The coming year looks poised to deliver significant new investment in local infrastructure projects. While there’s obvious uncertainty in the face of elections, a new Congress, and changing administration, a number of political and economic factors suggest that infrastructure may be well positioned for action in 2017.
Why? Here are five reasons for infrastructure optimism:
The Time May be Right for Corporate Tax Reform
It’s true that tax reform hasn’t happened in Washington since 1986, but this year might be different from past failed efforts.
The issue is one of the few that unites many Republicans and Democrats. While the two sides differ on the specifics, the concept of reforming the corporate tax code has broad appeal. Although a compromise would be tough to manage, there’s both enough money and policy targets to get a deal done. And, one element that would likely be part of any compromise on tax reform would be securing funding for infrastructure.
This could take a variety of forms from repatriated off-shore earnings to capitalization of an infrastructure bank. Further, everyone on Capitol Hill involved with infrastructure funding knows that the FAST Act didn’t solve the long-term solvency problem with the gas tax and transportation funding. A large tax reform package might offer room for addressing a looming a crisis.
With a new President looking to make an early mark, Hill leaders anxious to put past perceptions of dysfunction behind them, an issue where both parties could find a path to “yes,” and opportunity for an economic boost, this could be the year of a tax package that boosts infrastructure investment.
Local voters will set the tone
On November 8, all eyes will be on the race for the White House and control of Congress. But, a very big story for transportation projects will also be unfolding at the ballot box that day. A record number of local ballot measures to fund transportation projects will go to voters.
According to the Center for Transportation Excellence, there are more transit-focused measures on local ballots this year than any time since they began monitoring in 2000. If passed, these transit measures would account for more than $175 billion in new investment. With road and other modal investments included, the total would easily surpass $200 billion.
Major measures are on ballots from coast to coast, including Los Angeles, Seattle, Detroit, Indianapolis, Raleigh, and Atlanta. Beyond the obvious impact of new funding, these measures could also help spur further federal, state, and private sector activity by underscoring the political support for transportation and leveraging opportunities provided by new locally dedicated revenue. Adding to the opportunity outside of Washington, state budgets have finally recovered in most places from the long shadow of the Great Recession, and transportation has proven popular across the aisle in many state legislatures.
Narrow congressional majorities may actually help infrastructure programs
t’s hard to know who will control gavels in the House and Senate when the new Congress convenes in January. The GOP is currently clinging to a narrow majority in the Senate with many analysts suggesting that Democrats may well retake the chamber. In the House, the GOP enjoys a large majority but faces serious challenges in November.
While the GOP may well hold both the House and Senate, it seems all but certain that their majorities will be narrowed, perhaps considerably. If the Democrats take either chamber, it would be only by the narrowest of margins.
Most any plausible scenario suggests that there will be slim majorities running both chambers in the next Congress. Such an outcome could easily be a recipe for more gridlock, especially if the party running Capitol Hill differs from that of the new President.
So, why the cause for optimism?
Looking back to the last two Congresses where gridlock was the order of the day, infrastructure was one of the only areas where broad bipartisan agreement was possible. Although the path to passage was difficult, transportation (MAP-21, FAST Act) and water (Water Resources Development Act) infrastructure have been popular across the political spectrum. Further, programs like TIGER and CDBG have held up surprisingly well in very difficult appropriations battles over the last few years and have strong champions in both parties which make them resilient in the face of never-ending budget battles.
In a world where bipartisan agreements may be few, infrastructure is likely fertile ground. If the presidential race is lopsided or one party outperforms expectations in congressional races, the odds of some early congressional dealmaking likely increase.
Lastly, if there are new leaders in either chamber, they will want to show they can govern and infrastructure may be comparatively easy lift.
A look at the potential players in leadership underscores the case. Current Senate Majority Leader Mitch McConnell (R-Ky.) has shown a willingness to make deals on big infrastructure packages. The likely majority leader in a Democratic Senate would be Sen. Charles Schumer (D-N.Y.) who not only represents a state with big infrastructure needs but also has played a leading role in fashioning previous transportation packages.
On the House side, Speaker Paul Ryan (R-Wis.) may be a budget hawk, but he’s also been keenly interested in restoring discipline and pragmatism in the House. If Rep. Nancy Pelosi (D-Calif.) retakes the Speakership, she can be counted on support infrastructure funding and would be eager for progressive legislative opportunities.
The biggest obstacle could be the lack of a “must pass” reauthorization deadline, but as noted above in the tax reform discussion, infrastructure could be well positioned to hitch a ride on a number of broader economic packages.
The economic climate helps, too
By virtually any measure, the economy is improving. Job growth has been steady and new data suggests that incomes are at last growing. At the same time, there’s also no denying that the global outlook remains challenging and domestic growth is still painfully slow.
Many economists suggest that we are mired in a long period of structurally weak demand and anemic growth, so-called secular stagnation. Meanwhile, the Federal Reserve continues to hint at modest interest rate increases. Infrastructure could benefit from both economic trends.
On growth, infrastructure has support among liberal and conservative economists as a fiscal policy remedy. It’s not a cure-all to be sure, but any growth-oriented package would almost certainly contain new infrastructure investment. On interest rates, the specter of rate increases in the future may make it all the more appealing to move ahead with new infrastructure financing while rates hover at historically low levels. Better to jump in now than when higher interest rates make the deficit case harder to make.
At the same time, the continuing global slump is keeping rates low in other countries pushing investors to seek higher returns elsewhere. This could open up greater interest among private and sovereign fund investors in U.S. infrastructure opportunities.
Domestic financing innovation in areas like social impact investing and potential changes in tax and bond legislation could also boost prospects for local infrastructure projects.
The President agrees
Which president, you say? In this case, it might not matter.
Infrastructure has been touted by both Donald Trump and Hillary Clinton as part of their campaign platforms. In fact, it may well be the only policy area where they disagree only in scope, not in principle.
The new president will have a number of early opportunities to lay out an agenda for economic growth. The transition period, the inaugural address, state of the union, and initial budget request are all ripe chances to tout an infrastructure package. While there won’t likely be the political space for an Obama-style “stimulus" package early in the new administration, there are a variety of other likely legislative vehicles that would be attractive options for including new infrastructure. Some of these opportunities might even emerge during a lame duck session.
Now, none of this means new funding is guaranteed. Even less sure is whether the shape and scope of an infrastructure package would be a good fit for good planning and local communities. Lots of policy details would need attention to ensure that new spending supports better placemaking. But, there’s no denying the need nor the opportunity for making positive policy changes in Washington next year.
Top image: Richmond-San Rafael Bridge, California. Pixabay photo in the public domain.
About the Author
Jason Jordan is APA's director of policy.