Can Private Investment Work for Rural Infrastructure?

WASHINGTON — Private investment is an unrealistic option to pay for upgrading highways, waterworks and other infrastructure in rural parts of the U.S., congressional lawmakers and state and local officials suggested during a Senate committee hearing on Wednesday.

The meeting of the Senate Committee on Environment and Public Works took place as state and local officials are awaiting more details about President Trump’s infrastructure proposals. Trump has voiced support for vast new spending on roads, railways, airports and other projects.

Central to a plan his advisers outlined during last year’s presidential campaign are federal tax credits designed to spur private investment in projects.

But Wednesday’s Environment and Public Works hearing cast doubt on whether this sort of infrastructure financing approach would work in sparsely populated parts of America.

“Funding solutions that involve public-private partnerships, as have been discussed by administration officials, may be innovative solutions for crumbling inner cities but do not work for rural areas,” said U.S. Sen. John Barrasso, a Wyoming Republican who chairs the committee.

Bill Panos, director of the Wyoming Department of Transportation, echoed the senator’s view in his testimony before the panel. He made remarks on behalf of his own agency and state transportation departments in Idaho, Montana, North Dakota and South Dakota.

“Public-private partnerships and other approaches that depend on a positive revenue stream are not a surface transportation infrastructure solution for rural states,” he said. “The traffic volumes on projects in rural states are low and almost never feasible for revenue generation.”

Panos added: “Rural states are unlikely to attract investors for those projects even if any project revenues are supplemented by tax credits.”

He went on to endorse the model used to funnel federal dollars toward transportation projects in the $305 billion Fixing America’s Surface Transportation Act, or FAST Act, which extends through 2020. Then-President Barack Obama signed the legislation in 2015.

Although the legislation provided state and local governments with some certainty as they plan transportation projects, Congress has yet to come up with a long-term fix for shoring up the Highway Trust Fund. The fund is an important source of money for roads and transit. It has traditionally relied heavily on gas and diesel tax revenues, which have dwindled in recent years.

U.S. Sen. Deb Fischer, a Nebraska Republican, said that legislation she introduced last week, known as the Build USA Infrastructure Act, would help restore the health of the Trust Fund.

Among other provisions, Fischer’s bill calls for diverting $21.4 billion annually—for five years beginning in 2020—from revenues the U.S. Customs and Border Protection collects on freight and passengers. That money would be deposited into the Highway Trust Fund.

Shailen Bhatt, executive director of the Colorado Department of Transportation, said that his state uses a variety of financing options to pay for transportation infrastructure, ranging from public-private partnerships to bonds that are paid off using highway toll revenue.

“But financing alone does not solve our funding challenge in transportation,” he said.

Later Bhatt added: “Funding certainty is everything.” He said Colorado is short about $1 billion annually when it comes to meeting currently identified transportation needs throughout the state.

Cindy Bobbitt, a commissioner in Grant County, Oklahoma, delivered testimony to the Senate committee on behalf of the National Association of Counties.

She pointed out that her county has about 4,500 residents and over 3,500 bridges and bridge-like structures.

“That’s almost one bridge for every resident,” she said.

Bobbitt, too, said rural areas tend to not draw the same level of interest cities get from private sector investors for infrastructure projects.

Wednesday’s hearing delved into infrastructure issues beyond transportation—areas such as water, natural shoreline infrastructure like dunes and beaches, and rural broadband.

Michael McNulty, general manager of the Putnam Public Service District, in Putnam County West Virginia, urged lawmakers to consider that many of the nation’s utilities that provide drinking water and sewer services are small, commonly serving fewer than 10,000 people.

He added that there are parts of the rural U.S. where residents lack access to safe drinking water and wastewater services due to low population density or funding shortages.

Throughout southern West Virginia, McNulty added, much of the water infrastructure was built over 100 years ago by coal companies and is now failing and deteriorating.

In Putnam County, he said, “we still have pockets of people with no drinking water at all. And they rely on hauling water to their home cisterns.”

U.S. Sen. Cory Booker, a New Jersey Democrat, cited U.S. Census Bureau figures showing that about 500,000 homes around the country lack access to hot water, a tub or shower, or a working, flushing toilet. “That to me is astonishing data,” he said.

Booker went on to say that, for cash-strapped localities, loan programs can fall short when it comes to improving water systems.

“I believe the answer has to be more grants and grant programs,” he said.

Booker specifically voiced support for raising a 30 percent cap on the amount of money states can distribute in direct grants under the Clean Water State Revolving Fund, a program involving states and the U.S. Environmental Protection Agency.

“Absolutely. Let’s remove those restrictions,” said McNulty after Booker mentioned the idea.

McNulty said that if legislation directing money to water projects does not specifically target non-metropolitan regions, “the funding will bypass rural America” and get absorbed by cities.

U.S. Sen. Tammy Duckworth, an Illinois Democrat, said that in her view future infrastructure investment needs to go beyond roads, rail and bridges. “This includes investments in broadband,” she said. The senator added that localities without high-speed broadband internet can be at a disadvantage when it comes to educating children and attracting employers.

Anthony Pratt, administrator of shoreline and waterway management with the Delaware Department of Natural Resources and Environmental Control and president of the American Shore and Beach Preservation Association, emphasized in his remarks to the senate panel the importance of beaches, dunes and wetlands.

On top of their economic importance for areas that depend on tourism, he highlighted weather events like Hurricanes Katrina and Sandy as he made a case for resilient shorelines. “Coastal infrastructure is a wise investment,” he said. “You either pay now or you pay later.”

Information about what Trump's infrastructure proposals could look like was included in a report issued last October. It was authored by Wilbur Ross, a private equity investor who Trump has since chosen for Commerce secretary, and Peter Navarro, a professor who the president has selected to lead his National Trade Council.

A key part of what's outlined in the report is nearly $137 billion of federal tax credits for companies that would build, manage or operate infrastructure. Ross and Navarro suggest the credits could attract $167 billion in private investment. They estimate the tax credit program would lead to private entities borrowing enough additional money to help finance up to $1 trillion of projects over a decade.

U.S. Sen. Bernie Sanders, a Vermont Independent, said he was not supportive of giving tax breaks to “Wall Street” and multinational corporations to invest in public works. That said, he pointed to bipartisan agreement that U.S. infrastructure is in need of improvement.

“Where the difference of opinion is going to come,” he said, “is how we fund the trillion dollars.”