By Paul Brandus
Pay now—or pay a lot more later? That’s the choice Americans face when it comes to our crumbling infrastructure.
Third-worldish airports. Pothole-strewn roads. Trains that crawl compared with sleek counterparts in Asia and Europe. Hundreds of water main breaks a day (more than 500 today alone, says WaterMainBreakClock.com ). On and on. We’ve been complaining for years, and politicians have been vowing for years to do something about it. Yet not much seems to happen.
You might not know that you’re paying a hefty tab for this Flintstones-like infrastructure: $3,400 a year. That’s the hidden cost to you—annually, says a study by the American Society of Civil Engineers (ASCE). It comes in the form of car repairs from hitting those potholes, time and gasoline wasted sitting in traffic, power outages, and more.
This is about to become Joe Biden’s problem. His first move has been to nominate “Mayor Pete,” as in former South Bend, Ind., Mayor Pete Buttigieg, to be his transportation secretary. Buttigieg, the Harvard and Oxford grad and former naval intelligence officer, turns 39 the day before Inauguration Day which makes him a lot younger than a lot of the things he’ll try to fix. Some things, in fact, are older than the president-elect, who turned 78 three weeks ago.
The ASCE’s list—which focuses on five critical areas: surface transportation; water and wastewater; electricity (inefficient electric grids); aviation (outdated and overcrowded airports); and ports and inland waterways—comes with a $1.4 trillion price tag over the next four years. This partially overlaps with Biden’s $2 trillion “accelerated investment” plan , which includes big-buck things like high-speed trains, a massive expansion of solar and wind energy, retrofitting buildings and homes, universal broadband and more.
Everyone seems to think “their” industry should be the No. 1 priority for Biden and Buttigieg to tackle. They’re right. And that’s the problem. Everything needs fixing at once. Multiple priorities make it hard to focus on any one thing. To govern is to choose, and this helps explain why past presidents and lawmakers—after talking big about infrastructure—generally pushed the needle forward only modestly, rather than by leaps and bounds. If Biden and Buttigieg stretch themselves too thin, this, too, could be their fate.
And all this is dependent on getting the money. Even in spendthrift Washington, where lawmakers spend other people’s money with wild abandon, coming up with federal dollars for infrastructure has never been easy. George W. Bush and Barack Obama said it was a priority. Donald Trump vowed to stop throwing money around on overseas nation building and instead rebuild America instead. It didn’t happen.
What’s likely to happen now? Washington’s history of overpromising and underdelivering suggests that we lower our expectations. And yet Republicans and Democrats came close to forging a major deal last year, until Trump—angry over Democratic investigations into him and his campaign—stormed out of a meeting with House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer.
But there’s a chance it could be different this time. Upgrading the nation’s worsening infrastructure is one of the rare issues with the capacity to cross hyperpartisan party Iines. Both sides see the need, and in fact came close to forging a major deal last year, until Trump—angry over Democratic investigations into him and his campaign—stormed out of a meeting with House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer.
Even if Republicans retain control of the Senate—they need to win just one of two Georgia runoffs next month—I predict Biden can deal with Majority Leader Mitch McConnell. These are two old pros, the same age, each with decades of experience. They’ve also been, at least in Washington terms, friends who respect each other and can get along.
But as I’ve mentioned before , McConnell—arguably the shrewdest Senate Majority Leader since Lyndon Johnson—will be highly selective in what he choose to cooperate on. I don’t think he’ll help the new president with wind and solar power—which Biden sees in infrastructure terms—but pouring money into bridges, water systems and airports? I could see him backing these things.
Investors—perhaps knowing the difficulties prior presidents have faced— have generally been cautious. The ProShares DJ Brookfield Global Infrastructure ETF /zigman2/quotes/202708555/composite TOLZ -0.23% is down 10.6% year to date, while the FlexShares STOXX Global Broad Infrastructure Index Fund /zigman2/quotes/201174234/composite NFRA -0.76% has been flat. But the Global X US Infrastructure Development ETF /zigman2/quotes/200238288/composite PAVE -1.17% is up 17.5%, about 4 percentage points more than the S&P 500.
Investors may also want to keep their eyes out for a possible reboot of the Obama-era Build America Bonds program. BABs, as they were known, were taxable municipal bonds that gave federal tax credits (or subsidies) for bondholders or state and local government bond issuers. The Obama administration used BABs to stimulate the economy as part of the 2009 Recovery Act. It expired a year later.
If Republicans won’t go alone with infrastructure spending per se, giving investors tax credits and/or subsidies for investing in debt to finance infrastructure projects could be another way to skin the cat.