President Trump has announced a plan to privatize and modernize the nation’s air-traffic control system, as a down payment on his $1 trillion campaign promise to update the nation’s infrastructure. Improvements to the nation’s sagging transportation system could deliver a powerful stimulus to the economy.
However, the benefits of such spending attract skepticism, because President Obama’s financial-crisis stimulus program failed so badly at creating many new jobs. The Obama Administration misused much of the $319 billion Congress allocated through the 2009 American Recovery and Reinvestment Act on projects like Solyndra and similar solar energy fiascos, ill-fated health-care reforms, school-district worker-training bureaucracies and grants to academics for summer pay.
Only $30 billion was allocated to highways and $18 billion to traditional transit and high-speed rail, and the money was spent slowly.
Still, the bumpy ride on Amtrak from Washington to New York, the poor condition of many bridges on interstate highways, and crowded conditions on many urban mass-transit systems testify to the fact that federal and state transportation agencies have long queues for maintenance and improvement projects. Similarly, school districts around the country have leaky roofs, faulty plumbing and worse waiting for attention.
So far the Trump administration has been sketchy at best about its plans, but his campaign website promised $550 billion for highways, bridges, tunnels, rails, airports and the like. That could easily boost GDP by about $750 billion – directly and through additional spending by Americans put to work.
Over eight years, that would add more than 500,000 jobs, and raise private-sector productivity, international competitiveness, GDP and employment by moving goods and people around the country more quickly and at much less cost. For example, consider all the time and efficiency we lose through endless delays and stress for business travelers at airports.
All of this would be slowed by the morass of environmental and other reviews required by federal rules that have greatly slowed construction dramatically, as compared to the period before 1970, when most of the interstate highway system, for example, was constructed fairly quickly by today’s standards.
Executive orders can help, but much that needs to be done requires new legislation. Trump could forge alliances with Democrats in Congress eager for new federal dollars in their states and districts and even among environmentalists who want more positive benefits from the review process. All of this will test the willingness of liberals to finally cooperate with the president.
In addition, federal procurement rules must be reformed. Instead of mountains of forms and layers of approvals, the money should be issued to federal and state agencies with instructions to spend according to simple guidelines – for example, money must be used on the existing backlog of unfunded projects and according to sound commercial principles.
Audits could then follow but be performed by private accounting firms and according to the standards CPAs apply to private businesses when certifying the accuracy of books and annual reports to comply with SEC and federal tax-reporting rules.
President Trump would like to finance much of his program with private money, but many projects cannot generate enough revenue in tolls and user fees to attract private capital.
Currently, the Davis-Bacon Act requires excessively high union wages and cumbersome work rules on federal-sponsored transportation projects. These and other unnecessary regulatory requirements raise the cost of federally supported projects by about 20 percent and over eight years, eliminating those could easily free up $100 billion for additional infrastructure projects.
With only 6 percent of private-sector employees now represented by unions, Davis-Bacon should be replaced by straightforward open competition and standard enforcement of federal and state worker safety rules.
President Trump would like to finance much of his program with private money, but many projects cannot generate enough revenue in tolls and user fees to attract private capital. State and local governments are too strapped to contribute much than has been historically required in federal-state efforts like those for federal highways.
Some federal money could be found by offering U.S. corporations a special 17.5 percent corporate tax rate to repatriate much of the $2.4 trillion in profits currently parked offshore to avoid the statutory rate of 35 percent. That could raise up to $350 billion to finance Trump’s program.
Whatever funding shortfall remained should be scored against the continuing increases in federal and state tax revenue, accomplished through increased productivity and GDP, proper investments in infrastructure would accomplish.
Netting all this out, well-targeted, efficient spending on transportation and other public facilities, could be one of the best investments President Trump offers the nation.
Peter Morici is a professor at the University of Maryland’s Robert H. Smith School of Business. He served as chief economist of the U.S. International Trade Commission from 1993-1995. He tweets @pmorici1.