Tag Archives: ASCE

Texas Needs More Than Love To Fix Its Infrastructure

By Henry Teitelbaum, Editor, P3 Planet

That homegrown spirit of caring and support that people across Texans have shown since Hurricane Harvey may be heart-warming, but all the love in the Lone Star state can only go so far towards fixing its battered infrastructure, let alone move it towards better flood planning.

Texas, and particularly its flood defense infrastructure, has been on the American Society of Civil Engineers’ critical list for many years. It last earned a ‘D’ in the the ASCE’s infrastructure report card in 2013. That’s largely because the state spends virtually nothing on flood-control infrastructure, leaving whole counties to fend for themselves. Florida, in case you were wondering, got an overall ‘C’ rating in the latest 2017 report card, but a ’D’ for its critical stormwater drainage systems.

Most will agree that with the benefit of hindsight, the neglect of critical flood infrastructure systems is not good public policy.

Anti-Washington Mindset

Making matters worse for staunchly anti-federal Texans, the state doesn’t participate in the National Flood Insurance Program, even though the state typically leads the nation in terms of dollars paid out for flood claims.

Houston’s liberal zoning laws allow developers to build pretty much anything they want anywhere in the city. This has not only encouraged extensive overbuilding, it has run roughshod over any serious efforts at flood planning. A predictable result of this has been that there is now too little water-absorbing prairie left to soak up flood waters. When Hurricane Harvey hit, some believe the impermeable ground and failure to plan may have prolonged the flooding and the damage that it has brought.

Donald Trump’s climate change-denying regime in Washington has meanwhile been working to make future hurricane-related disasters in the Gulf as costly and destructive as they can be. On Aug. 15, the President used an executive order to overturn a key Obama-administration initiative requiring that infrastructure projects in flood-prone regions, notably roads and bridges, adhere to the Federal Flood Risk Management Standard for “climate resilience.” This sensible rule was designed to protect infrastructure and people from exactly the kind of damage that resulted from over-development in flood-prone areas of Texas.

Trump’s zeal for overturning every infrastructure policy that his predecessor put in place, even as prospects fade for his own promised Infrastructure Plan, appears to have no limits. His transportation secretary, Elaine Chao, is by no means the only crony capitalist in his administration, but she’s one of the most visible. True to form, Chao has been selling off critical infrastructure development decisions to the highest bidders while telling the rest of us that deregulation will slash the amount of time needed to deliver new projects.

Politically Motivated Fix

The importance of being seen to be doing something to aid the victims of Hurricane Irma in Florida, as well as Hurricane Harvey in Texas, has caused Trump to reverse plans to gut the Federal Emergency Management Agency (FEMA)’s Disaster Relief Fund, at least for the time being. Thanks to the President’s agreement with congressional Democrats to raise the debt ceiling earlier this month, some $7.4 billion of federal funding is now being allocated to FEMA’s DRF, with another $7.4 billion going to the Department of Housing and Urban Development’s (HUD) Community Development Block Grand Disaster Recovery (CDBG-DR) funds. These can be used to rebuild housing for both owners and renters.

However, HUD, which runs federally funded Disaster Housing Assistance Programs, currently has no one filling the position responsible for overseeing the Disaster Voucher Program, so it’s anyone’s guess how effectively this will be carried out. Meanwhile, under the Trump Administration’s proposed 2018 budget, both of these programs are still slated for elimination.

Everything Tied To Tax Reform

Beyond short-term fixes, the nation’s long-term investment program for critical infrastructure remains hobbled by Trump’s inability to work with Congress. The latest iteration of Trump’s Infrastructure Plan is entirely dependent on the passage of his corporate tax reform agenda, which can’t even be considered before he passes a budget bill for 2018.

The tax reform plan itself faces opposition from both sides of an increasingly divided Congress because it involves extensive giveaways to multi-nationals to encourage them to repatriate their estimated $2.5 trillion of accumulated overseas profits. Delivery would then depend heavily on these same companies providing equity financing for around $800 billion of the $1 trillion of new infrastructure that the administration would seek to deliver over the next 10 years.

Even if the administration did manage to push through an infrastructure plan, the role of private sector developers in delivering Trump’s vision is unlikely to produce outcomes that benefit the public interest. This is because private companies, when offered choices for investing in projects intended to provide a public service, tend to pick those that produce the biggest returns for their investors, rather than delivering what’s most needed by the public.

The Trouble With Privatization

Texas has been at the pointy end of this issue for some years. Its inadequate public funding resources, fast-growing population and huge requirements for new infrastructure have led to some disastrous experiences with privately-run transportation infrastructure.

Under former Texas governor (and now Energy Secretary) Rick Perry, Texas expanded the use of Public Private Partnerships (PPP) to deliver new transportation infrastructure during the early 2000s. This was done primarily using a concession-based model that led to an expansion in the use of toll roads. The subsequent public outcry over the cost of using these, along with the high profile bankruptcy of State Highway 130 and other PPP projects, led the Texas legislature to end the state’s use of toll-based PPPs.

So what options do Texas and Florida and any other state hit by powerful natural disasters have to begin fixing, rebuilding and developing new climate resilient infrastructure?

Given the scale of what will be needed, its hard to imagine either Texas or Florda state risking its hard-won Triple-A credit rating by borrowing heavily to make the necessary infrastructure investments. States with lesser credit ratings will be even less inclined to go that route. At the same time, Republican-run state legislatures in both Texas and Florida are going to be wary of raising taxes.

Better Partnerships Can Help 

That leaves no alternative but for public authorities to engage with the private sector for any long-term solution. In this regard, it is fortunate that most states, including Texas and Florida, have PPP-enabling legislation in place. PPP, or P3, is a model for procuring and managing long-term infrastructure that requires private consortia to competitively bid for a contract to design, finance, build, operate and maintain a public asset. It is distinct from privatization because the asset remains in the public domain. There are also ways to structure long-term payments for project delivery, operation and maintenance so that users aren’t stuck with the tolls.

Florida is expanding its existing PPP procurement program beyond transportation infrastructure to include social infrastructure projects in education, water and wastewater facilities, healthcare facilities, sporting and cultural facilities.

Texas, for its part should be exploring alternative PPP procurement models that don’t rely on tolling, but rather on availability payments linked to general tax proceeds. These can be used on their own or structured into a variety of long-term payment arrangements on terms that the state budget can support. Texas also established The Center for Alternative Finance and Procurement in 2015 to help devise better ways for public authorities to engage the private sector in the delivery of future infrastructure programs.

Don’t Call Washington 

The ASCE estimates America’s infrastructure deficit at $1.44 trillion between 2016 and 2025, largely because governments at the state and federal level are only paying half of their bill. The PPP model is currently being used for less than 1% of the projects that are undertaken, so there is plenty of scope for growth as well as for improving outcomes.

In the absence of a workable infrastructure policy, or for that matter any coherent leadership from Washington over the next three years, states will be on their own to develop creative ways to meet their infrastructure procurement needs. P3 offers a way forward that they should all be considering.

This article has previously run in The Market Mogul

Has Trump Deep-Sixed His Own Infrastructure Agenda?

Image by Henry Teitelbaum

A once-in-a-generation opportunity to restore America’s failing infrastructure is being squandered by a dysfunctional White House.

By Henry Teitelbaum, Editor, P3 Planet

It would be difficult to overstate just how wide the chasm running through the American political landscape has become since Donald Trump entered the White House. It is evident on the streets, at town halls, and in every proposal that comes before Congress. Even so, there is a lot of common ground when it comes to appreciating the need to invest in restoring the country’s crumbling infrastructure.

America has some of the oldest, most inadequate and poorly maintained public roads, bridges, transit systems, waterways and sewage infrastructure in the developed world. Its condition is seriously affecting everyone’s quality of life, whether through clogged roads, flight delays or flooded homes. In the face of challenges ranging from the threat of bridges collapsing to an entire city’s water supply becoming tainted, there should be no scope for partisan disagreement on the need to act quickly.

Failing Infrastructure’s Real Cost

In the just-released 2017 Infrastructure Report Card, the American Society of Civil Engineers gave a particularly grave assessment of the state of these critical public assets. The nation received another cumulative GPA of D+, unchanged from the previous survey in 2013 and consistent with “D” grades going back to 1998. That’s an exceptionally poor performance for a country with the kind of wealth America has, particularly given the number of high-profile infrastructure-related emergencies that have hit since the last survey. Lead tainted drinking water in Flint, Michigan in 2014 and this year’s evacuation of 200,000 people living downstream from the Oroville Dam in California are two incidents that made headlines, but there are many others.

One might have hoped that such crises would focus more minds on the condition of the nation’s dams and drinking water infrastructure. Sadly, according to the report, this has yet to happen. Both got “D” grades, which is one level above failing, just like last time. Meanwhile, the condition of America’s neglected transit systems, parks and solid waste infrastructure meanwhile, has actually worsened, according to the ASCE. In 2013, for example, it found that only 51% of people in America are able to use public transit to do their grocery shopping. This means more cars on the road, more unnecessary traffic congestion, more pollution, and more cost to those who can least afford it.

The reason, according to the ASCE, is that America is paying only about half of its infrastructure bill, and this is creating a funding gap of the kind that costs businesses and the economy hugely in terms of lost sales and productivity. This gap is estimated to total somewhere around $1.44 trillion between 2016 and 2025, or just under half of the nation’s $3.32 trillion infrastructure funding needs for the period. The cost to the US GDP, according to the report, will grow to an estimated $3.9 trillion by 2025 should infrastructure needs continue to be ignored.

The Case for Investing

Aside from the economic costs of not fixing America’s broken infrastructure, there are excellent reasons for making new investments in it today. Borrowing now, while interest rates are still low, reduces the cost of financing, which improves the financial feasibility of long-term projects. This makes them more attractive to the types of investors that are structurally geared toward this type of investment.

Increasingly, for example, pension funds see infrastructure as a good way to invest safely over the long term. When they are operational, public assets such as toll roads generate secure long-term, even inflation-indexed cash flows that are easy for pension funds to match to their liabilities. At a time when large pension funds in the US are lamenting the lack of attractive long-term investments at home due to low yields on government bonds, infrastructure could provide just the kinds of returns they seek to meet the needs of a growing population of retirees.

Infrastructure investment also has a long-standing history of generating high-quality jobs, both directly in the construction industry and in a range of services to local economies. Building a better physical infrastructure that brings benefits for future generations can also encourage stronger communities. It does this by helping to restore a sense of common purpose to a nation where faith in government has been eroded and where voters worry about their future and their children’s future.

Does Washington Know About This?

So why is it taking so long for Washington to get behind a big infrastructure plan? For the answer, look no further than President Donald Trump’s failing leadership and divisive style of governing.

It’s not just that the US President has failed to set, lead or seriously promote his infrastructure agenda so much as his inability to engage seriously with any issue long enough to see it through. Infrastructure, as much as any legislative program, requires discipline, bipartisanship and patience – none of which has been in evidence from the Oval Office.

“…the Trump Administration quietly moved to Plan B, and practically nobody noticed.”

Over the past six months, we’ve instead witnessed a distracted and belligerent President failing to push through any of his campaign’s legislative agenda, whether it’s tax reform or his repeated efforts to repeal and/or replace Obamacare. The way with which Trump moves from failure to failure while blaming everyone else is as astonishing as it is consequential. Which brings us to Trump’s infrastructure agenda.

During the campaign, Trump promised to spend $1 trillion on infrastructure over the next 10 years. The original proposal, the “Trump Private Sector Financing Plan,” relied on passage of a huge, heavily flawed and ultimately un-passable overhaul of the entire US tax system. This would have included reducing taxes on the repatriation of US corporate overseas profits from 35% to as low as 10%, if companies then invested those profits into infrastructure redevelopment. Some $2.5 trillion of deferred taxes overseas earnings could then be eligible for investment in rebuilding America’s roads, airports and water systems, and other essential assets.

But because the Trump administration doesn’t have a budget bill yet, even with Republicans dominating both houses of Congress, none of these overseas profits are available for investment. So when “Infrastructure Week” came around a few months ago, the Trump Administration quietly moved to Plan B, and practically nobody noticed.

Stealing A Page From Hillary

The proposal that was finally unveiled bears very little in common with his original infrastructure proposal other than the $1 trillion aspirational figure over 10 years. Instead of relying on tax revenue and credit giveaways to incentivize private sector equity investment, though, the plan appears to rely almost entirely on Public-Private Partnerships (PPP) to bring private financing and expertise to the task.

Even to the untrained eye, this looks an awful lot like the infrastructure plan that Republicans ridiculed and then blocked for much of President Obama’s eight years in office. It’s also very much like the plan put forward by Hillary Clinton during the campaign, which envisioned mobilizing private capital for investment in public infrastructure through the PPP model.

PPP, or as it’s called in the US and Canada, P3, is a model for procuring and managing long-term infrastructure that has been used successfully around the world in both developed and developing countries. It requires private consortia, typically construction firms and their financial backers competitively bid for a contract to design, finance, build, operate and maintain a public asset. The private companies also shoulder the risks around project delivery and face stiff financial penalties for failing to perform contracted duties. In this and other ways,P3 is distinct from privatization because the asset, whether a road, an airport or a school district, remains publicly owned.

People debate the merits of this model as opposed to traditional public sector borrowing and spending. But in an age when governments, including the US, are close to broke, it has broad appeal. In Canada it has become something of the default procurement option for the government because it delivers reasonable value for money and better mobilizes the skills, discipline, financial capacities and risk management capabilities of the private sector.

Dysfunctionality As Policy

So what does the Trump administration’s failure to push through a corporate tax reform bill linked to his original infrastructure agenda, or for that matter even a budget, mean for America over the next three and a half years?

We will have to see after the summer recess. But it doesn’t take a tarot card reader to tell you that the signs are not good. A federal government led by an incompetent administration that stumbles from crisis to crisis of its own making is unlikely to follow through on any kind of infrastructure agenda. That would be a huge lost opportunity for America because an infrastructure-led government agenda could go a long way towards putting investments to work in restoring the country’s competitiveness while delivering the jobs that Mr. Trump boasts about creating.

With or without support from the current administration, P3 projects are destined to become a permanent part of the infrastructure investment landscape in the US because the alternatives are expensive and sometimes deliver poor value for the public funds that are invested. In Canada, they account for some 36% of all infrastructure investment while in the US it’s 1%.

The most likely scenario for the next few years will be for many of the 33 states that have PPP-enabling legislation in place to formulate their own infrastructure agenda, perhaps in cooperation with each other. This could go some ways towards making sure these next few years are not wasted while waiting for Trump’s dysfunctional government in Washington to do its job.

This blog post has also appeared in The Market Mogul.