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Prospect: The Need for Infrastructure: Is Trump’s Plan the Answer?
- The need for increased infrastructure spending is strong. The slower pace of spending in the last several decades has led to an infrastructure gap approaching $1.4 trillion according to engineering estimates.
- This puts the focus on maintenance outlays, which can yield fast and high returns. New facilities can take years to plan and fund and stockpile of “shovel-ready” new projects may not be that large.
- Private financing has provided the bulk of the $150B spent annually on energy and telecommunications infrastructure, as the returns can be readily monetized. But in the remaining $250B of public infrastructure for transportation, pollution control, waste removal and education, private finance has been quite small as the returns have been hard to capture.
- Approaches to attract public investment such as creating an infrastructure bank have been around for some time and supported by both presidential candidates in 2016. A bank could foster greater private participation and establish a merit-based system for evaluating projects.
- Unfortunately, Trump’s plan for a massive 82% tax credit for private funding appears misguided and costly. The plan would only assist projects with easily identifiable revenue streams and might reward spending that would have gone on otherwise.
- The role for private participation is limited as the majority of infrastructure projects have revenue streams that are hard to capture. This suggests that public sector, with its much lower borrowing costs, will remain an integral part of future infrastructure finance.