Fiscal Policy

Four Principles for a Conservative Infrastructure Alternative

Crews constructing a freeway overpass in San Diego, Calif., March 30, 2021. (Mike Blake/Reuters)
Rather than let the Left set the terms of the debate, conservatives should ask themselves how they would approach infrastructure if they were setting the agenda.

President Biden’s $2.6 trillion American Jobs Plan has been savaged by conservatives as too expensive, tax heavy, and stuffed with items from the progressive wish list entirely unrelated to infrastructure. But congressional Republicans have also been pressured to propose a counteroffer. The wrong answer for Republicans is to return to the old “Democrat lite” approach of simply supporting half of whatever big government expansion the Left seeks. Rather than let the Left set the terms of the debate, conservatives should ask themselves how they would approach infrastructure if they were setting the agenda. After all, any compromise discussions require first determining one’s own goals and approach. Here are four principles for a conservative infrastructure proposal.

Principle #1: No New Taxes or Deficits

If the Democrats target an area of government for a substantial expansion, Republicans have no obligation to march in the same direction. After all, the federal-budget outlook was unsustainable even before Washington spent $5.4 trillion (a large portion of which was necessary) fighting the pandemic over the past year. Following the latest pandemic-relief law, the national debt held by the public is projected to double from $17 trillion to $35 trillion between the end of 2019 and 2030. If President Biden’s entire campaign agenda were enacted, it would bring the national debt from $17 trillion to $42 trillion over that period. That would be 130 percent of GDP, or one-quarter higher than at the end of World War II.

And it only gets worse thereafter. The Congressional Budget Office projects that — largely because of escalating Social Security and Medicare shortfalls — Washington will run $100 trillion in baseline budget deficits over the next 30 years, expanding the national debt to nearly 200 percent of GDP (plus whatever President Biden has added). At the end of that period, government interest payments will consume half of all tax revenues.

That is the fiscal background in which President Biden has proposed what would be the most expensive non-emergency spending law in at least 50 years. Runaway spending means having to choose between the painful alternatives of soaring taxes or debt. The case against steep taxes goes beyond the harm to families and the economy. The entire universe of progressive “tax the rich” proposals — many of which are patently unrealistic — would not even be sufficient to pay for Washington’s current spending commitments. Using up these taxes to pay for a massive new infrastructure bill will leave the middle class holding the bag to close the remaining large baseline deficits. Washington should reject expensive new commitments until it figures out how to pay for current ones.

Principle #2: States Should Use Their Federal Windfalls

State and local governments have received more than $850 billion from the federal government’s pandemic emergency bills. A portion of this spending was for necessary costs related to public health. On the flip side, state and local governments recently received $350 billion to close budget deficits that — for the most part — no longer exist. California’s state government received $26 billion (and their local governments received an extra $16 billion) despite facing a $25 billion surplus for the upcoming fiscal year. States are also holding approximately $180 billion in unspent K–12 education grants from earlier relief bills. This money is purportedly to cover pandemic-related renovations and costs, but the CBO estimates that most will not be spent until between 2023 and 2028, likely well after COVID has passed.

In other words, state and local governments are sitting on more than $500 billion in federal funds, the vast majority of which lacks any clear direct purpose. It would be irresponsible for states to create new permanent spending programs that outlast this temporary cash windfall, and Washington has tried (arguably unconstitutionally) to forbid these states from cutting taxes. Thus, applying most of that $500 billion towards a one-time infrastructure boost makes the most sense.

This amount is well sufficient for most states. Government at all levels spends approximately $235 billion annually on highways, roads, and bridges, split equally between capital improvements and maintenance. Even applying half of the states’ $500 billion on highways, roads, and bridges would more than double the $115 billion in the president’s plan and amount to a doubling of their total budget — surely enough to meaningfully address any backlog (without Washington micromanagement of the projects).

And it would cost taxpayers nothing above what Congress has already distributed.

Additional state spending can go toward other infrastructure needs such as modernizing the electrical grid, purifying the water supply, improving broadband access, or renovating schools. Even putting $100 billion into these priorities would represent “moonshot” reforms over current spending levels.

The key question is how to encourage state and local governments to apply these funds to infrastructure. Congress could offer perhaps $150 billion in infrastructure matching funds (this is still much cheaper than Washington spending $2 trillion) and also pass legislation freeing up the education funds for broader infrastructure uses. At the same time, if governors truly resist investing their large windfalls in infrastructure, that may be a sign to Washington that it is not a national priority after all.

Principle #3: Washington Can Add Spending within the Current Budget

It is not unreasonable for Washington to contribute somewhat more to infrastructure, whether through matching funds for states, or truly national projects like interstate waterways or rail. But Washington is already projected to spend more than $60 trillion over the next decade. If it cannot apply $500 billion of that amount to infrastructure priorities — less than 1 percent of the budget — then it is fair to question how serious Congress and the president are about infrastructure. Congress already spends $306 billion annually on non-defense investment (including $112 billion for physical infrastructure), and it should be able to repurpose some of this spending.

The most straightforward carve-out would bring back caps in discretionary spending. Rather than drastically increase this spending by 8.4 percent as President Biden has proposed, Washington could save $500 billion over the decade by cutting that budget by 1.5 percent in 2021, and then capping its annual growth at the inflation rate over the decade. Alternatively, Congress could inflation-adjust federal spending using the more accurate chained CPI, sell hundreds of billions worth of excess federal assets and land, or even begin broader entitlement reforms. Some modest rescissions of leftover pandemic spending may be available as well. The money is there if Congress wants to pay for infrastructure.

Principle #4: Address Infrastructure Waste and Delays

 Washington’s answer to most problems is simply to throw more money at them. But America’s infrastructure is not held back by low spending levels, but rather by its status among the world’s most expensive, bureaucratic, and slowly built. Nearly a century ago, the Empire State Building was built in 410 days. More recently, Boston’s Big Dig took 25 years from planning to completion. Today, California’s high-speed rail is expected to take nearly 40 years from planning to completion (which itself is increasingly unlikely).

In 2016, a CBO report titled “The Macroeconomic and Budgetary Effects of Federal Investment” found that federal investments deliver returns averaging just 5 percent — compared with 10 percent for the private sector. The CBO added that federal investments financed by taxes or debt — rather than spending offsets — could even have negative returns.

It is not hard to see why our government is so bad at infrastructure. The inflation-adjusted cost of interstate construction spending per mile quadrupled from 1960 through 1990, and it has continued to grow since then. Labor costs are higher in part because the Davis-Bacon Act raises wage costs by as much as 22 percent, and America requires many more workers to do the same building work as Europe. American subway systems are by far the most expensive to build in the world, and in New York City they cost four times the world average.

Perhaps most egregious, the Environmental Impact Statements required for large projects commonly exceed 1,000 pages and require on average seven years to complete (compared with no more than one to two years in Canada and 3.5 years in the European Union). Several recent statements took more than 17 years to complete, and in one particularly egregious example, “the Southeastern High Speed Rail Corridor was proposed in 1992,” columnist Megan McArdle notes. “You will be thrilled to learn that in September 2017, the Department of Transportation announced the completion of the project’s Tier II Draft Environmental Impact Statement.”

Environmental Impact Statements create delays in part because in America — unlike many other countries — environmental and historical reviews can be challenged in court by a wide range of stakeholders, and these challenges can take years or even decades to be decided before any ground can be broken. Other countries use faster, non-judicial options to enforce these regulations, rather than expensive and time-consuming lawsuits that essentially become a project veto.

Rather than address these escalating costs and delays, President Biden would throw $1 trillion at this broken system. In fact, he would raise costs further by tightening higher-wage rules and imposing stricter “Buy America” requirements that limit trade and lower-cost options.

Instead, Washington (and states) must do more to maximize the bang for the infrastructure buck. If Canada and Europe can conduct thorough environmental reviews in two or three years — and without veto-by-endless-lawsuits — so can America. Adjudicating disputes at the agency level has the added benefit of curtailing more expensive “defensive designs” meant to avoid lawsuits. The Davis-Bacon Act should be repealed or at least pared back. Government and contractors should be freed up to purchase lower-cost imports. Government at all levels should exercise more oversight over contractors and stop awarding construction contracts to companies that always offer the lowest-cost bids but then go far over budget and produce shoddy work.

Conservatives do not have to choose between ignoring infrastructure and committing trillions in new federal costs. State and local governments are flush with cash, the existing federal budget has room to supplement these funds, and regulatory reform can ensure much more infrastructure output as well.

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