Trump Infrastructure Plan Would Harm Cities and Cost Taxpayers

Don't worry, the private sector will fix it (andyblair)

Don't worry, the private sector will fix it (andyblair)

Earlier this week, President-elect Trump announced that Elaine Chao will be his pick to head the Department of Transportation, a move that was welcomed as a refreshingly ‘normal’ appointment.  Ms. Chao served as President Bush’s Labor Secretary for all eight years and served in his father’s administration as an undersecretary in the DOT.  Although she has strong conservative ties (she is married to Senate Majority Leader Mitch McConnell), she is seen by many in DC as a highly qualified, bi-partisan bridge (as it were) that could serve well in a traditionally bi-partisan position.

The appointment will certainly play well in the press, but it also appears to be distracting it from examining the Trump infrastructure plan.  If the press did examine the plan, they would see that it would fail to address the infrastructure needs of our country, particularly our cities, and would also likely cost taxpayers more in the short and long run. It would also undermine the types of infrastructure policy that our economy and environment require.

The Trump plan, outlined in a report released casually before the election, boasts of a $1 trillion investment strategy that is budget neutral to taxpayers.  Naturally, this statement is misleading.  The thrust of the plan is to rely entirely on the private sector to invest in and build/rehabilitate our nation’s troubled infrastructure. The Trump plan would first offer any private entity a tax credit for 82% of its upfront equity cost and then rely on that private entity to borrow from the bond markets for the rest.  So to get to their aspirational amount of $1 trillion, the US would give out $137 billion in tax credits.

There are two obvious problems with relying on the private sector to drive our infrastructure.  First, governments (whether local or federal) can borrow money for a lot less than private companies, giving them a huge built-in advantage on projects while reducing the overall cost of a project to taxpayers. The Trump plan relies on magical thinking to assume that every private entity would be so efficient to offset that advantage prima facie. It also attempts to hide the full cost of a project as part of that assumption.

Second, private companies will only focus on projects that can return a profit.  This is entirely rational, but it leaves a significant inventory of critical infrastructure projects out of contention.  Unless a private company can predict a certain profit margin by extracting significant user fees (more on this later), they will focus on another project. Questions of equity and sustainability will defer to profit and immediacy.  This will inevitably ignore the needs of poorer residents (rural or urban) who likely can’t pay for such projects while ignoring larger questions of environmental protection. (It will also clearly favor road construction over transit investment.)

This shows the contradiction at the heart of infrastructure spending and the problem with public-private partnerships.  Investment in infrastructure is universally good for the economy; there is no debate about it. A reliable, robust infrastructure leads to more (and more productive) economic activity (and more tax revenue). However, individual projects (like operating the MTA or replacing the water pipes in Flint) are extremely capital-intensive and unlikely to create a direct or immediate return.

That’s why our transportation systems are publicly owned and operated – most were private originally but couldn’t turn a profit; public agencies (like the MTA) were created to absorb those companies and maintain vital public services.  (And don’t expect Uber to save the day. That VC trickle-down effect has an expiration date for the same reason.)

Governments can take the long view on its infrastructure investment and reap the benefits holistically by creating more economic activity across the entire economy.  They are also obligated (more or less) to meet certain basic needs of all of its citizens regardless of cost.  They must provide clean water sources, they must provide public transportation; but they can capture the overall economic gains from those investments through tax revenue (and some regulated direct user-fees.)

Private companies can’t think in terms of the entire economy.  They must seek returns on the capital they invest in a given project, regardless of its ancillary benefits (unless they can capture some of those as well.) 

There are only two ways for private companies to profit from infrastructure. The first, as outlined in the Trump plan, is to have the government subsidize a significant portion of the cost. The Trump plan will cover 82% of upfront costs for private developers, which is a big chunk of change.

But let’s not overlook two other obvious assumptions – first, these projects will be too big to fail, and, second, President Trump will eliminate other costs related to labor and environmental review.  If, in a Trump future, a private company runs into trouble rebuilding the George Washington Bridge, they can expect the US Taxpayer to bail them out. We have a lot of experience with this in our economy already. It’s also unlikely that these contractors will be required to pay union-wages or submit to extensive government oversight and regulations.  (Something Ms. Chao was criticized for allowing at Labor.)

The second way is through user-fees.  The Trump plan doesn’t spend much time talking about this (it shifts gears to talking about a one-time 10% repatriation corporate tax and hammering Obama/Clinton and bridges to nowhere) because the authors know it wouldn’t look very appealing upon honest review (just look at Chicago and their parking problem).  Privatizing our infrastructure would cost you way more – your water bills would go up, your highway tolls would go up and your service access would probably decline – because a private company can’t run those systems at a loss like governments can.

There is also little evidence that this plan would treat these entities similarly to public utilities – requiring them to provide baseline universal service at a controlled cost.  Not gonna happen under President Trump.  As much as we will bitch about the MTA going up to $3 in 2017, that doesn’t begin to cover the actual per-ride cost today or what we would experience under a private system (and forget further subsidies for poor New Yorkers.)

There are of course significant flaws in how we finance our infrastructure currently, so I’m not idly defending our current system.  Most public agencies’ procurement and RFP processes follow lowest-bid requirements that often get gamed by connected private entities and hide eventual total costs.  And it’s not that public projects are subjected to too many requirements, it’s that they lack true ownership capable of pushing through them quickly.  Too many agencies are political compromises in structure with limited/conflicting jurisdictions in practice.

There are less radical ways to fix these issues than to turn them over to the private sector entirely.  Philadelphia has experimented with a radically simple alternative for projects – identify a problem and do an RFP for solutions, rather than identify a solution as well. This allows for more creativity from the private sector and more options for the public.  We could also redesign our public agencies to capture more of the economic value they create – similar to what Hong Kong’s transit system does. Why not have the MTA take equity in high-worth residential or commercial development that benefits from access to public transit?

There is nothing wrong with public-private partnerships in the public sphere.  Realistically, the term itself is redundant. Of course every project combines public and private agencies and interests.  That dynamic is the basis of our entire society. What is wrong is to adopt a radical policy change that undermines that dynamic and turns over elements of our infrastructure entirely to private interests, while allowing others to be ignored. 

How we think about our infrastructure, how we plan it, and how we engineer it must be approached with our entire society in mind.  If we adopt a simplistic mindset about covering the dollar for dollar cost of specific projects without taking a comprehensive view, we might get the infrastructure certain private companies think are justified, but we won’t get the one our economy and environment will need.

Carson Heading HUD Would be an Insult to Everybody

Asleep, but figuratively or literally? (fallssociety)

Asleep, but figuratively or literally? (fallssociety)

In 1966, Dr. Robert C. Weaver became the first Secretary of Housing and Urban Development (HUD) and the first black man to have a Cabinet-level position in the federal government.  He had a Bachelors, Masters, and PhD from Harvard University and started in government during the New Deal as a member of FDR’s famous “Black Cabinet.”  He later worked in the Kennedy Administration and helped lay the groundwork for HUD, which was eventually created during President Johnson’s “Great Society” platform with Dr. Weaver envisioned at its head.  Though largely forgotten today (though his name is on the HUD Building in DC) Dr. Weaver’s influence on government and civil rights, forged through years of government work and policy execution, is a testament to what talented individuals can overcome and accomplish through a dedicated federal government.

So it is in surprisingly stark contrast this week that there have been strong indications that President-elect Trump has picked another black doctor - Dr. Ben Carson - for Secretary of the US Dept. of Housing and Urban Development.  Though no official announcement has been made, Mr. Trump has floated the name on twitter and Dr. Carson, a former Presidential hopeful and accomplished brain surgeon with no government experience, has signified that he is considering the position.  If this does pan out, it would be an insult to every American.

Let’s start with the obvious: Dr. Carson is not at all qualified to run any government agency. Just ask him - a week earlier he took himself out of the running for any cabinet position because he didn’t think he was qualified to run a federal agency.  He is right. He has no experience in government and no experience in managing a large agency of any type, let alone one concerning housing.

Dr. Carson was clearly a talented doctor and an inspiring speaker, but he has never worked in housing (and has not show much aptitude for politics).  He has only commented on housing issues publicly a few times. In those cases, he has come out against fair housing policies and the Supreme Court ruling on disparate impact in Texas because they are ‘social engineering.”  That either shows a shocking ignorance towards the legacy of housing policies on economic segregation and inequality or a deep cynicism. I will give Dr. Carson the benefit of the doubt and assume it is ignorance.

In any case, Dr. Carson is not prepared to take over one of the most important federal agencies in government – tasked with managing $1 trillion of home mortgages and a $50 billion annual budget towards fair and affordable housing policies and legal defense for hundreds of thousands of Americans.

Apparently, Mr. Trump felt Dr. Carson was qualified because: 1. He was born in a city (and presumably has lived in a few houses) and 2. He supported Mr. Trump early.  You could also easily add in a third reason: Dr. Carson is black.  Given Mr. Trump’s clear preference for older white men for his top positions (and the growing criticism for it), this was an easy, if entirely empty, gesture to make.

Unfortunately, it is not uncommon in any Presidency for cabinet positions to be filled by unqualified loyalists or isolated figureheads. It has been especially true at HUD where many Presidents have placed token minority hires or personal loyalists who have been ignored (George Romney, Jack Kemp) or guilty of massive corruption (Samuel Pierce). So while there have been accomplished Secretaries in the past (Shaun Donovan comes to mind), HUD has largely been an afterthought for most Presidents. The fact that Mr. Trump has picked Dr. Carson is sadly not unprecedented.

However, what is unprecedented is the affordable housing crisis gripping the nation and crippling its long-term economic potential.  This blog has documented just how bad the crisis is and just how much it could damage our economic and social prosperity for generations.  It is simply too important an issue to be dismissed with such an abysmal appointment.

Picking Dr. Carson tells us much about what a President Trump will do for housing. At best he appears uninterested and likely to simply ignore the problem. Dr. Carson, unless he surprises, would not be a powerful advocate for housing and will not have a powerful voice in the administration.  Whether it’s the still-troubling status of Freddie Mac and Fannie Mae or the systemic lack of affordable housing in our cities, there are too many issues in housing for President Trump to take such a dismissive approach about it.

At worst, President Trump will use Dr. Carson as cover while appointing undersecretaries like Rob Astorino from Westchester who would very likely peel back affordable housing policies and cease to enforce fair housing laws.  Dr. Carson could oversee HUD as it quietly retreats into underfunded irrelevance.  The federal government could stop defending poor residents against discrimination at the local or city level and allow the continued resegregation of our communities.  HUD could also likely enrich the private sector by dismantling mortgage assistance and other housing programs without addressing the needs for poorer homeowners and renters.

It remains to be seen what Dr. Carson will decide on, but that it is up to him – after just stating he wasn’t qualified for such a position – shows a troubling sign for what the Trump Administration will prioritize.  Rather than acknowledging the scale of problem facing the nation with housing and finding qualified people with the experience and ideas (whether one agrees with them or not) to tackle it, Mr. Trump has evidently thought little of policy implications and a lot about personal loyalty. This does not bode well for Americans across every type of home.