The Pragmatic, the Exciting, and the Uncertain: Hillary Clinton's Infrastructure Proposal
In late November 2015, the Clinton campaign announced plans to pursue an increase in federal infrastructure spending by $275 billion over 5 years, a plan the campaign calls “a major down payment on a stronger America”. Though comments concerning the plan have been largely muffled on the campaign trail by emphasis on the historical achievement of her mere nomination, email scandals, and the bewildering aura of her Fall challenger, Clinton did state in late May her intention to send “a comprehensive infrastructure proposal to Congress in her first 100 days in office”. Presumably, the inclusion of the plan in the agenda of her first 100 days signifies the status of this issue as a top priority for Clinton, and something she seems willing to bet her legacy on should she have the pleasure of serving.
Which is an issue, because while the plan is appealing rhetorically, it features a worrying lack of detail. While the Clinton campaign claims that the plan will be fully paid for, it only mentions “business tax reform” as its method of payment, without any specifics concerning which particular taxes will change, the manner in which they will change, or how reforming the business tax code will capture an extra $275 billion over 5 years. Nevertheless, it should be noted that it is generally accepted in the economic community that “business tax reform” is a worthwhile policy goal, as it is much more efficient to simply tax people’s incomes if you’re looking to tax them. That being said, if a President Clinton finds herself facing a Republican Congress next Spring, the likelihood of her presiding over revenue positive tax reform is dubious.
However, once one gets past the unclear method of payment, the Clinton campaign’s plan starts to get interesting. Of the original $275 billion sticker price, $250 billion will be set aside for direct infrastructure investment via conventional tax and spend methods. General repair is a major part of this spending—as the campaign vows to “fix and expand our roads and bridges”, oversee maintenance projects on various pipelines, dams, and levees, and address the “pothole tax”. But the biggest emphasis seems to be on new projects with an eye on efficiency and new technology. Not only does the plan call for the construction of new airports and air traffic control systems, expansion of public transport options with an emphasis on higher capacity passenger rail systems, and “initiating the upgrades of the at least the 25 most costly freight bottlenecks by the end of her first term”, but the plan also articulates a desire for investment in clean energy via attention to the development of a “smart” electrical grid, creating space for non-gasoline fueling stations, and ensuring that “the federal government is a partner in delivering clean and affordable energy”. The Clinton campaign even commits itself to ensuring that, by 2020, “100 percent of households in America will have access to affordable broadband that delivers world class speeds”. If all this was not enough, the campaign assures voters that this infrastructure plan will involve to creation of thousands of “good paying, middle class jobs – paying well over the national median” in order to make it happen.
And according to economists at large, all of this is pretty good stuff, as infrastructure investment in general has shown to have a positive relationship with economic growth (though the magnitude of this relationship is still up for debate). Specifically, economists will be generally be favorable to the idea of repairing roads to address the “pothole tax”, allowing money that would otherwise be allocated to car maintenance to flow into consumption that is utility positive, raising social welfare. Additionally, while not a public good by definition, clean energy is generally considered a type of good which is chronically underprovided by the market due to the typically large up-front costs and low rates of return, meaning that third party intervention is needed to capture the gains in welfare that are not realized when it is underprovided. Also, Clinton’s plan to connect 100 percent of Americans to high quality broadband is another provision of her plan that is likely to score points with labor economists, as lack of internet access is one of many things that have been cited as holding potentially capable workers from realizing their maximum income potential.
But perhaps the most interesting part of Clinton’s plan is the allocation of $25 billion as a seed fund for an independent, government owned infrastructure investment bank, both because the design and role of the bank lacks detail and precedent, but also because it could potentially offer a more permanent solution to infrastructure neglect in the future. The Clinton campaign states that the bank will exist to “provide loans, loan guarantees, and other forms of credit enhancement” to fund investment in “complex multi-modal projects like freight and port improvements, and in projects to modernize our energy, water, broadband, and transportation systems in urban and rural communities”. The bank will do this by issuing “special ‘super’ Build America Bonds”, building upon the structure of a program that lived and died within Obama’s first term. The campaign also mentions that the bank will be a “one-stop-shop” for state and local governments, municipalities, and project sponsors to secure the capital and expertise needed to see through infrastructure projects that have been vetted and approved by the bank’s “bipartisan review board”.
Unfortunately, but perhaps not surprisingly, the campaign leaves out many of the technical details of the bank’s creation and operation schemes that would be useful in imagining what exactly the bank would look like and how it would operate. Currently, the Build America Transportation Investment Center (BATIC), the keystone of the July 2014 executive action Build America Investment Initiative, considers itself a “one-stop-shop” for expertise in infrastructure projects. The BATIC does not, however, issue credit itself, but rather walks applicants through the process of securing private loans or applying for financing via the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, administered by the Department of Transportation, which provides long-term, flexible financing for highway and transit projects at below market rates, allowing communities easier access to funding for certain infrastructure projects.
Considering that the Clinton campaign has explicitly stated that the infrastructure bank will serve as a “one-stop-shop…to utilize federal resources and expertise in developing infrastructure projects”, it is most likely that a President Clinton will look to combine the efforts of both the BATIC and TIFIA programs to create a single source of both expertise and federal credit for infrastructure projects. Creating a new bank on its own would simply duplicate the responsibilities of these existing programs, and dissolving the BATIC and TIFIA offices in order to create her new bank seems to be an unnecessarily roundabout way of bringing the bank into existence.
Regardless of the exact specifics of the creation scheme, it does appear that the capability of Clinton’s infrastructure bank does, to some extent, already exist within multiple programs. That should not, however, necessarily discourage their synthetization into a single entity that both counsels and finances future infrastructure projects, as advocates have noted that the ability for a bank to cut across offices to get expertise and financing options to clients allows for a more efficient process in getting projects off the ground. It should also be noted that the current BATIC and TIFIA programs are concerned with highway and transit projects, and that if the Clinton campaign’s direct spending agenda is any indication, the infrastructure bank will be tasked with financing projects far beyond repairing roads and laying down new railroad tracks.
The bank’s capability could potentially go beyond simply synthesizing the current capabilities of various offices however, as the campaign has suggested that the bank would have the authority to issue “‘super’ Build America Bonds”. The original Build America Bonds (BABs) were a part of the American Recovery and Reinvestment Act of 2009 that allowed state and local governments to reduce their borrowing costs when funding infrastructure projects, making it easier to finance projects via loans as opposed to traditional tax and spend methods. The program ended on December 31, 2010, though the Department of Transportation is still on the hook for paying interest on both the 10 and 30 year bonds that were part of the program. The campaign’s use of the adjective “super” to describe their version of the BAB program suggests that the campaign looks to reinstate and expand the issuance of BABs through the infrastructure bank, but is silent as to just what this expansion would look like. Perhaps a Clinton Presidency would look to simply issue more of these bonds, or perhaps focus on issuing longer term bonds with higher sticker prices to raise more capital up front for projects today. Unfortunately, we can do little more than speculate as to how the campaign plans to supersize the BAB program of the past, but we can be reasonably sure that the campaign looks to create an institution that uses an expanded form of BABs to help finance infrastructure projects in periods of inaction in Congress.
And the political advantages of being able to fund infrastructure investments with only the implicit approval of Congress should not be discounted, and they are doubtlessly a major point in favor of the bank’s existence. Assuming that it is adequately funded, the bank holds the potential to continue nationwide infrastructure investment irrespective of infrastructure investment’s political popularity. When the Clinton campaign highlights the need to “improve the way we invest in infrastructure”, this bank is what they are talking about. With the establishment of this bank, the Clinton campaign looks to address not only the neglect of past decades, but the potential neglect to come in future decades as well.
However while the potential to bypass Congressional inaction may certainly be appealing in the case of infrastructure investment, it must be stressed that there is little to no precedent for this kind of institution in the world. The closest example of a nationwide infrastructure bank like the one the Clinton campaign seems to be describing is The Infrastructure Bank Plc in Nigeria. The bank is tasked with “providing financial solutions to support key long term infrastructure projects”, much like the Clinton campaign’s proposal, but is majority privately owned, with federal, state, and local governments, as well as the Nigeria Labour Congress as individual minority shareholders. Additionally, the China-led Asian Infrastructure Investment Bank (AIIB) launched on Christmas Day 2015, and while it also is focused on providing expertise in and financing infrastructure projects in Asia, it has 57 countries as members/shareholders, and 20 members who are not in Asia. Again, while the goals of the AIIB are analogous to the Clinton campaign’s proposed bank, it does not appear as though its modus operandi will be comparable.
Additionally, and perhaps more worryingly, the details that the campaign offers pertaining to the practical operation of the bank are largely nonexistent, and big questions loom over the proposal. The campaign has stated that the bank will be headed by “a bipartisan board of highly qualified directors”, who will presumably influence or even make the final decisions as to which projects get funded and which do not, but does not offer suggestions as to how it plans on selecting and properly vetting candidates for the banks board of directors. The campaign also mentioned that applicants must be able to demonstrate that projects are in the “public interest”, but does not define “public interest” or clarify how one might differentiate between projects that are or are not in “public interest”. Even further, the campaign is silent as to how the bank or its directors would be held accountable for selecting projects that are in the “public interest”. Even basic concerns of equity are not addressed by the campaign, as it offers no explanation as to how local municipalities who are cash-strapped or have poorer credit are expected to benefit from this new bank, leaving the bank’s operation scheme open to criticism of only benefiting well-to-do communities that can better afford infrastructure investment, but may not need it as much.
Nevertheless, from an economic perspective, there’s a lot to like from what we do know of the Clinton campaign’s proposal, and this shouldn’t be discounted by the disappointment that may come from the proposal’s more unclear areas. Given Mrs. Clinton’s statements concerning the status of this proposal as a top priority of her presidency, it should certainly be expected of the American electorate to challenge Mrs. Clinton over the next few months to clarify details concerning her plans to pay for the proposal and of the infrastructure bank’s creation and operation schemes, in order ensure that the campaign is putting forth a thorough and realistic plan that can immediately be acted upon in a Clinton Presidency. While the buffoonery of her Fall challenger may cause some to simply accept Mrs. Clinton’s proposal as satisfactory by virtue of not being utterly ridiculous, this should not preclude a proper vetting process in which the viability of Mrs. Clinton’s proposal is put on trial by the American public. As it stands, no matter how enticing the potential of the plan may seem, the mystery surrounding key details should keep enthusiasm grounded, and the jury still out.