If you’re not careful, federal funding can backfire.
For Americans eager to see more investment in the nation’s infrastructure, 2019 started strong. With public support from President Donald Trump, congressional committee chairs and Democratic leadership, infrastructure has bubbled to the top of the relatively short list of bipartisan issues that can be achieved this year, despite a divided Congress and an accelerating presidential campaign. This is encouraging as the time is more than ripe to address the deteriorating nature of America’s essential infrastructure.
However, the pending debate in Congress seems to assume that more federal funding is the answer without asking the foundational question: What is the problem we are trying to solve?
When Americans think of infrastructure projects, they often have the 1956 Highway Act in mind, the law that created the interstate highway system through a national gas tax – arguably the best infrastructure project in world history. But the infrastructure challenges of 2019 are vastly different than those of 1956; we should move on.
I spent the past two decades focused on how to deliver infrastructure projects more efficiently in terms of time and money. My career spanned from Wall Street to the White House and involved projects from Puerto Rico to Hawaii. At every step, I was trying to find ways to make highways, water systems, natural gas systems, transit operations, airports, ports, railroads and pipelines more efficient and provide better value to their users. Across all these systems, in virtually every corner of America, the largest obstacle to building and maintaining infrastructure is insufficient funding. As a result, it’s easy to assume that the basic problem is finding funding and that providing more federal money is the answer. Yet when dealing with infrastructure, that is not always the case.
In physics, Newton’s Third Law states that for every action there is an equal and opposite reaction. In policy, too, every action creates a reaction, albeit rarely equal or opposite. In fact, the challenge of policy is that reactions, while inevitable, are difficult to predict. When weighing federal expenditures on infrastructure, policymakers need to keep in mind that allocating more federal funds to infrastructure might backfire. Here are three ways that could happen:
The “coupon effect”
The prospect of federal funding can dampen state and local funding. While voters overwhelmingly support increased infrastructure spending, their strong preference is that someone else pay for it. This dynamic makes it difficult for state and local leaders (who own 90 percent of governmental infrastructure) to turn to their electorate and ask for a tax or fee increase if the federal government is offering “free” funding.