Who Will Pay for America’s Infrastructure? - Red Arrow Logistics Transportation and Freight Forwarding

Who Will Pay for America’s Infrastructure?

In recent years, the phrase “bipartisan consensus” has become something of a contradiction in terms, but one of the few points on which Republicans and Democrats can still agree is the urgent need to shore up America’s infrastructure, which is most often described as “crumbling.” Last year, the American Society of Civil Engineers gave American infrastructure a D+ grade, shining a light on a crisis that threatens both the economy and public safety. The Department of Transportation has estimated that there is a nearly $90 billion-dollar backlog in transit capital. Poorly maintained roads and bridges have a direct impact on the logistics industry; the ATA estimates that in 2016, it  cost trucking companies $50 billion in wasted time and fuel. On the campaign trail, President Trump promised $1 trillion in infrastructure spending, but offered few clues as to where that money would come from. Members of Congress have proposed three bills to pay for this badly-needed investment, but they offer radically different visions of how to do so.

The most straightforward proposal for how to pay for infrastructure spending is the “Investing in America: A Penny for Progress Act” put forward by Rep. Peter DeFazio (D-OR). DeFazio’s plan calls for raising the federal gasoline and diesel tax by up to 1.5 cents to finance $500 billion in infrastructure spending. The tax money wouldn’t go directly to roads and bridges; rather, the treasury would issue 30-year Invest in America bonds to cover the initial investment, and pay them back with revenue from the tax. While citizens are always reluctant to pay more at the pump, gas prices are still relatively low, making the increase on the gas tax (which has remained stagnant since 1993) less onerous.

DeFazio believes most Americans will appreciate the long-term savings, not to mention the jobs created by these projects. “Pennies for Progress” has won many supporters, including NATSO, which represents truck stop and travel plaza owners, the Community Transportation Association of America, and a long list of construction and transportation industry groups. Despite this support, the bill faces an uphill climb in a Congress led by Paul Ryan, who favors public-private partnerships to fund infrastructure projects. According to DeFazio “House Speaker Paul Ryan thinks that only the private sector should do these projects, even if it’s public infrastructure.” The toxic atmosphere in Washington means that even Republicans who privately support Pennies for Progress are reluctant to publicly add their names, but DeFazio has urged his fellow members of Congress to remember that “a substantial number of red states have raised their gas taxes in recent years and no one’s been recalled and no one’s lost their elections. Americans get it.”

Despite the partisan bickering, there is an infrastructure funding proposal with bipartisan support. Rep. John Delaney (D-MD) has floated two bills, the Partnership to Build America Act and the Infrastructure 2.0 Act, with the latter listing Ted Yoho (R-FL) as a co-sponsor. Delaney’s bills are best understood as complementary parts of a whole, with both aiming to raise money through the creation of the American Infrastructure Fund, to be financed with the sale of fifty-year American Infrastructure Bonds (AIBs).

The mechanism through which the bonds would be sold is where Delaney’s proposal gets tricky. According to the plan, multinational corporations (MNC) would have the opportunity to bid on bonds by proposing an exchange rate of offshore revenue they would then be permitted to repatriate to the US, tax-free. As the Economic Policy Institute explains it, “for example, an MNC might bid to repatriate $300 in overseas earnings for each $100 in AIBs, making the ‘multiplier’ in this case three.” This approach has the advantages of being extremely business-friendly (for multinational corporations, anyway) and avoiding any tax increases. However, many have criticized the bill for turning a vitally important investment into a tax giveaway for companies already skirting the law.  The government actually stands to lose money with this plan, raising $50 billion for infrastructure, but giving away up to $150 billion in tax breaks.

It’s encouraging that while the proposals on the table offer very different funding solutions, none of them lean heavily on the concept of increased tolls, which are often inefficient and place a disproportionate burden on trucking and logistics. Still, it’s vital that lawmakers and citizens understand that what’s good for logistics is good for the economy as a whole. In 2008, Supply Chain Quarterly issued a report arguing that improved infrastructure can create lower sourcing costs for businesses, reduced fleet, warehousing, and inventory costs, and increased revenue for companies that “use supply chains as competitive weapons.” These are all benefits which can be felt across the economy, and as long as Congressional leadership favors private sector cooperation, logistics professionals would be wise to make their voices heard in demanding infrastructure investment that benefits our industry. While the politicians debate, America’s bridges, roads, and waterways continue to decay. In the same report in which they gave US infrastructure a D+ grade, the ASCE estimated that infrastructure deterioration will cost the GDP $4 trillion by 2025. And until Congress decides who should pay for infrastructure’s improvement, we’ll all be suffering the costs.