America's Road To Crumbling Infrastructure: Paved With Good Intentions?

American’s Road To Crumbling Infrastructure: Paved With Good Intentions?

The international trade law community should keep its eyes on how the Trump Administration plans to steer the world back on the road to international realism while at the same time fixing America’s crumbling infrastructure.

The purpose of this article is to educate the international trade law community on the legal and factual issues affecting America’s infrastructure policies, well over a trillion-dollar issue. In so doing, this article exposes a potential Catch-22 between the Trump Administration’s “America First” policy and America’s need to rehabilitate its failing infrastructure. Finally, this article proposes a way for the Trump Administration to untangle the apparent paradox.

Rehabilitating America’s Infrastructure Demands International Support

With the Federal Government and states across the nation pledging hundreds of billions of dollars and gearing up to execute major infrastructure work, a hidden issue emerges. Who exactly is going to build this work?

Domestic contractors are facing backlogs that are on the rise, and already record-setting. The Trump Administration and states across the union must incentivize foreign contractors to bid on and to help construct critical infrastructure, which operates as the nation’s economic nervous system. On March 30, 2012, the United States adopted the World Trade Organization’s (the “WTO’s”) revised Agreement on Government Procurement (the “GPA”), which provides foreign contractors with certain “protections” and guarantees. The GPA, which is a plurilateral international trade agreement that the Federal Government and 37 states in the nation apply, has been an instrument in globalizing the construction market.

But the Trump Administration’s public commitment to “rip up” unfair trade agreements has foreign contractors reticent to invest in American markets, which are desperate for help.

America’s Infrastructure Is In A Desperate State Of Disrepair

America’s infrastructure is crumbling. There is widespread bipartisan agreement on this fact. On August 15, 2017, the White House issued a press release highlighting President Trump’s plan to rebuild America's infrastructure. In the press release, President Trump stated his intent to provide a remedy:

“Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports, and railways gleaming across our very, very beautiful land.”

President Trump paints a bleak picture of America’s infrastructure—and the American Society of Civil Engineers (“ASCE”) agrees. The fact is, it is crumbling. In ASCE’s 2017 Infrastructure Report Card, America received a disconcerting D+ grade. The Trump Administration has pledged significant federal investment to back its commitment to help states rehabilitate critical infrastructure, through the “Rebuilding America’s Infrastructure” plan. But only one fifth of America’s infrastructure is under the jurisdiction of the Federal Government—the vast majority of America’s infrastructure issue is within the jurisdiction of the states, localities, and the private sector.

Given this fact, the Trump Administration has stated that it will get “out of the way” and allow state and local governments to find solutions that meet their unique challenges. But will President Trump’s Buy American, Hire American (“Buy America”) policy act as a roadblock? West Virginia, under Governor Justice’s aggressive “Roads Building Plan,” might be the first state in the union to find out.

Failing Infrastructure At The State-Level Acts As A Hidden Tax On Americans

Governor Justice has colored his Roads Building Plan as vital to the prosperity of West Virginia’s future. The Roads Building Plan addresses two important policy issues: (1) the critical condition of West Virginia’s infrastructure; and, (2) the critical condition of West Virginia’s fiscal position.

While the nation’s infrastructure earned a “D+” in ASCE’s 2017 Infrastructure Report Card, many states, including West Virginia, fared even worse. These poor grades translate into a real cost to the American taxpayer. For example, ASCE asserts that driving on roads in need of repair in West Virginia costs each driver an extra $515 per year. Even worse, the deteriorating infrastructure impedes the ability of states to compete in an increasingly global marketplace. Delaying these investments only escalates the cost and risks associated with an aging infrastructure system—an option that West Virginia, and American families can no longer afford.

Success in the now globalized economy requires serious, and sustained leadership on infrastructure investment at all levels of government. In West Virginia, Governor Justice has offered that leadership.

Governor Justice’s Roads Building Plan Remediates West Virginia’s Infrastructure

On March 22, 2017, speaking to more than 200 contractors, engineers, architects and others during the annual West Virginia Construction and Design EXPO, Governor Justice promoted his $2.8 billion Roads Building Plan and how it will resuscitate West Virginia’s dying economy:

“We’ve got to do something to get out of the ditch we’re in . . . My roads plan is the pathway to prosperity for West Virginia. We are talking about 48,000 jobs, good jobs, instantly. Once we get started it will open up our state to real progress . . . this transportation building plan is going to put tens of thousands of West Virginians to work immediately. The payroll taxes alone that will be generated comes to greater than $250 million . . . that doesn’t even take into account the multiplier effect. You have to believe me when I tell you we are on the cusp of catastrophe if we keep kicking these problems down the road. If we don’t move prudently and move now, this will spiral out of control and we won’t ever be able to fix it.”

Like in West Virginia, state governments across the nation are in support of major infrastructure investment. Unfortunately, the only thing more broke than state infrastructure is state budgets. Despite widespread public and private political support for infrastructure investment initiatives, state governments are stymied by perilous fiscal positions. In West Virginia, Governor Justice has acknowledged the severity of the state’s fiscal situation.

Federal And State Debt Significantly Impedes Infrastructure Remediation Initiatives

According to Reuters, in fiscal year 2015, the Federal Government’s budget deficit was a grotesque $439 billion. And if that wasn’t bad enough, some states are in even worse shape on a per-capita basis. A recent study of the fiscal position of each state in the union by George Mason University showed that most states’ fiscal performance shows persistent signs of fiscal stress, with each state carrying massive debt obligations.

On the basis of its fiscal solvency in five separate categories, West Virginia was ranked 42nd among states for its fiscal health. In the long run, West Virginia’s long-term liabilities are 43 percent of total assets, or $4,223 per capita. Total primary government debt is $2.08 billion, or 3.1 percent of state personal income. Unfunded pension liabilities, on a guaranteed-to-be-paid basis, are $22.78 billion, or 33 percent of state personal income. West Virginia Cabinet Secretary of Revenue Robert Kiss recently announced that his state is facing a budget deficit of over $400 million for fiscal year 2018. These facts leave West Virginia’s treasury empty for major infrastructure expenditures.

West Virginia is not alone. Over half of the states face budget deficits or shortfalls, according to a recent report from the National Association of State Budget Officers. The association anticipates that 31 states will face some kind of revenue imbalance in the 2018 legislative session. This means that states, and the Federal Government, can no longer rely upon tax revenue to fund critical infrastructure projects. Governments must think outside the box. And both the Trump Administration and the Justice Administration has done just that.

West Virginia Will Issue State Bonds To Raise Capital To Invest In Infrastructure

On October 7, 2017, West Virginia held a special election to authorize the state to issue bonds over a four-year period. Proceeds from the bonds are designated for the improvement and construction of highways, secondary roads, and bridges, as well as to qualify the state for matching federal funds. The “Bonds for Roads and Bridges Measure” garnered overwhelming support.

As results for the special election poured in, Governor Justice was staggered by the support for the measure, which was the basis for his Roads Building Plan. Of the state's over 120,000 voters, 87,751, or nearly 73 percent, voted "yes" in support of the measure. Governor Justice, who spent months traveling and promoting the Roads Building Plan as a way to boost the state's economy, presented the following argument:

"This is a not a Democrat, Republican or Independent issue. It’s about jobs, safety, your roads and bridges, and hope for our state. The overwhelming majority of our elected leaders, along with myself, are in favor of the Road Bond Referendum and providing our citizens with safe roads and bridges. What we are really voting for on October 7, 2017, is whether or not we want to create tens of thousands of good paying jobs and launch our state into an economic recovery, and put us on a pathway to prosperity that will be remembered forevermore. Our roads and bridges are crumbling in West Virginia and we’ve got to modernize our transportation system. At the same time we also need to make sure the people get what they pay for and that is an effective, efficient, accountable road system—and that’s exactly what we’re going to do."

For many reasons, the United States citizens understand that infrastructure spending is fundamental to economic prosperity. While Governor Justice’s bond measure will raise the capital necessary to begin vital infrastructure repair in West Virginia. No such option is politically viable at the Federal Government level. But the like-minded Trump Administration is also thinking outside the box, signaling that it plans to turn to the private sector for support.

Private Equity Can Help To Rehabilitate America’s Roads And Highways

On December 5, 2016, former Speaker of the House Newt Gingrich suggested that the Federal Government, which needs to invest trillions of dollars to rehabilitate America’s infrastructure, plans to turn to the private sector for support. In an interview on Fox News, the former Speaker of the House responded to the suggestion that the Trump Administration should form Public Private Partnerships (“PPPs”):

“You are on to something that is very, very big . . . and the Trump administration shares the same vision, of public private partnerships . . . the Trump administration is going to be very aggressive in reaching beyond the traditional bureaucracy to get the work done.”

While the PPP organizational model is not exactly a new concept, the former Speaker of the House hinted that the PPP model is about to experience a revival. At a recent White House meeting, United States Transportation Secretary Elaine Chao said the country needs a new approach for dealing with aging, congested and technologically lagging infrastructure:

“Previous attempts to address this problem relied upon massive borrowing and top-down federal control. This administration takes a different approach. To avoid saddling future taxpayers with unsustainable debt, the plan seeks to unleash billions of dollars in private capital for infrastructure investment.”

The Trump Administration has pledged to immediately invest billions of dollars in new federal spending. With the governments at all levels pledging an incalculable amount of money towards major infrastructure work, a hidden issue emerges. Who exactly is going to build this work?