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Trump’s infrastructure program

By Dr. Peter Morici
web posted December 5, 2016

Additional spending on infrastructure could deliver a powerful jolt to economic growth if President-elect Trump eschews conventional government approaches and gets the money out quickly and effectively.

Sadly, the benefits of such spending attracts skeptics, because President Obama’s stimulus efforts failed so badly at creating jobs in the wake of the financial crisis and that gave infrastructure investment a bad name.

A frustrated Mr. Obama alibied “there’s no such thing as shovel ready projects,” and that lament is often repeated by liberals to criticize Mr. Trump’s plans.

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.

The problem is not identifying projects but rather the bureaucratic morass that officials face in trying to spend on worthy projects and the misappropriation of funds by politicians to underwrite fanciful schemes.

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 — as green buildings and the like take time to plan and plow through Washington’s various environmental vetting and regulatory reviews.

The Trump administration transition website promises $550 billion for highways, bridges, tunnels, rails, airports and the like. That could easily boost GDP by about $1 trillion dollars — directly and through additional spending by Americans put back to work.

Over eight years, that would add about 1 million 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.

To get all that, 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 several simple guidelines — for example, money must be used on the existing backlog of unfunded projects and according to sound commercial principles.

Audits can follow, but those could 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.

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 7 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.

Trump adviser Peter Navarro and financier Wilbur Ross have put forward thoughtful proposals to pay for some of these projects with private funds. However, many projects cannot generate enough revenue in tolls and user fees to attract private capital.

Some of this money could be found by simply 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 ongoing 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-elect Trump offers the nation. ESR

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

 

 

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