

Construction companies are already scrambling to fill open positions. Some 221,000 construction jobs were open in September, according to the latest data from the Bureau of Labor Statistics, which is more than four times the number at the start of 2012.

 

Some two thirds of construction contractors report having a hard time finding skilled workers, according to a survey earlier this year by the Associated General Contractors, a trade group. The shortages were most pronounced in the South and Midwest, where three-quarters reported having a hard time filling skilled job openings.

 

"These workforce shortages are not going to go away in the near future," said Stephen Sandherr, the group's CEO, adding that they have "the potential to undermine broader economic growth by forcing contractors to slow scheduled work or choose not to bid on projects, thereby inflating the cost of construction."

 

That's showing up in higher wages needed to recruit and keep construction workers. Nearly half of the contractors surveyed have raised base pay rates, and a fifth have boosted benefits or offered bonuses.

 

"We're having to dig harder and deeper to find truck drivers," said William Sandbrook, CEO of U.S. Concrete. "We've increased wages, and we've added quarterly bonuses, so it's in their interest to stay for the next three months."

Construction Wages

 

While it's unclear exactly how Trump's infrastructure plan will develop from here, it is at least refreshing to see public discourse over how our publicly elected officials might actually accomplish something over the next 4 years.

Here is Trump's full infrastructure proposal:

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BabaLooey's picture

Of course it's feasible.

Especially if we drain the wanking banks to pay for it all.

Put the MIC to work. Instead of making bombs and war material, they can re-sleeve, and do some fucking good for a change.

Kaiser Sousa's picture

that aint gonna happen...

more like "conterfeit baby, counterfeit!"

DEATH TO THE MONEYCHANGERS.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Kaiser Sousa Nov 12, 2016 2:08 PM

How about building a bridge to SOMEWHERE, like Hillary to Prison.

 

Else ~ 'build a bridge out of her' (& save on materials costs).

Manthong's picture

Hey, if we can go into debt and let the Pentagram lose $8 Trillion they cannot account for and we can waste $2 Trillion in MENA foreign entanglements, then we sure as hell can conjure up a Trillion or so to fix our roads and bridges.

 

Escrava Isaura's picture

Exact.

Let’s enjoy all the money, and its perks, such as better roads.

Because, post-collapse, money and roads won’t matter.

“Dam the torpedoes, full speed ahead.”David Farragut

 

chumbawamba's picture

I have a solution: nationalize all of George Soros' personal and business assets.

You are welcome.

I am Chumbawamba.

Eager Beaver's picture

I just submitted a suggesstion on GreatAgain.org to appoint chumbawamba to IRS commissioner.

 

You are Chumbawamba.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Eager Beaver Nov 12, 2016 4:16 PM

$2.5 TRILLION is spent every year on wealth transfers from the producers to the non-producers.  $0.8 TRILLION is spent on the military every year.  Yes, we can easily come up with $1 trillion out of that if reasonable cuts were made.

Oh, and by the way - the nation's infrastructure is not crumbling.  That's another bullshit line from the Central Planning fans rooting for a more massive government.

And regarding "Some 221,000 construction jobs were open in September, according to the latest data from the Bureau of Labor Statistics," tell the EBT/welfare/free housing/free shitter slugs to take those jobs.  Send the people ILLEGALLY taking those jobs home.  We have plenty of people able to LEGALLY work construction.

SoDamnMad's picture

Chumbawamba

I never, ever down-voted you. Remember that plez when you review my tax filing. 

Your name will appear on  thousands of arms when we hear of you nailing the shit of the Clinton Foundation for tax evasion. Have you copywrited your name perhaps?

Normalcy Bias's picture

No shit, Brother. Also, we don't want to go down this toll road nightmare. I live in DFW and the tolls can really add up here. I've seen it far worse in the NE.

Where the hell did all of that Federal Fuel Excise Tax money go anyway, hmmm?

Escrava Isaura's picture

First, these roads should not be privately owned. Horrible idea.

We should be focusing in public transportations, especially in trains and metro/subways systems.

Third, $1 trillion to be spent in ten years is too little. It needs to be around $3 trillion.

Again, not private roads, private trains, or private metro systems, period.

Also, the government should either print or borrow the money directly from the bank at the same rate they borrow from the Fed plus some fees.

 

Urban Redneck's picture

You're both assuming FACTS not in evidence.  Why?  Infrastructure finance is not a black art.

BOOT projects - Build, Own, Operate, Transfer (back to the state) have been around for decades.  If someone builds a bridge or a road - it (should) have a lifespan of over 100 years.  Normal concessions are in the neighborhood of 20-30 years.  It's true that both the initial concession operator and then the State will have to invest in proper maintenance, but the State would then end up owning an asset that should have about 100 years of life left for almost no money down.

PPP - Public-Private Partnerships - they're a couple decades old now, the issue came up of how to fiance projects in HIPCS (Heavily Indebted Poor Countries/Banana Republics) that couldn't borrow at reasonable rates (see Perkins and his economic hitmen).  So instead of adding debt to the State's balance sheet, the debt is added to the private balance sheet as well as the asset that would have otherwise been added to public balance sheets.  Yes it's in accounting gimmick, but this is how TPTB and banks have prevented the shit from hitting the fan so far.  PPPs can be executed as BOOT projects.

Synthetic Tolls - About a decade ago a bunch of us who were working on PPPs and other civil infrastructure financing in developing countries ran into a problem - because of the lack of overall infrastructure, if we wanted to build revenue generating projects like ports, airports or power grids, we needed non revenue generating infrastructure also.  We couldn't borrow commercially because there was no revenue stream from the road itself to monetize and the States either couldn't or wouldn't issue general obligation debt.  So our options were to either build actual toll roads with toll booths, or get even more creative so we could raise private and multilateral debt for non revenue generating projects.  And the synthetic toll road was born, even though no one bothered to name it until a few years later  The synthetic toll is paid by the State (and taxpayers indirectly) to the operator based on aggregate usage.

So... execute a PPP on a BOOT basis to build a synthetic toll road.  The long end of the Treasury curve is rising, now is not the time to be adding trillions of dollars of additional pressure to it. 

Of course, if you don't have transparency and accountability the State (and its taxpayers) will be robbed blind, but that's true regardless, and if you had Clinton cronies running the process it would be that much worse.  

This is why some banksters are paid big bucks.

 

PlayMoney's picture

A few keystrokes and Yeller could have that by Monday over lunch.

AtATrESICI's picture
Wilbur Ross worked for Rothschild Investments for 3 years starting in the mid-'70s. Please see the link below. It is my thought that  Ross is still connected to Rothschild to this day.

https://en.wikipedia.org/wiki/Wilbur_Ross

ussa's picture

Yes the Ross plan is capital stripping. The Fed could fund $5 trillion without interest or any tax issues, but that would mean actually Yeung the Fed for the piblic good.

Trump is looking like another divide and conquer fraud on the Anerican people.

WillyGroper's picture

wilbur ross also dresses in womens clothing making fun of financial ass raping of the peeps in his satanist frat parties.

welcome to hope & change 2.0

Heywood Jaeatme's picture

Labor isn't a problem. Mexico has plenty of workers  to do the job for us. They'll pay for it, too

Vageling's picture

Well... When I was the US I notice you guys need it. This doesn't play where I come from. However we use tax money for this. Mostly it goes well*. Sometimes they fuck up. Remember they build an HSL rail bridge. They kinda forgot that when a train races high speed over a narrow bridge due to the physics with air it starts "singing". Fail project. Train has to slow down. 

Though... Here is my real question. The only way he get's private investors investing is if they give them something in return to earn it back. Toll? Doesn't sound like an option to me now does it? I see them milking it. Eventually it still costs people money. It's a form of tax isn't it? Toll? They want to make money. It's the core of the US. Hand outs? yeah... right.

How does one drain a bank? Other then a bankrun I can't think of any other way.

* = Crony fuckers always exceed budget since it's taxpayer money anyway. We need moar time, moar money.

Urban Redneck's picture

You don't only use tax money (e.g EBRD, DB, Hermes).

Work arounds for these issues have existed for decades.   

But there is no work around for corrupt and incompetent government.

And the voters need to accept some responsibility for the corruption and incompetence they empower.

ZeroFreedom's picture

Less welfare payments and moving to infrastructre is the first step. Stop sending money to these so called colleges and sanctuary cities will save alot of funds that can be repurposed toward these projects. Just hope it goes to build roads, bridges, etc and not in the cities to boost the pay of the transit workers and their unions.  

1980XLS's picture

Davis-Bacon pretty much ensures the money will be used to buy votes.

Even The Brown Clown saw such opportunity within days of his 1st inauguration. 

 

https://www.whitehouse.gov/the-press-office/executive-order-use-project-...

"Shovel Ready" Projects?"

Don't buy into the shit they're shoveling

BennyBoy's picture

 

 No toll roads! Endless tolls with no road improvements.

Finance it the old fashioned way.

flaminratzazz's picture

Hear here! print the digital fiat and pay prevailing wage with magic digits and keep the traveling across this nation free.

NiggaPleeze's picture

Sarcasm?  Because the debt load doesn't decrease just because you privatize it.  The entire present value of future payment streams will be debt for the taxpayer (as transportation is not optional).  Indeed, as noted, the entire project will be funded 82% by debt.

The problem with tolls is the inefficiency of toll collection (even with electronic payment, which is an invasion of privacy, you still need an administrative body to collect the tolls, handle disputes, etc.).

Plus toll roads lead to underutilizzation.  I live in southern California, and in Orange County and LA County, there are many toll roads, but they are rarely carrying much traffic.  Why?  Because many people cannot afford the toll roads and thus clog the free roads.  This means that the government has exercised eminent domain and "taken" people's private property to build roads only used by the "rich".  Certainly the "rich" get better service - while the free roads are clogged, the toll roads permit rapid progress - but the end result is more roads are needed to transport the same number of people.  Moreover, since fewer people use the toll road, the cost per passenger mile on toll roads will greatly exceed that on free roads.

As an aside, even "free roads" are already, to some degree, "toll roads", but are charged in a more efficient way.  In particular, gasoline and other transportation fuels contain a tax used for road development and maintenance.  This is more of a "per-mile" charge and allows one to cover not only highways but city and neighborhood streets as well.  Moreover, as larger vehicles do more damage to the roadways, but also generally have lower fuel efficiency, the cost per mile is roughly proportionate to the damage done to the roads.

The Wizard's picture

Billy and the Congress signed off on allowing the excise tax on fuel to go to the gerneral fund. This is why it is a battle allocate funds to upgrade infrastructure. If those funds would have reamained dedicated to what they were intended for, the problem would not exist.

_ConanTheLibertarian_'s picture

"Because many people cannot afford the toll roads"

Is there something like a road tax in Cali? Then the "free" road is paid by the people anyway...

Urban Redneck's picture

Synthetic tolls.  Problem solved.

Isn't wisdom and experience cool?

MEFOBILLS's picture

Nigga,

 

This is correct.  Infrastructure falls into the inelastic market category.  Inelastic markets have to be government owned or government regulated.

Those who want to rent seek will claim otherwise.  They will claim that the commons should be privatized, etc. so they can take rents for their tribe, or class, in perpetuity.

Public investment in roads, rail, bridges will increase land's rental value.  So, the rental increase in land price must be captured with Georgist style land taxes.

Fiscal policy and monetary policy are part of the same thing.

 

Vageling's picture

You see it comming too :)

Urban Redneck's picture

Do you actualy know what the old fashioned way of financing roads is?

And if you say GO bonds you better be older than the Orifice of Omaha.

flaminratzazz's picture

Be a great time to be an equipment operator with a class a cdl. I might have to put off retirement for a few years.

Joe Sichs Pach's picture

Cut taxes, create opportunities and foster an environment where businesses feel like they can be profitable.  

snakehead's picture

Trickle down doesn't work. It's hoovered up.

floomby's picture

More like FDRed up. Hoover wasn't that bad - he only passed one stimulus.

Paul E. Math's picture

Depends what size of business you're talking about.

Small business creates a lot of jobs and, in general, doesn't create terrible large disparities of wealth and income.

Big business, on the other hand, exacerbates disparities of wealth and income.

Legislative history would suggest that any cuts, opportunities and incentives will apply only to big business.

Don'tCallMeShirley's picture

The whole "crumbling infrastructure" arguement...  Ugh.  If these elites would dare to venture out of NYC or LA into the dreaded "flyover country" they might start to realise that shit's not nearly as bad as they think it is.  I drive between western MT and the Twin Cities all of the time and things seem pretty good to me.

Of course, that's just from somebody that actually drives on the roads.  Maybe things appear more bleak from a limousine or a Gulfstream.

And I'd give the article a negative 1 if I could just for using a Steve Sack comic.  The way he's got the DFL cock plunging the depths of his throat I'm surprised he can get enough oxygen to survive.

flaminratzazz's picture

you might want to stop and take a look UNDER that bridge you just drove across. you might rethink driving across them at all.

Anopheles's picture

There's a lot more to infrastructure than just roads. Roads are cheap to fix compared to underground infrastructure and things like treatment plants and bridges.  Politicians love repaving roads.  It's cheap and very visible.  Sort of like a new paint job on an old car.  Looks shiny, but underneath it's crumbling.

chiquita's picture

Guess you don't remember the I-35 bridge collapse out there do ya?  If I'm not mistaken, that triggered a national engineering review of all older overpasses and bridges around the country, which turned up a whole lot of scary shit.  Some were fixed, but there's still a lot that have been put on a "back burner" because the money was never allocated to fix them.  All along the NE corridor there are seriously crumbling roads and bridges, as well as highways that can't accommodate the volume of traffic.   If farming out the repairs/upgrading the infrastructure is finally going to happen, it's about time.  I just hope they do the work at night and not during rush hours...

Don'tCallMeShirley's picture

I remember.  They were in the process of repairing it at the time.  And since then many new bridges have been built.  It was more or less a commentary on the whole roads and bridges argument, as if every time you venture out you are at a high risk of death due to "crumbling infrastructure."  So they come out with a new tax to fund rehab of said infrastructure, then they build light rail and bike paths. 

And I don't like Sack.

snakehead's picture

They're going to have to hire 1000s of (hopefully) qualified engineers and inspectors if they want decent infrastructure project QC.  For example, driving over a cut-the-corners bridge because shareholders would see higher stock prices if costs were minimized.  

Anopheles's picture

Doesn't work that way.  There are standards that have to be met,  regardless of who builds it. 

1980XLS's picture

Yes, there are "Standards"

But if you think a municipal building inspector can even verify as much a 1% of it, you're living in a fantasy world

 

http://www.sfchronicle.com/bayarea/article/Sinking-Millennium-Tower-s-de...

 

http://www.nytimes.com/2016/09/23/us/san-francisco-millennium-tower-disp...

Anopheles's picture

I've been doing that type of work for decades.  You are sadly mistaken. 

Also, for a private toll road or bridge, where they know they will be responsible for maintenance the next 50 years, they actually build to a HIGHER standard.  It's a lot cheaper to put in 10% more at the beginning, and get double the life out of a road or bridge, than to repair it prematurely.  I have numerous,  real world examples.

1980XLS's picture

I have been in the construction business for decades as well. I am 3rd generation too.

If you think there is not quality/code compliance issues you are dillusional.

Not all is based on fraud certainly. Much is also about competence. An inspector has limited time & resources.

 

Anopheles's picture

Yeah,  I've heard the same bullshit for decades....You know everything...

The links to the building you posted.  If you can actually READ the problems were caused by the MUNICIPAL WORK next door. So much for your theory that more government inspectors will save the world.