Could be sent to speaker heritaheritage speakerheritage. Org. Leading our discussion today is Michael SergeantResearch Associate in thomas a. Rowe institute. He over sesees and examines our surface transportation aviation water ways and other policy issues related to infrastructure around the country, a regular contributor to the daily signal, please join me in welcoming Michael Sergeant. Mike. [ applause ] thanks, good afternoon and thanks for joining us at the heritage foundation. In terms of sheer lip service, infrastructure was one of the most prompt issues in the 2016 campaign. Both candidates addressed it as a way to deal with our crumbling roads and bridges and delap p e dilapidated airports. Now the new president is poised to offer a 1 trillion infrastructure plan and has the democrats following suit with our own 1 trillion proposal although still very few specifics these issues will come to the forefront as Campaign Promises run up against reality. The questions we must address is that will haphazardly throwing money at projects help an economy mired in debt with a relatively low unemployment and worth investing in projects in a fiscally important we welcome Chris Edwards the director of tax policy studies at the Cato Institute and downsizing. Org, a expert in tax and budget issues, and he was a Senior Analyst and testified on tax and budget policies have appeared in the Washington Post and many other major newspapers. Also joining us is robert fuent fuentes, a nonprofit think tank, prior to joining, he was the senior fellow at the met po metropolitan program. Hes worked on infrastructure city finance and speak toer of variety of groups, Mark Scribner is a senior fellow at the competitive land wise group. Including infrastructure invests, transportation safety, security, risk and regulation, Public Finance as well as emerging transportation policies. He freakily advices on these matters at the federal, state and local levels. Well start off with a conversation style panel. Panelis panelists, can speak with each other but theres avoid talking over one another. We have heard enough to get started based on the proposals we have just heard from the incoming president as well as congress. Ill jump right into it with a question from mark. You have written a good bit about the state of the nations structure and assets do you think its a fair characterization that they really are crumbling, do you think that a mor spending plan is a best way to go forward or is there a better option . Well, the problem is maybe not a problem, but that our unfromu unfrom a infrastructure is not uniformly crumbling, you have problems in local areas and thats true for federal aid highways weve seen bridges steadily decline, pavement smoothness increase, and so when it comes to the federal side of things things really arent necessarily looking that bad. Were going to have reconstruction needs for the interstate highway system, a lot of money over the next two decades but the biggest problems lie in the municipal realm. You have transit systems with tens of billions of dollars in maintenance backlogs, an crumbling streets, federal programs really are not well equipped to deal with these local issues so i think one thing that folks at the federal level members of congress and the administration should look at is perhaps revisiting how we do federal aid, would that mean allowing more of these funds to be used for routine main . That might be a good idea. President trump introduced a fix it first strategy, it was talked while rob was still over there, we do have problems but its important not to lose sight many of these problems are local and the feds are not necessarily the best folks to address them. If i could chime in here, if you look at bridges for example ths abo 600,000 bridges in the United States and federal Highway Administration says about 10 is deficient. As mark noted the share of structurally deficient bridges has fallen over the year so as an economist the way you want to look at this is is what is the optimal number, it is not zero, to eliminate all of them it cost hundreds of billions of dollars, what you want is to get to the point where additional investment more than pays for itself. The federal Highway Administration say that is the 60,000 structurally deficient bridges at are not at risk offalioffa of falling down, but should be updated but you have to think about these in terms of optimals. The Texas Transportation Institute says that Traffic Congestion costs americans about 150 billion in lost time and productability. Thats a lot of money, but the amountf constion on the highwayss not zero. We would have to spend trillions dollars to get the amount of congestion on the nations highways down to zero. Maybe we should reduce it maybe were at the optimal now i dont know, its a complicated question that i think you have to look at both the engineering and the economics to get to the right answer and i think part of the solution here is the more we move infrastructure out of the government to the marketplace we can get actual marketplace feedback and responses to judge which highways are the most in need of fixup and expansion and which arent. The problem when the spending is in the government realm the money isnt allocated officially because the government doesnt work based on market based indicators it works on other factors such as formulas and pork barrel politics. And as mark mentioned a lot of these and chris alluded to a lot of these problems are more local in nature and rob i know your organization has done a lot of work looking at whats going on at the federal level which only invests about a quarter in intrastructure expenditure, when you give us an idea of whats gog on at the ground level . Yeah, i think some of the won wonky comment is we think about roads and bridges but infrastructure, theres transportation, theres energy, tell le communications, water very much in the news and each governed and financed very difficultly and the role in each of the sectors is very different, freight rail the government has a heavy regulatory rail but doesnt provide funding, communications, energy very proviivate, so thers a definitional problem we need to get sorted because i think its adding to a lot of confusion of what the government should be doing but a lot of the excitement we have seen around the country particularly over the last ten years or so is whats happening outside the beltway from city states and metropolitan areas that arent waiting around for the federal government to pass a trillion dollar or whatever bill theyre doing their own things passing their own gasoline taxes, eight to ten, red states blue states going directly to the voters, consistently we see 70 of these ballots pass, los angeles passed 120 billion, awful a lot of money by any measure. And that was a sales tax . Sales tax increase and thats very popular but the point is as we have this on the National Level and big proposals very ambitious far reaching for infrastructure on the National Level city states and nonprofit sectors their working with arent waiting around and going out an doing it themselves. Chris, you talked a bit about the market and how when you have these things decided kind of by the governments they arent always the right incentives in place and one of the trump plans we have seen among many different proposals at least the most talked about one would use tracks credits to provide private companities to invest in infrastructure, what areas do you think are most ripe for privatization and do you think the is a good way to help invest in those. Ive learned a lot from robert and mark, over the years so build on that, you can see in trump this confruusion of what infrastructu infrastructure, private and public and last fall that would provide tax credits for i guess private investment reflects that sort of confusion, they were not specific in their plan were they talking about local infrastructure, private or federal . So we need to start at the beginning to figure out what is federal, what is the proper federal responsibility an what is federally proper state local and private . We have seen a revolution around the world in many countries, dozens an dozens of all of our trading partners moving more and more to private seconder infrastructure, you can see this in highways in airports, sea ports. Britain started figuring out you can get better allocation of capitol to move it to the private sector. You would get more efishficient management to move it to the private sector, it is often mispriced so we tend not to use congestion pricing on our highways, federal water infrastructure, subsidize the delivery of water, theres environmental problems caused by that so by moving it to the private sector you get more efficient allocation of the investment dollars the allocations determined more by market demand, more efficient construction and management and operation overtime, so i think all the people on this panel have generally you know talked in favor of moving forward more private sector involvement and the new Trump Administration is moving in that direction as well. I dont like his tax credit plan. Currently municipal and government infrastructure is on the side. Its tax exempt and theres a problem that it favors government infrastructure over private infrastructure, all the airports in the country are government owned and part of the reason is when governments issue debt to support airport expansion they can issue tax exempt debt a private airport would have to issue taxable debt. So we already have a bias in favor of infrastructure. The Trump Administration will move more in that direction or distort the tax code by favoring equity as well as debt. I think we need to reduce the bias, in favor of government and play more of a role in the private sector. Building on what chris said it is biased in favor of government infrastructure, government financing, though short of eliminating that tax exemption, one thing we could do is build on a tool that already exists private activity bonds currently capped at 15 billion, the Obama Administration to their credit proposed qualified Public Infrastructure bonds that would expand the eligibility of pabs to cover different Asset Classes that arent currently covered and thats one way of eliminating the status and level the Playing Field and i think its more realistic to expand on pabs, or qqbibs, whatever the acronym is, to eliminate that tax bias. I agree with that, too. Its interesting even though we had this period where borrowing even from local and the media market was free for the most part. We didnt have that much borrowing when you would think that borrowing was so cheap, so Something Else is going on, a lot of places dont really know exactly what they wa to do, so theres an inconsistency between this big message that infrastructure is falling apart. Very cheap debt for places to take advantage of and then a lack of investment and something is not right im not exactly sure what it is, i think part of the problem we havent embraced the real need in this country is for the rehab, its not made to last in perpetuity, so since we did a will the of the billing in the 50s, 60s and 70s, thats got to be an emphasis and maybe thats not the best thing do. But how do we make the Playing Field more level an i dont know its going to take any wholesale changes, but like what virginia is starting to do is figure out what we want to do with this particular project. Here is what we want to accomplish and here is how much it is going to cost us and open it up and say someone is going to beat that and go ahead and they did it for this big project inside the beltway, either inside or outside the beltway, the state knew what i wanted to get, knew how much it was going to cost an somebody came in and is doing it better. So thats a great model. Absolutely. I think this whole discussion has kind of centered around more on the financing side of things at least from what we have seen and i think theres general confusion about the difference between funding infrastructure and financing it. If you can talk about some of the different financing models we have discussed a bit an how that differs from actually funding the infrastructure and maybe some recommendations you have in addressing both of those things for the new administration . The difference between funding and financing. Yeah, we get that very confused especially trying to engage in the private sector looking for different rates of return, i think for advice and recommendations weve got to get this definition sorted out and stop talking about infrastructure in the abstract. Its such a tangible thing that it has this esoteric type of term. Lets think about the federal role and different types of infrastructure. Aviation is a major conversation about spinning off the air Traffic Control system to a nonprofit or some other kind of corporate entity. Thats something we should be able to move on quickly in the new year, something a bunch of industrialized countries have done. Thats something we could be able to address havvery, very quickly, thats something advice to the administration something we can start to work on very soon and then i think making these connections better between the different departments the different agencies something they did in the last administration i think we saw there was a lot more efficncy you can gain they focus on hud, epa, the interesting thing given secretary chao, on the labor side that was a big theme the campaign about using infrastructure to stimulate jobs, but 11 of american jobs are directly related to infrastructure, but the people directly working in infrastructure so if were thinking about that as a source of american jobs lets figure out how to cap tap lize on that, also going through a technological change they were provided by public sector. How is that playing out with labor and american jobs so given her perspective and broad expertise in both transport and labor this would be an area to drill into very closely. Im excited by it looks like the new secretary of transportation ellen chao was open to idea of restructuring of the air Traffic Control system. The biggest opportunity this year is frankly not the trillion dollars spending plan which trump alluded to which is not going to happen, Congress Passed a bill that would last through 2020, but for the air Traffic Control its a big thing, runs out by september for the funding, the house has a plan to do a canadian style control to move it off to a Nonprofit Corporation in the private sector. Its a selffunded entity, doesnt get tax pair bsidies at the leading edge in technology it is really a great model. Theres still some opposition to that air Traffic Control restructuring. Im hopeful the new secretary of transportation is going to look at that opportunity. I know mark has written a lot on this as well. One thing to mention, watching elaine chaos confirmation hearing, a lot of these states kept hounding miss chao favored the Central Air Service which is a fairly Small Program that funds air service at smaller airports and really strikes me that a state or a city that wants air service in their air that they dont have currently they can fund it at any time, they have all the financing tools that the federal government has, they im proes gas taxes, sales taxes issue debt as robert mentions most debt issues up for ballot when they go up for ballot are passed by the public so the public is very supportive of infrastructure and spending at the local level so theres a mindset with some people in washington that all these problems need to be solved here in washington and that really isnt the case state and local governments have all the toolless they need to solve a lot of these problems. The federal role and infrastructure and the nexus and creating jobs, we saw infrastructure as kind of a panacea of jobs, they unveiled last week or this week said they would create 15 million jobs through spending a trilln dollars, that comes through a very broad system, hospitals and schools would be involved is that really the best way to go about not only creating jobs but also kind of expanding now the federal role into those types of projects that we havent traditionally associated with infrastructure. I think say if you start with the goal of creating jobs through Infrastructure Investment i think youre going and it the wrong way and i think most economist transportation economists would agree with me as well, look at the cost analysis, what the democratic proposal did, they emphasized the job figures as you said michael they expanded the definition of infrastructure to such a broad degree that its basically everything now. Schools and Health Care Facilities are now lumped into that. But on the specific jobs figure the 15 million jobs over ten years how they got that was there was a 2011 council of economic advisors estimate that said for every billion dollars of highway and mass tran sit investment you would get 13,000 job years, one job for one year, they took that figure, applied it across all these different types of projects that were not included in the ceas i think overly optimistic view, and for every million jobs they rounded up 200,000 and ended up with this figure that basically Means Nothing but makes for good social media means and posters at press conferences so what the democrats did and what i fear the Administration May do is just basically try to theyre foc focus on this 1 trillion figure and theyre going to try to stuff as many things as possible under thisuberrik, whatever we end up with i do agree with chris i think its