Impact on jobs and the economy. This is just over an hour. Good afternoon. Welcome to the Heritage Foundation in our douglas and sara allison auditorium. We welcome to those on our cspan. Org for these occasions. We ask the courtesy that cell phones and other mobile devices have been silenced or turned off as we begin. For those watching online and here in house we remind everyone questions or comments can be sent at any time to speaker heritage. Org and post the program on the heritage home page for your future reference as well. Leading our discussion today is Michael SergeantResearch Associate in our thomas a. Rowe institute for Economic Policy studies an leads our efforts to formulate free market policies and overseas and schexamines infrastructure around the country. He is a regular contributor to the daily signal and his commentary featured in the boston post, washington herald and fox news. Please join me in welcoming michael. Good afternoon. Thanks for joining us at the Heritage Foundation. In terms of sheer lip service, both major candidates embraced major infrastructure proposals as a way to address crumbling roads and bridges as well as dilapidated airports in the words of the new president. Both candidates also prosecuopp spending for job creation. The new president is poised to author a 1 trilli 1 trillion infrastructure plan and the democrats are following with their own trillion proposal. Although we see few specifics these issues will come to the forefront as Campaign Promises run up against reality. The question we must address haphazardly throwing money at pork barrel projects help an economy mired in debt and low employment or will it generate Effective Investments and truly worthwhile projects in a fisc fiscally responsible manner. Joining me is a transportation policy analyst. We well chris edwards, director of tax policy studies at the Cato Institute and author of downsizing government. Org, experts in state and tax issues and before joining kato was a senior economist on the congressional joint economic acade subcommittee. He has testified before Congress Many times and has articles appearing in the Washington Post and many other major newspapers. Also joining us is the president and ceo of the center for transportation a nonprofit think tank with a mission for improvine ining transportation and leadership. Prior to joining eno he was with the Brookings Institute policy program. Robert has worked on a variety of transportation issues, fu funding and finance and city and urban planning, a frequent sp k speaker to a variety of groups and regular contributor to newspapers and other media and testified before congressional committees. Finally, mark skrif venner is a fellow where he focuses on transportation, land use and urban growth policy issues. These cloudy Infrastructure Investment and operation, Transportation Safety and security, risk and regulation, privatization and Public Finance as well as emerging transportation technologies. He frequently advises policymakers at the federal, state and local levels. Well start off with a conversation style panel. Panelists should feel free to chime in. Please avoid talk over each other as weve gotten tired of for the last two years. Im sure we have heard enough to get started based on the proposals we have heard from the incoming president as well as congress. Ill jump right into it with a question for mark. Youve written a good bit about the state of the nations infrastructure assets. Do you think its a fair characterization to say theyre really crumbling and if we dont spend a trillion they will collapse and a major spending plan is the best way go forward or is there a better option . Well, the problem is maybe not a problem, but that our infrastructure is not uniformly crumbling, you have problems in local areas and thats true. But as for federal aid highways weve seen the number of structurally deficient 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 really where our biggest problems lie are in the municipal realm. You have transit systems with tens of billions of dollars in maintenance backlogs, an crumbling municipal streets. The problem is talking about federal policy, our 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 maintenance . That might be a good idea. President trump introduced a fix it first strategy, i know brooks has long talked about, when rob was still over there. We do have problems but its important not to lose sight of the effect that 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 theres about 600,000 bridges in the United States and federal Highway Administration says about 60,000 or 10 are strur structurally deficient. Politicians refer to 60,000 as if its a huge catastrophe. As mark noted the share of structurally deficient bridges has fallen over the years. 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 in terms of creating additional benefits. The federal Highway Administration says that the 60,000 structurally deficient bridges are not at risk of falling down, not unsafe, but they should be updated but you have to think about these in terms of optimals. Ill give you another example of this. The Texas Transportation Institute says that Traffic Congestion costs americans about 1 150 billion a year in lost tie and productivity. That sounds like a lot of money. But the amount of congestion on the highways is not zero. We would have to spend trillions of 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. 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 efficiently because the government doesnt work based on market based indicat indicators, it works on other factors such as formulas and pork barrel politics. And as mark mentioned a lot of these problemss nature. 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 infrastructure expenditure, when you give us an idea of whats going on at the ground level . Thanks for having me today. I think part of the problem is we dont really define infrastructure very well. We think about infrastructure, we think about roads and bridges and transit. What most of us think about. It isnt really infrastructure, theres transportation and theres energy. Telecommunicati telecommunications, 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, telecommunicati telecommunications, energy, very private. So there is a definitional problem we need to get sorted in this country because i think its adding to a lot of confusion of what the federal 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 in some sta states. Eight to 10 states, red states, blue states, going directly to the voters, consistently year after year we see 70 of these bat lot meas e measures passed, logs passed 120 billion, awful a lot of money by any measure. You need twothirds of the vote in l. A. They got that. And that was a sales tax . Sales tax increase. And thats a very popular method of raising transportation revenue in lots of place es. But the point is as we have this conversation 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 and doing it themselves. Absolutely. Just on that, turning back to the National Level, 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 companies to invest in infrastructure. What areas, at least in transportation but kind of across the board, do you think are most ripe for privatization and do you think the trump plan with tax incentives is a good way to help investment in those areas . To build what robert says. By the way over the years ive learned a hell of a lot from robert and mark, over the years so build on that, you can see in trump this confusion of what is infrastructure, what is properly federal and state and local and private. And the plan put together by two of his advisors last fall that would provided tax across for, i guess, private investment reflects that d 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 state, local and private . One thing that has gone on we have seen a revolution around the world in many countries, dozens and dozens of our trading partners are moving more and more to private sector infrastructure. You can see this in highways in airports, sea ports. Britain started figuring out you can get better allocation of capital to move infrastructure to the private sector. You would get more efficient management to move it to the private sect or and you would get more efficient management in the private sector. One of the things with the government sector its mispri mispriced, so we tend not to use congestion pricing on our highways, federal water infrastructure, subsidize the delivery of water, we price it too low, so 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. You get more efficient construction and more efficient management and operation over time. I think all the people on this panel have generally, you know, talked in favor of moving forward more in the 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. For example all the airports in the country are government owned and part of the reason why theyre government owned, when the governments issue debt to support airport expansion they can issue tax able 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 create more of a level Playing Field in the private sector. What chris said, it is biased in favor of government infrastructure, government financing with taxexempt muni bonds. 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 pass pabs basically, different Asset Classes that arent currently covered. Thats one way of eliminating the status of Municipal Bonds and level the Playing Field. And i think its more realistic to expand on pabs, or qbibs, whatever the acronym we can come up with, in the short run, 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 muni market was free for the most part was so low, we didnt have that much borrowing when you would think that borrowing was so cheap, so Something Else is going on here. Lot of places dont really know exactly what they want to do, so theres an inconsistency between this big message that infrastructure is falling apart. We need to do this reinvestment. Very cheap debt for places to take advantage of and then a lack of investment. Something is not right there. Im not exactly sure what it is, i think part of the problem we havent embraced what mark was talking about, the real need in this country is for the rehab and maintenance, its not made to last in perpetuity, so since we did a lot of building in the 50s, 60s and 70s, thats got to be an emphasis and maybe thats not the best thing do. Maybe thats not such an attractive thing for state and local officials to issue debt to start to rehab even though that is the thing we should do the most. But to chriss point 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 then do a rigorous assessment and say, 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 do it and beat it. They did it for the big project on 66, either inside or outside. Thats exactly what it did. The state knew what they wanted to get and how much it was going to cost. They opened it up and 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 already discussed a bit and how that difference 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. Yes. Yeah, we get that very confused especially trying to engage in the private sector theyre looking for different rates of return, theyre looking for Something Different than the traditional Public Sector is looking for. I think for advice and recommendations weve got to get this definition sorted out and stop talking about infrastructure in the abstract. Role and different types of infrastructure. Lets think about what the federal role is in these 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 other industrialized countries have already done. Thats something we could be able to address very, very quickly, thats something advice something that would have enormous transformations. Thats something we can start to work on very soon. 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 efficiency you can gain by joining up things. They focused on hud and paep and transportation, starting to Work Together to get more bang for the buck. The interesting thing, given 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 s 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 about it the wrong way personally 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