A review of the White House infrastructure plan

Half of the undisclosed amount of money (widely believed to be in the $200 billion range) would go into something called the Infrastructure Incentives Initiative. This has all the hallmarks of the worst of federal infrastructure spending: anything infrastructure-related is eligible, any government or public authority can apply, scoring is heavily weighted to induce local governments to take on lots of debt and there is only faint concern for long term maintenance costs or return on investment. Yuck! But the plan has one provision that changes all of this: Grant awards can’t exceed 20% of total project costs. Wow! I’ve been on projects where the federal government paid 95% — an approach ripe with all the worst kinds of perverse incentives — but that won’t happen here. For a state or local government to get the federal money, they will need to have some serious skin in the game to the tune of 80% of the funding. If that provision makes it through Congress (count me doubtful), it would be transformative.With state and local governments picking up 80% of the tab, I suspect projects will naturally gravitate towards those of the smaller maintenance variety, particularly projects that have a positive return on investment (small, underground, and in older neighborhoods). It’s harder to convince yourself that a negative-returning expansion project makes sense when you are spending your own money (and robbing from your already insolvent maintenance budget to do so). This dramatically reduces the worst incentives associated with federal infrastructure spending.