Courtesy of The Market Mogul

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 Texas 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