The House overwhelmingly passed a stop-gap bill yesterday that financed the Highway Trust Fund until May, 2015. The temporary funding would allow states to continue with thousands of infrastructure projects and avoid putting construction workers out of work. The Senate is expected to pass the House bill but continue to work on a long-term highway funding bill.
That’s the good news.
The bad news is that Congress is still not addressing the fact that the country’s infrastructure needs require more than temporary solutions. As we argued in our 2012 report, “Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank,” the nation needs to set clear priorities and establish long-term funding for our infrastructure if we want to encourage economic growth and remain competitive in the global economy.
Since the 1960s, total public spending on infrastructure has steadily fallen. Unfortunately, the debate over yesterday’s transportation bill gives little hope that this will change. Republicans refuse to consider any funding mechanisms that rely on new sources of revenue, such as an increase in the gas tax, which some legislators have urged. Some conservative lawmakers have even gone so far as to argue that the federal government has no place in infrastructure funding, that the responsibility for raising funds and executing projects should lay with states and localities. The fact is, though, that states and localities already shoulder the majority of the costs of the nation’s infrastructure. According to the Congressional Budget Office, states and localities cover 75 percent of the costs associated with highways, mass transit, rail, dams, levees, and waterways, projects that represent by far the greatest public investment in infrastructure.
The political climate is not the only obstacle to raising the necessary funds to maintain and improve the nation’s aging systems. With mandatory spending taking up more and more of the federal budget, there is less discretionary funding to go around. Given that the nation’s fiscal outlook is unlikely to change dramatically in the coming years, it is incumbent upon us to find new and creative means of financing necessary projects, projects that will help spur economic growth and create stable, well-paying jobs that cannot be sent overseas.
Two such options are leveraging private capital, and linking a reduction in corporate tax rates with infrastructure funding. We advocated for the former in our 2012 report. We called for the establishment of a National Infrastructure Bank, which would attract private capital to support infrastructure projects of regional or national import. The loans made to support the projects could be combined with federal, state and local funding as well as other private investments and would be paid back through user fees, such as tolls.
Our colleagues in the Brookings Metropolitan Studies Program also call for the establishment of a National Infrastructure Bank capitalized with the proceeds from a one-time repatriation tax holiday. Untaxed overseas corporate profits, they argue, currently provide little revenue and represent an untapped source that could support infrastructure spending without a direct congressional appropriation.
In a Wall Street Journal column earlier this year, Galston endorsed a bill that would also use a temporary reduction in corporate taxes to support infrastructure spending. Sponsored by Rep. John Delaney (D, MD-6), the bill proposes the sale of 50-year infrastructure bonds at a low, fixed interest rate to corporations who would be allowed to repatriate some overseas earnings tax-free for every dollar they invest in these bonds. The bill has support from Republicans and Democrats in the House and a bipartisan team has introduced a companion bill in the Senate.
The potential economic benefits of infrastructure investment are considerable. Everyone acknowledges, even the 367 House members who voted in favor of yesterday’s bill, that temporary fixes are not the solution. Congress needs to acknowledge that even a long-term transportation bill will not fully address our infrastructure needs. More creative and effective means are necessary. The ideas are out there, Congress needs to act on them.
This post was updated on July 17, 2014