What Donald Trump will actually do with America’s deteriorating roads and bridges is anyone’s guess. Though in Tuesday night’s State of the Union address, the president called for Congress to pass a bill “generating” $1.5 trillion for new infrastructure, that doesn’t tell us much. It’s not clear how much of that money is coming from Washington and how much will be, as he put it, “leveraged.” The idea is that a small amount of federal money can inspire states and cities to either spend more of their own or find private investors to take charge of projects, or both. It sounds like a bargain for the feds: A $1.5 trillion plan for the price of a few hundred billion.
But would it work? It turns out the administration has a kind of trial underway. In August, Department of Transportation Secretary Elaine Chao wrote to Congress to announce that her department would not be awarding any money to large FASTLANE projects. At its core, federal infrastructure funding is served up in a stew of acronyms like FASTLANE, an annual initiative created in 2015 to improve America’s freight corridors by helping to fund state and local projects. (In July 2016, for example, DOT granted $44 million in FASTLANE money to Georgia to renovate the railroads leading out of the Port of Savannah.) In a post-earmark Washington, grants like this bring big money to ports, highways, railroads, and subways. Competition is fierce: 212 projects sought FASTLANE funding in 2016, only 18 received it.
Chao didn’t cancel FASTLANE; she renamed it INFRA and rewrote its guidelines with Trump-era priorities. States and cities were given three months to revise their projects to suit the new DOT guidelines if they wanted a slice of the $1.5 billion pool of money that will be distributed sometime in the next few months.
Chao, like her boss, wanted more leverage. “We need to take steps to get more bang for our buck,” the DOT announced in a fact sheet at the time. For the revised program, the DOT was looking for “projects that use innovative approaches to make each federal dollar go further and encourage more parties to put skin in the game through higher leverage.” The sheet emphasized leveraging “non-federal and private sector funding.” Make our grant a smaller share of your project, the new rules suggested, and you’ll be more likely to get one. “Clearly they want more emphasis on that leveraging,” Paul Lewis, a vice president at the Eno transportation institute, said to me. “If you can’t find local dollars to make that match, perhaps you can find private dollars.”
The Obama DOT never intended FASTLANE to be a primary source of funding. On average in 2016, FASTLANE grants paid for 21 percent of the projects that won them. But if you take out a couple of expensive highway projects in Wisconsin and Virginia, federal funding rose to more than a third of the total cost. With the program perennially oversubscribed—so much so that states sometimes decline to sponsor city projects so as not to spread themselves thin—you can see why Chao thinks the DOT could drive a harder bargain for its outlays.
If there’s a test case for the challenges of leveraging federal dollars with local and private money, it may lie in the scramble this past fall to adapt FASTLANE requests for INFRA—and in the kinds of projects that win federal money this spring.
An encouraging sign for the Trump administration comes from a Rhode Island project to restore an aging bridge that lifts Interstate 95 over the Woonasquatucket River, Amtrak tracks, and local Providence streets. In November, Rhode Island applied for $60 million from INFRA for the project, a nearly identical request to the one it made last year for $59 million from FASTLANE. But the cost of the project had gone from $226.1 million to $342.9 million, despite cutting a $15 million pedestrian bridge. Why? “A big chunk of that cost increase is connected to financing and the private part of the project,” reported Patrick Anderson of the Providence Journal. In addition to the base cost, “the new plan then adds interest on a $45-million private loan and a 15-percent return to the private partner.” This is a typical issue with private investment in projects that might otherwise use low-interest municipal debt: Private investors expect a better return on investment, which boosts upfront project costs.
Officials at the Rhode Island DOT told me the revised application shouldn’t be subject to a direct comparison, because the new project has a different scope and is now designed to benefit from “private sector innovation.” It may sound fuzzy, but in practice that might mean insurance against overruns and delays, a smaller future maintenance burden for the state, a different approach to construction, or a new strategy for restoring the space underneath the viaduct. “The fact that [U.S. DOT] had some thought-provoking criteria made us pull out pencils and think creatively,” said Shoshana Lew, the chief operating office of RIDOT. The incentives had changed.
It’s hard to evaluate those trade-offs until the project is complete, and sometimes for years afterward. But generally speaking, any deal that ropes in a federal grant is going to be a better deal for taxpayers than one that doesn’t—even if private investors cash in too.
Aside from the I-95 project, though, I couldn’t find any others that overhauled their approach in refiling for INFRA, a sign that we may not see a sudden influx of public-private partnerships (“P3s”) or newly leveraged deals, even if Washington is committed to lowering its stake in infrastructure projects around the country. Chicago’s 75th Street Corridor, for example, a smorgasbord of more than five dozen smaller projects around Chicago Terminal (which handles a quarter of the country’s rail cargo), had asked for $160 million from FASTLANE for a $500 million project. They made the same dollar request from INFRA. The application is essentially the same—but with additional emphasis on the word private.
Billy Hwang, a consultant with the infrastructure giant WSP USA, helped advise 15 projects seeking INFRA grants, about half of which had been retooled from the scuttled FASTLANE contest. None of them wound up seeking private investment in their projects, he said. That’s because of the nature of U.S. infrastructure construction, he explained: Most projects use only public money, and any “leverage” will come from locals paying more through state taxes, local taxes, or user fees like tolls. (Rural projects are also unlikely to attract private investors, but they have a special carve-out under INFRA.)
There are other reasons to doubt that the road next door might soon be brought to you by a corporation. Putting together a P3 requires a lot of legwork, for one, and many projects aren’t big enough to justify the effort. Investors also tend to be most interested when there’s a reliable revenue stream available, like a bridge toll, or when the project involves new greenfield construction. The INFRA proposals are mostly repairs and modifications to the existing stock—not sexy, but exactly the kind of stuff that infrastructure spending ought to prioritize.
But just because the P3 revolution may still be a ways away doesn’t mean the DOT’s new approach won’t affect how stuff gets built. Not many projects were changed to appeal to Secretary Chao. But if the INFRA grants end up spread between projects where federal funding constitutes an increasingly small fraction of the budget, then states might get the message: If you want money from Washington, find more money at home. It looks like that’s going to be the theme of the Trump infrastructure plan too.