Trump surprised Republican leaders over the weekend when he told them he didn't think public-private partnerships are going to work to rebuild America's aging roads, bridges and other infrastructure. Public-private partnerships are the cornerstone of the plan that Trump's top economic adviser, Gary Cohn, has been putting together for months. Trump appears to have to backpedaled from his own team, aligning with Democrats who have been critical of relying too much on private cash.
“President Trump said public-private partnerships are not the answer to everything. He's right about that,” says Henry Cisneros, a Democrat who served as President Bill Clinton's secretary of Housing and Urban Development.
Cisneros believes the odds are a “lot better than 50/50" that an infrastructure bill gets done this year, and he thinks Trump's remarks over the weekend raised the likelihood even more. Cisneros, a former mayor of San Antonio, is in favor of public-private partnerships, but he agrees with Trump that the entire package can't depend on that kind of funding alone.
“You can't toll every bridge and congested roadway in the country. You just can't,” says Cisneros.
Cohn has not released details publicly on the White House's infrastructure plan, but leaked information indicates Cohn has been pitching the idea of $200 billion in federal funding that would be matched by local and state dollars and private funding, so the total spending would be close to $1 trillion. A source familiar with the proposal who spoke on the condition of anonymity said the plan is broader than public-private partnerships. A portion of the money would be used to directly fund infrastructure projects in rural areas.
The $1 trillion figure is critical, since that's the number Trump pitched on the campaign trail and shortly after he was elected, but some Republicans have balked at more spending from the U.S. Treasury at a time when debt held by the public is already $15 trillion and expected to rise rapidly in coming years.
The key debate on the infrastructure bill is going to be: How much federal funding will there be and what are the criteria for where it will go? Democrats have been arguing for a lot more than $200 billion in federal funding. If the White House went to $400 billion or so, Cisneros thinks Democrats would get on board.
“The simple truth is there's not enough money to address everything that needs to get done,” says Cisneros, who is now a partner at Seibert Cisneros Shank, a firm that specializes in raising money for infrastructure improvements. “I would say you would want to reach toward $400 billion to $500 billion” in federal funds.
Cisneros argues the problem with Cohn's proposal is that matching funds aren't going to happen in most places. Private investors are often looking for returns of over 10 percent. Most projects can't deliver that kind of profit, especially without a toll or fee on people using the bridge, road or port.
The other alternative is combining federal dollars with state and local funds, but that isn't a panacea either, he says. Some states and municipalities are cash-strapped and would struggle to contribute much, if at all. America's “forgotten towns,” which Trump said he would turn around with jobs and new roads, would likely have trouble coming up with their own funding.
“We are proposing infrastructure reforms to ensure that our rural communities have access to the best roadways, railways and waterways anywhere in the world,” Trump told an enthusiastic crowd in Tennessee this week at the American Farm Bureau annual convention. “We're going to be spending the necessary funds, and we're going to get you taken care of.”
While many states have recovered from the Great Recession, a few are still struggling, including some red states. Ratings agency S&P; Global warns in a new report that the GOP tax plan is likely to make deficits worse. Once that happens, Congress is expected to scale back on federal spending, which will put more pressure on state budgets.
Less federal money for states “could unfold amid unrelenting demographic and structural economic pressure,” writes Gabriel J Petek, credit analyst at S&P; Global ratings. “In that scenario, the elevated rating turbulence of recent years may emerge as the norm.”
The financial turmoil in Illinois is well known. The state is the only one that S&P; Global currently rates with a B-grade because of its growing pension crisis and difficulty in passing state budgets on time. But Illinois isn't the only state that would likely struggle to raise capital at an affordable rate. New Jersey has an A- rating, only one step above joining Illinois in B-grade territory.
Pennsylvania, Connecticut and Kentucky are the next worst-rated states, meaning investors might be leery to loan them money without some extra sweeteners. Kansas and Louisiana — two red states that went for Trump and typically vote Republican — are also below average on the rating scale, and both currently have negative financial outlooks.