30 January 2020

House Democrats' infrastructure plan leaves funding unresolved

House Democratic leaders January 29 released a five-year, $760 billion multicommittee infrastructure framework addressing investment in areas beyond transportation, like roads, bridges, transit systems and railways, to include energy and broadband infrastructure. The plan provides for financing tools, including taxable bonds such as Build America Bonds (BABs), and that financing was the focus of a Ways and Means Committee hearing later the same day.

The framework does not specify funding sources, and Ways and Means Committee Chairman Richard Neal (D-MA) said in a morning news conference, "I think it's really important that we not volunteer a revenue stream until the Administration reaches an agreement with us." Chairman Neal said he recently had positive discussions over the issue with Treasury Secretary Steven Mnuchin, but also recalled meetings with President Trump in spring 2019 that devolved in political acrimony before an approach to funding infrastructure investment could be identified. He said, "I think that what we're looking for here is an agreement that we can then take to the public, between the two sides, on how best to pay for it so there's not one-upmanship."

During the news conference, both Chairman Neal and Speaker Nancy Pelosi (D-CA) championed BABs, which the framework noted were created as part of the American Recovery and Reinvestment Act of 2009 and expired in 2011. The document said state and local governments could use the bonds, which come with a direct payment to the issuers of the bonds, to finance surface transportation projects while the bondholder receives taxable rather than tax-free interest like municipal bonds.

The framework calls for $319 billion in highway investments, plus $10 billion for safety improvements. It also promotes existing infrastructure tax credits like the new markets tax credit and calls for "green energy" incentives for renewable energy projects and modernizing the electric grid.

Ways & Means hearing

Witnesses at the Ways and Means hearing included representatives of state highway and financing departments, a bond expert, and DJ Gribbin, former Special Assistant to the President for Infrastructure Policy. Some witnesses agreed with the Democrats' proposal to revive BABs, and some encouraged the Committee to focus on revenue solutions over financing. Gribbin and others advocated expanding Private Activity Bonds, which are tax-exempt bonds for projects that primarily benefit private entities.

Democratic members including Chairman Neal and Rep. Lloyd Doggett (D-TX) seized on the testimony of witness Diane Gutierrez-Scaccetti, New Jersey Department of Transportation Commissioner, that public-private partnerships (P3s), at one time championed by the Administration, are only suited to some projects. She testified that while P3s are often cast as a "panacea to the transportation funding dilemma," they are never a solution for a shortage of user fees and tax-based revenues. P3s typically don't provide a sufficient and sustainable revenue stream to provide a return on investment for the private partner, Gutierrez-Scaccetti said. She suggested looking into mileage-based user fees and said a gas tax increase would provide a firm foundation on which states could plan because the Highway Trust Fund is the foundational tool that supports transportation departments.

Rep. John Larson (D-CT) noted the incongruity between China investing 8.5% of its GDP and the US 1.4% of its GDP, saying there's "something wrong here" given the nation's previously fierce competition with rivals.

Rep. Suzan DelBene (D-CA) spoke in favor of her bill (H.R. 3077) to reform the low-income housing credit.

Rep. Darin LaHood (R-IL) noted that some states have increased their gas taxes, and suggested constituents may be more comfortable with that move if provided assurance that the revenue would be allocated toward infrastructure investment. Rep. Brad Wenstrup (R-OH) said state gas tax increases, for which revenue is assured to stay local, is more palatable to constituents, whereas a federal gas tax increase has less "charm" because it is less clear where the money is going.

Testimony is located here.

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Contact Information
For additional information concerning this Alert, please contact:
 
Washington Council Ernst & Young
• Any member of the group, at (202) 293-7474.

Document ID: 2020-0226