Infrastructure Lovefest Bad for Taxpayers

Amidst the constant animosity between the Trump administration and Democratic congressional leaders there appears to be a rare glimmer of bipartisanship. In a recent meeting, President Trump, Senator Schumer, and Speaker Pelosi agreed to a $2 trillion infrastructure plan. While the specifics are not yet hashed out and it’s anyone’s guess whether the plan comes to fruition, the initial details of the agreement seem to spell bad news for taxpayers.

At the core of the plan is a mutual rejection of public-private partnerships (P3s), arrangements between state and local governments and private companies where the company agrees to fund and manage infrastructure in return for payments from users. Last year’s $1.5 trillion infrastructure plan, masterminded by former Trump economic advisor Gary Cohn, relied extensively on P3s and offered only $200 billion in federal funding. The Democrats and Trump, who reportedly said about the last plan, “That was a Gary bill…. That bill was so stupid,” both agreed that the new plan would rely on federal funding. (And Trump also reportedly noted that he wanted to increase funding $100 billion because $2 trillion sounds better than $1.9 trillion. As my colleague Ryan Bourne argues, coming up with a number and then deciding how to spend it is not an effective way to determine an appropriate amount of federal spending.)

Despite both sides’ skepticism of P3s, and a recent New York Times editorial that described them as “gimmickry,” P3s offer a real option for financing infrastructure building and maintenance without burdening taxpayers with the costs. As I have previously discussed, there are currently a number of P3 projects across the United States and the arrangements have been increasingly embraced around the world. While there have been some legitimate concerns about early P3 projects, experience has helped policymakers and experts learn how to structure partnerships that reduce risk for companies and protect taxpayers and users.

Further use of P3s would help us transition to a more efficient way to finance infrastructure: a user pays model. Richard Bird and Enid Slack explained the benefits of having infrastructure users pay the costs in the spring 2018 issue of Regulation. There are two choices for infrastructure funding, either those who use the infrastructure pay for the service or the costs are borne by taxpayers. Unlike taxes, user charges are not distortionary, they provide signals to consumers about the true costs of the service, and they allow the public to more easily assess the performance of service managers and politicians. However, though user fees are more efficient, and economically and technically feasible, political concerns about distribution and providing “free” public services have been an obstacle to expanding their use.

P3s and user charges offer a more effective way to pay for infrastructure without a huge price tag for taxpayers. Unfortunately, though the bipartisanship of the $2 trillion infrastructure plan may seem like a breath of fresh air it looks like it will be the usual case of billing all taxpayers for services enjoyed by a few.

Written with research assistance from David Kemp.