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Hillary Clinton's infrastructure plan, explained

Former United States Secretary of State Hillary Clinton speaks on stage at AOL's MAKERS: Once And For All Premiere at the DOC NYC on November 19, 2015, in New York City.
Former United States Secretary of State Hillary Clinton speaks on stage at AOL's MAKERS: Once And For All Premiere at the DOC NYC on November 19, 2015, in New York City.
Bennett Raglin/Getty Images

Congress is moving toward a five-year plan to fund surface transportation in the United States to replace the short-term gimmicks that have sustained America's road builders for years. But this week Hillary Clinton applauded Congress's efforts while also calling for a larger, bolder plan that would generate $500 billion in additional infrastructure spending over the next five years.

It's a plan that offers a little bit of something for a wide range of constituents, without quite committing in detail to very much that's specific. But the framing of the plan — ambiguities and all — highlights a core paradox of the political economy of American infrastructure. Infrastructure spending is in a sense a win-win for the economy, which both directly creates jobs and indirectly lays the foundation for further growth. But to maximize the growth-generating potential of infrastructure might require undermining some of its job-creating punch.

Clinton wants $275 billion in new federal spending

Clinton's goal of $500 billion in additional funding envisions three streams of money, of which only $275 billion is federal tax dollars — dollars that will be derived from an unspecified business tax reform:

  • $250 billion in direct federal spending on infrastructure projects
  • A $25 billion seed investment in a national infrastructure bank
  • $225 billion in private money that she hopes will also be invested via the infrastructure bank

Any infrastructure program has the goal, of course, of producing useful infrastructure. And Clinton takes a broad view of what infrastructure means, calling for more dollars for roads and highways but also for mass transit and airports and seaports and all kinds of non-transportation infrastructure, from natural gas pipelines to municipal electrical grids to broadband internet to dams and water pipes.

But Clinton is interested in pushing her infrastructure agenda as a direct, short-term job creation method, as well. Not so much in the sense of being an economic stimulus to fight unemployment, but rather as a way to create relatively well-paying middle-class jobs at a time when many are concerned about inequality and low wages. A Clinton aide I discussed the plan with took note of a May 2015 Brookings Institution report by Joseph Kane and Robert Puentes that argues expanded employment in infrastructure is a key lever for working-class prosperity.

Brookings

"Median wages for infrastructure workers ($38,810) top the national median ($35,080)," Kane and Puentes note, even though infrastructure workers are less likely to have a college degree than Americans at large.

This message is part of a growing recognition that however important improving education may be to the long-term future of the country, an emphasis on education alone as the centerpiece of an agenda on wages and inequality is untenable. Among other things, it offers far too little to the majority of working-class people who at this point in their lives realistically aren't going to be heading back to college to get a bachelor's degree, no matter what changes in the policy realm.

A vague but pointed call for reform

To many observers, lack of money per se is hardly the only problem with American infrastructure spending. On the one hand, construction costs for American projects are generally far higher than what you see in other developed countries. On the other hand, incentives in state politics tend to lead a disproportionate share of money to be spent on building new highways rather than maintaining existing ones and using congestion fees to manage crowding.

Clinton's plan gestures in the direction of these concerns, and the fact sheet her campaign released Monday morning concludes with a rather stirring call to reform:

Investing more in our infrastructure isn’t enough — the way America currently designs, funds, and builds infrastructure projects needs repair. Clinton would make sure taxpayers are getting the most bang for their buck. She would work to ensure that projects are selected on impact, not politics, streamline permitting, break down silos that limit funds to a single type of transportation, and encourage 21st century design and technology. These reforms would do more than save taxpayers money — they would encourage private capital currently sitting on the sidelines to invest in America’s future.

The larger text, however, does not offer a ton of specific ideas about how to get there. The campaign indicates that it believes an inefficient permitting process leads to costly delays and promises to "increase accountability and cut red tape, so that taxpayers get more bang for their buck for every dollar they invest in infrastructure."

The Obama administration has recently undertaken some measures to expedite infrastructure permitting, and it's not entirely clear if the Clinton campaign is proposing new steps along these lines or merely reaffirming their support for what is underway.

The campaign also indicates a preference for shifting more spending into merit-based competitive grants rather than handing money over to state governments. Merit is obviously, to an extent, in the eye of the beholder, but this could be a tool for getting more dollars spent on things other than endless road expansions.

A national infrastructure bank

Ideas for infrastructure banks exist in various forms, and this week's campaign proposal does not offer a detailed blueprint specifying exactly how Clinton's version of the bank would work. Some versions of infrastructure bank proposals are, in part, efforts to get around union-friendly federal rules that raise costs. But Clinton's campaign does say that her bank would "operate with prevailing wage standards and domestic sourcing requirements for project materials."

All flavors of infrastructure bank, however, are designed to solve a fundamental mismatch between which kinds of investors want to buy municipal bonds and which kinds of investors are best suited to invest in projects whose payoffs are very long-term.

  • Right now, if a local government wants to borrow money for an infrastructure project, the normal way to do it is to sell bonds. The problem is that income earned from investing in municipal bonds is exempt from federal income taxes. That makes them attractive investments to rich individuals who pay a high marginal income tax rate, but bids up the price to the point where they are unattractive to entities — notably including pension funds and nonprofit endowments — that don't pay federal income taxes.
  • That, in turn, is a problem, because major successful infrastructure projects, when well-selected, create value for decades, if not centuries. So ideally, governments would like to be able to finance such projects by borrowing large sums of money that are paid back very slowly. But that requires an investor who has a very long planning horizon. Fortunately, such investors do exist. But many of them are entities like pension funds or nonprofit endowments that don't pay federal income taxes.

Within that broad framework, many different specific designs and objectives for a bank are possible. Clinton's particular flavor of infrastructure bank "would focus on projects of regional and national significance, emphasizing investments in complex multi-modal projects like freight and port improvements, and in projects to modernize our energy, water, broadband, and transportation systems in urban and rural communities."

Viewed optimistically, the involvement of the federal government will ensure that money flows to projects that are important beyond their local area, while the involvement of private investors will ensure that money is spent in a responsible way.

Jobs or infrastructure?

There is an important unacknowledged tension between the reformist impulses in Clinton's approach to this issue and her framing of infrastructure as a builder of middle-class jobs. On the one hand, the fact that infrastructure programs employ large numbers of people at above-median wages despite below-average educational credentials is a nice story about upward mobility for the working class.

On the other hand, Clinton talks about "changing the way we make our infrastructure investments — so that every dollar we spend goes further," and one obvious class of strategies to do that involves finding ways to either employ fewer people or pay them lower salaries. New York City, for example, employs 25 people per tunnel boring machine to dig a subway tunnel, while Spain gets by with just nine. This certainly explains part (though by no means all) of why American subway tunnels are so much more expensive to build than Spanish ones. Indeed, at times, keeping construction costs high is an explicit goal of policymaking. The Davis-Bacon "prevailing wage" rules that Clinton promises to apply to her infrastructure bank bar contractors on federally funded projects from undercutting local union wages. This bolsters middle-class incomes, but does so at the cost of ensuring that fewer projects can be completed.

At the moment, Clinton is running in a Democratic primary and successfully locking up labor union support to suffocate Bernie Sanders's insurgent candidacy. That creates incentives to emphasize the jobs and income side of the infrastructure equation. But she's planted enough seeds of reformist sentiment to at least potentially execute a pivot to a more centrist approach that emphasizes cost cutting when general election season rolls around.