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Trump's plan to rebuild America will be a lot harder to pay for than it sounds

Silhouette of workers at construction site
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America is falling apart. But President-elect Donald Trump's plan to fix it may hit a few potholes.

"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," Trump told a cheering crowd of supporters on election night. "We're going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it."


Maintaining vs constructing

But rebuilding America won't be easy. Across the 50 states, the rising costs of operating and maintaining infrastructure — as opposed to constructing new bridges, roads and airports — are consuming a larger and larger share of overall spending. Now, as Trump begins to work toward fulfilling his promise, the details of his plan remain sketchy.

According to the American Society of Civil Engineers, it will cost more than $3.3 trillion to keep up with repairs and replacements over the next decade. But based on current funding levels, the nation will come up more than $1.4 trillion short, the group says. When projected out to 2040, the shortfall is expected to top $5 trillion, unless new funds are allocated.

The cost of doing nothing would even higher, according to the group's analysis; by 2025, the impact of lost business, higher transportation costs and other economic headwinds would wipe out some $4 trillion in gross domestic product, and some 2.5 million jobs.

Since the 1960s, when the federal government began winding down construction of the Interstate highway system, federal spending for public projects has steadily fallen as a percent of GDP.

Faced with rising pension costs and tax-weary voters, state governments have also been cutting infrastructure spending as a share of the economy. Over the last half decade, state and local government spending on capital projects dropped from its high of 3 percent of U.S. GDP to less than 2 percent in 2014, according to the Center on Budget and Policy Priorities.

Now, as Republicans take control of the White House and both houses of Congress, there's renewed momentum to tackle the task of infrastructure repair and upgrades. But conservative Republicans remain leery of borrowing trillions of dollars to pay for the new spending, adding to the rising federal debt.

What private financing can and can't do

The president-elect has so far spoken only in broad strokes, but he apparently intends to rely heavily on private financing to avoid the massive budget impact of an ambitious rebuilding program.

The outlines of the idea were sketched in a briefing paper last month by two Trump advisors, Wilbur Ross, a private investor, and Peter Navarro, a business professor at the University of California at Irvine.

In addition to existing programs designed to attract private investors to finance public projects, the Trump plan would provide generous up-front tax credits to those investors. The credits would then be paid for with additional revenue generated by wages from workers who build the projects and the profits of the contractors who oversee construction.

"We believe that this tax credit-assisted program could help finance up to a trillion dollars' worth of projects over a 10-year period," the two wrote in a paper outlining the idea.

Private investment has financed a number of public projects in the last two decades, but the idea has had mixed success.

In the last 25 years, for example, there have been 36 privately financed road projects that are either completed or under construction, according to a report last year from the Congressional Budget Office. Of the 14 that have been completed, three of them declared bankruptcy and one required a public buyout of private partners, the report said.

But even when those public-private projects are financially viable, they represent just a tiny fraction of the funding needed to maintain and upgrade existing roadways and bridges. Those 36 projects generated total investment of just $32 billion, or less than 1 percent of the roughly $4 trillion in highway spending during that period, the CBO found.

That's just for highways. Much of the required infrastructure repair will involve public schools, water systems, power grids and other systems that underpin the U.S. economy.

One option for offsetting the impact on general federal tax revenues would be to raise additional "user fees" for specific infrastructure projects. In other words, charge people to use public infrastructure. But those additional fees would likely face political backlash as a tax increase that goes by another name.

That's why critics of private financing believe it would limit the scope of any infrastructure program. Without a new revenue stream to pay back private investors, they would have little incentive to put up the money.

Though they have an important role, public-private partnerships are "no replacement for direct federal funding," and any such project "requires a reliable revenue stream for the project to be viable," Senior Vice President Richard Fierce of engineering and construction firm Fluor Corp. told a Congressional panel two years ago. "No amount of magic makes an un-financeable project financeable."

Much of hundreds of billions of federal, state and local spending every year is consumed by just keeping existing infrastructure operating as smoothly as possible. Rising costs of operating and maintaining infrastructure are crowding out dollars for new highways, bridges, airports and railways. That's diverted money from new facilities that might generate new revenues.

And it's also gotten a lot more expensive to build new projects. For more than a decade, infrastructure-related costs of labor and materials rose much faster than the amount being invested, according to the CBO.

It's also not clear how Trump's proposed infrastructure program will divide the burden between the state and federal budgets. As federal funding has dried up, some states have already stepped in to fill the funding gaps and the epidemic of potholes on state highways.

In September, New Jersey because the latest state to address a longstanding funding shortfall for roads and bridges by enacting an 23-cent a gallon increase on gasoline taxes that will be earmarked for highway repairs and upgrades. Connecticut and Washington are in the early stages of multiyear transportation improvement programs.

Last year, eight states — Georgia, Idaho, Iowa, Michigan, Nebraska, South Dakota, Utah and Washington — passed legislation to increase gas taxes, according to the National Conference of State Legislatures, and two more states — Kentucky and North Carolina — moved to limit declines in gas taxes from lower pump prices.