Donald Trump, who has been underestimated by his opponents for the past 18 months, has a strategy to build the most powerful political machine America has seen in decades while gaining popularity with voters. His critics could be blindsided again.
The strategy depends on the construction and repair of $1 trillion worth of infrastructure. To understand how Trump plans to accomplish such an ambitious task, look no further than the new LaGuardia Airport, which Governing magazine reports could be a model project for Trump’s administration:
All of the design, construction, operation and maintenance of the new terminal will be carried out by private companies that have formed LaGuardia Gateway Partners. The group is putting up $2.6 billion of the cost and will run the terminal through 2050.
The public-private partnership reduces the risk of cost overruns, delays and poor construction, says Johan Henriksson, a top official with the construction firm Skanska, one of the companies in the consortium. The partnership has a vested interest in providing amenities customers want because it will be operating the terminal and collecting rents for decades to come.
But the biggest benefit might be how quickly the private companies can start to turn things around. “This discussion about LaGuardia not being up to par has been a discussion that’s been going on for a long time,” Henriksson says. “But now it is finally getting off the ground. Without the P3 structure, it would be hard to do that.”
The approach has impressed Biden, who returned to LaGuardia this summer to help break ground for the renovations. “Best of all, it’s not a plan,” the vice president said. “It’s not a sketch, it’s not a dream, it’s not a vision. It is actually happening.”
Trump’s plans, from what we know, will rely on this kind of public-private partnership (called a P3). It’s not a new idea. In Europe—hardly a bastion of laissez-faire governance—many major infrastructure assets are owned and operated by private firms, including mass transit, high-speed rail, and airports. America’s preference for government-owned and operated infrastructure is in fact rather exceptional, driven more by ideology (and special interests like unions and consultants) than rigorous policy analysis. An asset like LaGuardia Airport, which is run by the notoriously corrupt and inefficient Port Authority of New York and New Jersey, will almost certainly be more efficiently rebuilt by a private company that can’t afford to take a loss.
P3s are becoming more popular in America amidst high labor costs, dense webs of red tape, and constrained budgets. In an illustrative case from 2012, a private company received a concession to operate the Ohio State University’s parking system for 50 years. The university was paid roughly $480 million in exchange for the lease, and the private company now has the rights to charge for parking spots. The company also has to pay for maintenance over the 50-year duration. Critics allege that by turning a public good into a profitable asset, teachers and students will have to pay more for services. Proponents say that the deal was a favorable one for the school, which was handed nearly a half-billion dollars in much-needed cash and now doesn’t have to worry about taking care of its parking lots for a half century.
In theory, privatizing infrastructure shouldn’t save money: Either way, residents are paying for the same services. But private firms aren’t subject to the same burdensome regulations and hierarchies that bloated government agencies must work through. It’s easier to hand off a project to a private company than to reform the bureaucracy. In addition, P3 contracts typically specify maintenance expectations up front, whereas politicians kick those costs down the road. Deferring maintenance often means repairs, when they finally happen, are even more expensive. Moreover, privatizing, say, a bridge with a multi-decade concession means the crossing won’t be constantly subject to changing political fortunes. So, in practice, privatization can be a great way to save money and still deliver essential goods.
Still, over the past few weeks, leftwing critics like Senator Bernie Sanders and Vice President Biden’s former chief of staff, Ron Klain, have been very critical of Trump’s infrastructure plans precisely because they rely so much on privatization. Instead of jobs and safer bridges, they see billions of dollars in corruption and corporate welfare. As Klain wrote a few weeks ago in the Washington Post:
The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.
Moreover, as others have noted, desperately needed infrastructure projects that are not attractive to private investors — municipal water-system overhauls, repairs of existing roads, replacement of bridges that do not charge tolls — get no help from Trump’s plan. And contractors? Well, they get a “10 percent pretax profit margin,” according to the plan. Combined with Trump’s sweeping business tax break, this would represent a stunning $85 billion after-tax profit for contractors — underwritten by the taxpayers.
It’s true that Trump’s plan apparently relies not only on concessions for profitable assets, but also on less well tested mechanisms to encourage private investors to build and fix America’s roads and bridges. One can easily imagine a P3 concession for a toll road, but what about for, say, a city avenue? If the asset is free to use, it’s harder to incentivize a private company to build and operate it. But it’s not impossible. In Pennsylvania, hundreds of toll-free bridges are being repaired by private companies and will be maintained for decades under a complicated financing arrangement that involves the sale of tax-free state bonds.
To be sure, the critics have a point: Privatization may be very enticing, but it creates opportunities for high-stakes backroom deals. Direct infrastructure spending by the government is hardly honest business, but it is one thing to have some unions and construction firms getting sweet short-term deals from friendly politicians and it’s another to hand off a major highway to a political supporter for fifty years. If politicians are reckless, American taxpayers could lose control over the roads and bridges they rely on every day.
Now, because these assets are still government-owned under a P3, the taxpayers can always take them back if things don’t go as planned. But, if a government does get in the habit of seizing assets, it will be much harder to obtain private investment in the future. Furthermore, courts will force the government to compensate the private entity, and the government may not have the money in hand to do that.
From President-elect Trump’s perspective, however, these apparent bugs look more like features. One trillion dollars in handouts to private companies is a huge opportunity for a politician who has only a rudimentary political machine in place. When it comes time for reelection, Trump will need a base of well-heeled and influential supporters. Traditional Republicans have energy and other business interests. Democrats have Silicon Valley, unions, and Hollywood. Trump has almost no one, and privatizing America’s infrastructure gives him a chance to build a coalition of private construction companies, lawyers, consultants, financiers, and others. This is a business he knows well, a world in which he already has plenty of contacts.
So critics should be aware that what they see as fatal flaws in the plan may, from Trump’s point of view, be huge advantages. Meanwhile, they should know that the America’s and Europe’s experiences with privatization suggest it could work very well. The way America currently builds infrastructure is hugely inefficient and costs can be multiples of what they would be in similar European contexts. There’s a ton of room for improvement. Trump’s infrastructure plan may ultimately appear relatively inexpensive and efficient to taxpayers while simultaneously building him a powerful and durable political machine that is financially dependent on his reelection. Four years is a small window, and shovel-ready projects are hard to find, but if Trump can make some high-profile improvements, he’ll build a lot of political capital. Meanwhile, he’ll have thousands of businesses indebted to him, and very keen on the prospect of him staying in power.
Building roads is a time-tested way to win voters’ hearts. Infrastructure investment may also turn out to be Trump’s master strategy for constructing a formidable political machine.