What is it?

As part of President Biden’s primary initiatives that he campaigned on, him and his advisors created a large legislative proposal aimed at infrastructure improvements. This bill totals a sum of 2.142 trillion USD and contains four primary focuses:

1. Transportation
2. Caregiving
3. Utilities, housing, schools, and other miscellaneous expenditures
4. Research, development, and manufacturing

To fund this, the White House proposes a slew of business tax increases to cover the costs of the bill.

Critiques

It’s too broad

Infrastructure is an inherently broad term, but expanding it to include caregiving is a tenuous game of semantics. Certainly, dealing with the issue of long term care for the elderly and disabled isn’t an issue to be disregarded. In that spirit, it deserves it’s own bill that aims at improving long term care insurance; slapping a band-aid on the problem kicks the problem down the road with nothing to show for the 400 billion USD being spent on it.

Funding mechanisms

A number of Biden’s proposed tax hikes are arguably poor policy. These specifically include a ~33.3% corporate tax increase from 21 to 28% and a minimum book tax. These are particularly economically damaging and ill conceived. Tax incidence tells us that inevitably, workers will pay for it in lower wages.

Despite this, some of the proposed revenue mechanisms are reasonable. These include

1. Increased enforcement
2. Anti-inversion rules
3. Limiting fossil fuel preferences
4. Ending the Foreign Derived Intangible Income (FDII) deduction

Even if these provisions are good tax policy, the point of funding needs to shift to user fees, especially for the transportation related aspects of the bill. The justification for this is that there is only so much tax revenue to go around and other priorities cannot be adequately funded at an affordable price for tax payers if such a narrow set of options are considered.

Where are the Incentives?

Disappointingly, there isn’t one thing that would incentivize more efficiency in the management of construction projects. One of the primary drivers of high infrastructure costs in the US is poor management of infrastructure projects. Our lack of prudent cost controls is so bad that it’s several times larger than the average for our contemporaries in Europe and East Asia.

Take for example rail. Out of the 80 billion USD targeted at long distance rail transport, about 40 billion USD of that is going to backlogged Amtrak repairs. None of this would do anything improve service, merely maintaining existing purported standards.

A bill that rains federal dollars down on existing programs with zero reforms to ensure significantly increased operational efficiencies and lower costs is a huge rip off for tax payers. I cannot emphasize enough that this is the most aggravating part of the bill hands down and is the biggest thing keeping me from mostly supporting.

Housing

To expound on the issues of incentives, flooding the coffers of inefficient public housing authorities on the order of 40 billion USD without mandating municipalities to liberalize market-rate housing is a slap in the face. It doubles down on failed US housing policy we’ve largely been pursuing since the 1960s.

It’s too Gung Ho on Long Distance Automobiles

A sizeable chunk (289 billion USD) of the transportation appropriations do nothing more than entrench the existing US transportation policy; continuing to subsidize long distance road travel by car. This is not the right direction to go in, especially if the US wants to meet emissions targets. Some money does go to urban highways, but it won’t go far without good cost management. The same goes for the 85 billion USD going to public transit.

Solutions

If we are prudent, we can not just rebuild our infrastructure, but do it more quickly and affordably. This is the only palatable solution; we’ve had enough no strings attached money dumped on the problem.

User Fees

I previously mentioned the imperative of using user fees to raise revenue. The salience of them is that they expose accurate price information to consumers of the infrastructure goods. This serves a few functions:

1. Prevents cross subsidization
2. Helps reign in cost
3. Induces optimal usage by consumers and optimal provision by governments and private providers
4. Generally expedites infrastructure maintenance and expansion

User fees aren’t always the solution in every single case, but for most transit infrastructure, it’s where we need to shift. There are a multitude of mechanisms that can satisfy this. The most well known of these is the gasoline tax. There are a variety of other fee types that can be used too. Some of these are:

1. Vehicle Miles Traveled (VMT) tax
2. Tolling
3. Excise taxes on air fares
4. Bus and rail fares

When feasible and reasonable, these fees should be localized. To address concern of tolling schemes in particular, private contracting is not the only way to do tolling. Gantries could be owned by government and tolls could easily go to dedicated funds for road construction. One such example: Singapore.

Attach Some Strings!

There needs to be stipulations on the grants being dispersed. For federal level DoT grants like BUILD, there should be a mandate that if a given recipient goes 10% over promised cost, they should be barred from receiving any grants again. Even better though is asking states and municipalities to raise expenditures for transportation projects where public monies are needed. States and municipalities need to do away with poor auction practices like awarding to lowest bidder. Lump-sum contracts need also need to be ditched in favor of hourly billing for all projects, with the appropriate public managers demanding hourly itemization, scrutiny over every action, and a willingness to refuse payment for certain things if the standards were not met to satisfaction. Finally, contracts need to be separated into separate components rather than just granted to one company. Designing and building should be contracted to two separate entities and the warranty should be bound to tax payers.

A lot of US projects over design and reject function over form. A great example of this was the costly Boston Green Line Extension, which became over 100 times more costly than the initial estimate. These frivolous vanity additions contribute to wasteful infrastructure spending and shouldn’t be tolerated by local governments. Better project management starts with more efficient and productive use of labor, stronger oversight over design review, and deference of enforcement to administrators over the judiciary. New York City’s MTA is extremely guilty of inefficiently using labor for example. The union has resisted pushes for personnel cuts and more productive arrangements for their workforce. To be clear, this isn’t inherent to unions as organized labor elsewhere has been more cooperative with labor management reforms. Finally, hiring better capital construction management firms that have the capacity to be a stronger check on run away plans and poor deployment of capital resources are a must as well as better procurement practices.

Time is money

Some countries expect construction firms to work 24/7 on projects and are selected based on projected completion time. Red tape also plays somewhat of a role in delays. Streamlining NEPA (the environmental review process) is imperative; the average review process takes 4.5 years. NIMBYism and “citizens inputs” slow down land acquisition and leads to cost increases. Any serious initiatives designed to reduce the time to build needs to go after NIMBYism.

Focus R&D

The one part of the plan that escapes a fair chunk of my criticism is certain portions of the Research, Development, and Manufacturing pillar. These are:

1. Regional Innovation Hubs
2. Upgrading Research Infrastructure in laboratories
3. R&D at HBCUs
4. NSF money
5. Dislocated worker aid
6. Climate related R&D

Taking the other appropriations in this category and channeling it to agencies that do research like the NIH, ARPA-E, DARPA, and possibly newly created ARPAs would be a good use of these expenditures. Routing some money from other categories of the plan into basic research would be wise. Simplifying the R&D tax credit and making it more accessible to small businesses should be part of the plan as 82% of the benefit flowed to largest 0.13% of firms.

Caregiving

Caregiving is an area of increasing importance as the population keeps aging. To adequately address the financial burden of long term care on families, a system of universal long term care insurance should be instated. My next post will be dedicated to how we can go about creating an financing such a social insurance program.