Tackling America's Infrastructure Problem After Election Day
Despite their glaring differences, the presidential candidates agree on this one issue: America’s crumbling and antiquated infrastructure must be fixed as soon as possible.
Democratic presidential candidate Hillary Clinton has said, should she be elected, infrastructure funding will be a priority in her first 100 days as president. She has outlined a five-year, $275 billion plan that would create a new infrastructure bank, reauthorize a Build America Bonds program, and initiate business tax reform.
While he hasn’t outlined the specifics of his plan, Republican presidential nominee Donald Trump has said he wants to spend “at least double” what Clinton has proposed to “build the next generation of roads, bridges, railways, tunnels, sea ports and airports.”
“Roads are crumbling, we need to start dredging ports so bigger vessels can get through. We need to look at light rail, the [electric] grid, all these things that the Highway Transportation Fund isn’t going to cover. But no one is out there making the case…that’s why this time around, I do think both Trump and Clinton see transportation and infrastructure bill as a way to create jobs,” said JT Taylor, chief political strategist at Hedgeye Potomac Research.
Rebuilding America: On Hold
At this point, the plan to re-build America has stalled.
The nation’s crumbling roads, bridges and neglected airports have long been a subject of bipartisan political discussion. They were a focus for President Barack Obama when he took over as commander in chief in 2008. He quickly got to work on the American Recovery and Reinvestment Act of 2009, a stimulus package aimed at investing in, among other priorities, infrastructure projects, to help spur economic growth in the wake of the Great Recession.
Last year, Obama doubled down on his efforts when he signed the biggest transportation package in more than a decade. The $305 billion piece of legislation reauthorized federal transportation programs, ending a Congressional habit of passing stop-gap measures that kept the Highway Trust Fund solvent.
Still, much more must be done. The American Society of Civil Engineers, the nation’s oldest engineering society comprised of 150,000 civil engineering professionals, gives the overall state of U.S. infrastructure a D+ grade, meaning it’s in “poor condition and mostly below standard with many elements approaching the end of their service life.”
"We think infrastructure spending does have a long-term return associated with it. But it just hasn’t moved any further because of political fighting on how you can fund new programs."
The report card, last released in 2013, estimated some $3.6 trillion of investment would be needed by 2020 to upgrade U.S. infrastructure. The ASCE graded components like aviation, dams, drinking water, hazardous waste, transit and roads with a D, while ports, public parks and recreation, and bridges received C grades, and solid waste garnered the highest grade – a B-.
Representative John Delaney, a Democrat up for reelection in Maryland’s 6th District, has worked to make infrastructure part of his legacy. In 2013, he introduced the Partnership to Build America Act, which garnered support from both sides of the political aisle. While the legislation didn’t make it past committee, he pushed forward in 2015 introducing a new version called Infrastructure 2.0, a larger rendition of the PBAA.
Part of Delaney’s plan would use repatriated funds from U.S. corporations at an 8.75% tax rate – compared to the current 35% rate – to provide $120 billion to the Highway Trust Fund and $50 billion for the creation of a new American Infrastructure Fund to finance projects in transportation, water, energy, communications and education.
Though his legislation hasn’t made it to the House floor for debate, Delaney said he’s confident the next president – no matter which candidate is elected – will make infrastructure a priority.
“These things take time to get the type of momentum they need to get in order to become actionable. I think we’re really on the five-yard line on this. We continue to believe the momentum is building and it’s something we can get done in the next Congress with the next president,” he said.
Corporate America's Helping Hand
Delaney isn’t alone in calling on Corporate America to help fund domestic infrastructure projects. S&P Global issued an October report stating that if half of the more than $2 trillion in undistributed earnings held outside U.S. borders were brought back, they could be used to create 307, 000 infrastructure-related jobs in about two years and add roughly $189.5 billion to U.S. GDP.
“We believe most companies never intended to have such large cash piles parked overseas, and that, if given the choice, many would prefer to repatriate cash, invest in the U.S., and limit their debt,” S&P economists wrote in their proposal.
Indeed, corporate giants like Apple (NASDAQ:AAPL) have opted to stockpile a chunk of it abroad. The tech giant’s CEO, Tim Cook, has repeatedly said he isn’t interested in repatriating unless the tax rate comes down.
Changing policy, though, comes down to politics.
Given the amount of funding infrastructure projects have received over the course of the Obama administration, there might not be much appetite from the Republicans to throw more money at new projects, said Hedgeye’s Taylor.
“There’s still a lot of bitterness from conservative Republicans on the Hill from the Obama stimulus package, there’s a diametrically opposed mentality to anything Clinton does by Republicans, and you also have a six-year bill that was just passed in 2015…doing what they’ve done for decades…it’s not doing anything above and beyond,” he explained.
If members of Congress are able to get past the debate over whether they should or should not initiate work on new infrastructure investments, a big sticking point would then be how to fund them, according to Dan Heckman, senior investment strategist at U.S. Bank Wealth Management.
“We think infrastructure spending does have a long-term return associated with it. But it just hasn’t moved any further because of political fighting on how you can fund new programs,” he said. “I think there’s some light at the end of the tunnel and when we get the election over with, we’ll hopefully see more movement starting as early as this next year.”
Regardless of how it gets done, Heckman said infrastructure improvements could help give a boost to the slow-growing U.S. economy in a number of ways. Specifically he pointed to the potential for job creation amid labor shortages in the construction industry. New training and spending programs under a fresh infrastructure plan would help engage a new generation of Americans in construction trades.
“The average laborer, I’ve been told, is well in his 50s. It’s very hard work, it’s not appealing to a lot of young people,” he said. “Many of these jobs are well paying, provide great benefits, even retirement plans, for example…engaging youth in the country in this particular industry, I think that [would be] a huge win for everyone involved,” he said.