Infrastructure Plan Moves Debate Ahead, Fails to Address Funding

The Trump administration has delivered its long-awaited plan for new infrastructure investment to Congress.

The legislative outline was released in conjunction with the FY 2019 budget that called for deep cuts to many existing infrastructure programs. The plan calls for $200 billion in direct federal spending over 10 years to spur, according to administration estimates, $1.5 trillion in total investment.

The plan pushes the infrastructure debate forward, but fails to address critical funding questions.

Core Elements and Concerns

The core elements of the proposal include incentive grants to encourage greater state and local infrastructure spending, expanded private sector investment, and an overhaul of project permitting and environmental reviews. The funding component of the plan consists of five elements:

• Infrastructure incentives program: $100 billion (50 percent)
• Rural infrastructure program: $50 billion (25 percent)
• Transformative projects program: $20 billion (10 percent)
• Infrastructure financing programs: $20 billion (10 percent)
• Federal infrastructure projects: $10 billion (5 percent)

Some immediate concerns and criticisms emerged. The most obvious point of contention is funding: where it comes from, how it affects existing programs, and what it does not do to fix long-term funding stability.

Other issues with the proposal include the dramatic shift of fiscal responsibility to states and local governments with a likely unworkable cap of 20 percent federal funding. The blueprint also appears to not only provide little for transit but also suggest new policies that could make new projects more difficult.

Environmental advocates voiced quick opposition to many of the regulatory proposals. At the same time, some of the financing proposals are likely to find support among local governments looking for more access to financing.

Outlook

The biggest hurdle for the plan is a familiar one: how to pay for it.

The administration is essentially proposing off-setting cuts to existing programs, including CDBG, TIGER, and New Starts. Based on the experience of last year's budget, that's likely a non-starter on Capitol Hill. For their part, Democrats will push for more than $200 billion in funding. Both House and Senate Democrats have proposed their packages with far higher direct funding levels.

There's a bipartisan acknowledgment that nothing in the proposal solves the long-term sustainability problem with the existing Highway Trust Fund and gas tax. Administration officials maintain that "all options" are on the top when it comes to funding. But it is hard to see a pathway for a gas tax boost or replacement in an election year with tax reform already done.

At the same time, Congress just last week enacted legislation putting in place new budget caps that allow for higher domestic spending. Part of that agreement included $20 billion for infrastructure over the next two years. House Speaker Paul Ryan (R-Wis.) called it "a down payment" on the infrastructure plan.

While that funding is approved, decisions about how to spend it will be left to congressional appropriators. Senate Commerce Chairman John Thune (R-S.D.) suggested that most of the funding would likely flow through existing programs. That may be where the real infrastructure action is in the short term.

Overview of the Trump Plan

The incentives program would apply to a wide array of transportation and water infrastructure projects, as well as brownfield and Superfund sites.

Eligible applicants include state and local government along with Metropolitan Planning Organizations, special purpose districts, nonprofits, and public utilities. The review criteria focus overwhelmingly on locally dedicated revenue with only a small component of the evaluation focused on economic and social impacts.

One of the most problematic aspects of the program would be a 20 percent maximum cap on the federal share of the total cost of the project.

The rural program would function mostly as a formula grant program aimed at areas with populations of 50,000 or fewer administered by state governments. Funds could be used for transportation, water, broadband, and energy infrastructure.

The transformative projects program would be administered by the Commerce Department and focus on higher risk, higher reward projects that would be difficult to finance through other means. The administration's plan specifically calls for projects that would significantly improve performance, reduce costs, or introduce "new types of services." Funding would be set aside in three categories: demonstration projects, project planning, and capital construction.

Federal financing programs would get a boost under the plan. Project eligibility and funding would be expanded for three key existing federal financing programs: the Transportation Infrastructure Finance and Innovation Act (TIFIA), the Railroad Rehabilitation and Improvement Financing Program (RRIF), and the Water Infrastructure Finance and Innovation Act (WIFIA).

TIFIA project eligibility would be expanded to cover port and airport projects. WIFIA would also see an expansion of eligible projects, including brownfield and Superfund sites, and the lending limit would be removed. After surviving a near-death experience in the tax reform debate, Private Activity Bonds (PABs) would get a significant boost. The proposal would expand eligible projects, remove state volume caps, and lower borrowing costs.

The outline also calls for a federal capital financing fund to support the acquisition of real property to avoid long-term lease expenses. Some of the other provisions related to federal property have already generated criticism, particularly the creation of an "interior maintenance fund" where revenue from energy development on public lands could be used to address deferred maintenance and capital needs at national parks. The proposal would also promote the divestiture of certain federal infrastructure assets, particularly airports and energy transmission infrastructure.

The White House plan also specifies a series of suggested policy changes for infrastructure funding and finance. Most of the changes are intended to boost private sector involvement in infrastructure projects. Notable proposals include:

• Allowing states full flexibility to toll Interstate highways
• Providing states flexibility to privatize Interstate rest areas
• Authorizing utility relocation for highway projects to occur prior to the completion of NEPA review
• Raising the cost threshold for major highway project designation to $1 billion
• Requiring value capture financing as a condition for New Starts transit grants
• Codifying the pilot program for expedited project delivery for the New Starts transit program, raising the federal share to 50 percent, and removing union labor requirements
• Authorizing EPA Clean Water Revolving Fund for privately owned water treatment facilities
• Creating a Superfund Revolving Loan Fund and making Superfund sites eligible for brownfield grants

A key section of the infrastructure proposal focuses on changes to the environmental review and permitting process. Regulatory changes have already been high on the Trump administration's agenda and have strong support with Republican majorities on Capitol Hill. Democrats, whose votes would be needed, are far less likely to go along. Despite that impasse, some of the recommendations may find support similar to some streamlining elements approved in the FAST Act and earlier surface transportation authorizations.

Among the regulatory changes proposed are:

• Establishing a "one agency, one decision" review structure
• Creating a 21-month timeframe for lead agencies to complete environmental reviews
• Creating a three-month deadline following an agency's FONSI or ROD to complete permitting
• Requiring a single review study and Record of Decision
• Increasing flexibility in agency use of Categorical Exclusions
• Allowing Design-Build contractors to conduct the final design before NEPA is complete
• Allowing advance acquisition and right of way preservation before NEPA is complete
• Integrating transportation planning and NEPA by removing the "concurrence point" created in MAP-21
• Expediting and exempting "small cell" telecommunications equipment reviews
• Authorizing federal agencies to accept funding from non-federal entities to support reviews
• Clarifying that MPOs need only conform to the most recent national air quality standard
• Changing the process for Section 4(f) reviews

Next Steps

The legislative process will kick off in March with Transportation Secretary Elaine Chao appearing before several of the key infrastructure committees.

Appropriators will also be working on how to divvy up the new spending approved in the budget deal ahead of the March 23 deadline. In the meantime, administration officials will be promoting their plan around the country and meeting with key legislators with all sides acknowledging that the current plan is just an opening bid.

The proposal received a tepid response on Capitol Hill, with many concerns raised about the proposed cuts to current programs such as the transit capital grants and TIGER.

Questions also swirled around the amount of actual investment that would be generated, the ability of local governments to raise new revenues, the impact of regulatory changes, and the impact of policy changes on projects and communities where private financing would be more challenging.

There are also political challenges.

Any infrastructure legislation will have to overcome Democratic concerns about insufficient federal funding and worries among some Republicans about new domestic spending. And, of course, any legislative action will play out with contentious midterm elections looming.

Still, infrastructure is one of the few issues where bipartisan agreement could be possible. And, despite the objections voiced about the plan, it is a starting point for the legislative process and moves the debate forward.

Top image: Funds in the rural program could be used for broadband infrastructure. iStock/Getty Images photo.