President Donald Trump's business school alma mater estimated that his proposed $200 billion boost in federal spending to rebuild America's crumbling infrastructure will not result in another $1.2 trillion being invested as the president had predicted and will have little to no economic impact.
The Wharton School of the University of Pennsylvania released an analysis that disagrees with the Trump administration's assertion that its fiscal year 2019 proposal to boost federal spending on infrastructure by $200 billion will spur $1.5 trillion of investments in infrastructure over 10 years, with states and local governments and private partnerships contributing the rest. The plan seeks to modify the historical 50/50 federal-state funding formula for federal highways and other transit projects by requiring states and local agencies to contribute at least 80% of revenue to get, at most, a 20% match in federal funds for many projects.
The business school's Penn Wharton Budget Model initiative found that Trump's infrastructure plan will spur at most only $230 billion in investments across all levels of government, including the $200 billion in direct federal funds and those provided pursuant to public-private partnerships. The university, where Trump graduated with a bachelor's degree in economics, said the additional federal spending will be largely offset by decreased spending at the state and local levels, resulting in no economic impact.
"Most of the grant programs contained in the infrastructure plan fail to provide strong incentives for states to invest additional money in public infrastructure," said Penn Wharton. "Indeed, an additional dollar of federal aid could lead state and local governments to increase infrastructure total spending by less than that dollar since state and local governments can often qualify for the new grant money within their existing infrastructure programs."
According to the analysis, under the Trump infrastructure plan, state and local governments would use most of the federal grants, including those meant for infrastructure, to help balance their own budgets.
During a Feb. 27 hearing of the U.S. House Energy and Commerce Subcommittee on Energy, Rep. Frank Pallone, D.-N.J., called Trump's infrastructure proposal a cynical "bait and switch" that barely mentions energy.
"After promising for more than a year to invest over $1 trillion in America's infrastructure, the president's plan does not offer any new funding for infrastructure," said Pallone. "This anemic proposal calls for $250 billion [sic] in [additional] federal spending, but even that is offset by $200 billion in cuts to vital existing programs. Worse yet, the 80% match requirement would do little to help towns, cities and counties all across this country that simply cannot afford this kind of spending."
The proposed $200 billion increase in direct federal funding for infrastructure also falls well below the $2 trillion in additional spending the American Society of Civil Engineers said is needed to restore U.S. infrastructure.
"There is no question that more needs to be done," committee Chairman Rep. Fred Upton, R.-Mich., said at the hearing. "New electric transmission lines and natural gas pipelines have got to be constructed."
Upton said the private sector is doing its part with electric utilities having invested an estimated $23 billion in new transmission in 2017 alone while natural gas utilities spent $25 billion on infrastructure.
"Much of our existing infrastructure is in fact aging," he said. "The average age of a coal-fired plant in the U.S. is 46 years old, and the country's fleet of nuclear reactors isn't much younger. Many of those power plants are facing retirements due to the inability to compete economically in a market-based environment."
Brian Slocum, vice president of operations for ITC Holdings Corp. — the largest independent transmission company in the U.S. — told the panel that additional reforms to streamline federal permitting and environmental reviews are needed as the current permitting process for a major interstate power line can take nearly a decade.
Slocum singled out the federal government's environmental impact review performed pursuant to the National Environmental Policy Act. Along with setting firm deadlines for the NEPA process, Slocum urged Congress to require concurrent NEPA analysis and reviews by all involved federal agencies for an energy project, with information already contained in the lead agency's NEPA documentation serving as the basis for the other agencies' reviews.
Jennifer Chen, an attorney with the Natural Resources Defense Council, said environmental laws are not delaying grid modernization, instead blaming the country's "severely fragmented transmission planning process" for smothering interregional transmission projects.
Chen urged Congress to encourage the Federal Energy Regulatory Commission to use its existing authority to issue a rule requiring interregional transmission planning and processes that anticipate the impact of public policies and the falling costs of wind and solar generation.
