In her nomination before the Senate Commerce Committee, Secretary of Transportation Elaine Chao fielded questions about President Trump’s infrastructure proposal. On the fundamental question of “where will the money come from?” Chao was very clear: the government does not have the resources it needs for a massive investment in transportation infrastructure. Chao carefully highlighted the potential role of public private partnerships as a tool to promote private investment in public projects, noting that potentially trillions of dollars in private investment is sitting on the sidelines, waiting to be deployed in America’s roads, bridges, airports, energy, water, and other infrastructure sectors. More specifically, Chao outlined her plan to improve project development and project delivery while recognizing the unique needs of rural America and the major metropolitan areas.
In his pre-election campaign, President Trump announced his intention to spur private investment in infrastructure. Wilbur Ross and Peter Navarro, policy advisors on the Trump campaign, set out a plan for the federal government to provide tax credits to private investors, equal to 82% of the equity amount invested in a project, to offset a portion of the project’s cost. These infrastructure tax credits could be beneficial for many investors; including companies with overseas retained earnings that might be able to use the tax credit to offset liability resulting from repatriation.
On February 9th, President Trump announced that the details of his tax reform plan and development of infrastructure would be coming within the next few weeks. Until President Trump introduces his finalized infrastructure plan, the specific details of how such a tax credit program would be administered remain undetermined but past practice in related areas gives some guidance as to the possibilities. Under one familiar approach, tax credits could be allocated to states and municipalities based upon population or other measures, thus allowing for local control of the final allocation of tax credits to given projects. This approach has been taken previously in, among other programs, the way in which private activity bond “volume cap” has historically been distributed. Alternatively, the federal government could also directly accept applications and award allocations of tax credits under various federal programs. This structure would be similar to the manner in which the Department of Transportation’s TIGER and Capital Investment Programs have distributed funding for infrastructure.
One early criticism of the tax credit plan is the perceived need for a revenue stream from infrastructure to pay back indebtedness incurred on and provide a return on equity invested in such projects. Senate Minority Leader Charles Schumer agrees with President Trump’s call for robust investment in infrastructure but fears the tax credit will create too many toll roads. As an alternative to toll roads, local governments could create special taxing districts, such as one or more of Special Service Areas, Community Development Districts or Tax Increment Financing Districts, which could serve to capture a portion of the increased value on properties benefitting from such infrastructure and would be a viable component of a financing strategy to help implement an infrastructure program combining infrastructure tax credits along with an array of proven public finance tools like tax exempt bonds and federal and state grants.