Will New Infrastructure Program Catalyze New Revenue (or Just Lower Federal Share & Increase Cost?)

While a final draft has not been officially released, the leaked Trump Administration infrastructure program proposes Federal funding limits that could ultimately add to project costs.

After Axios published a draft White House infrastructure plan, Smart Cities DIVE posted an analysis, that while unclear which Federal grants would be offered for infrastructure investments, grant awards would not exceed 20 percent of a project's total cost.

This would present a change compared to the major capital grant programs, although there's not a flat percentage for an easy comparison. However, the Federal Transit Administration's capital investment grant program (which is a competitive national process) historically has funded 40 to 50 percent of projects they have supported.

In some states, adding these potential federal requirements may add more cost than benefit. Here’s why.

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For highways, as an example, funding is a bit more complicated because states get their share of Federal dollars, and choose their own projects. States are allowed to fund up to 80 percent with Federal-aid dollars. In practice, bigger projects usually have to find other sources of funding as well, such as tolls or local taxes. But usually a state will make a federal project at least 50 percent federal because otherwise it's not worth all the federal compliance and reporting requirements that come with it.

That may not be true for California, Washington, and New York, where state requirements are as strict or stricter than Federal funding requirements. But if you're Wyoming or Utah, getting only 20 percent in federal funds with these potential requirements may not be the best deal. The plan may be to tie the Federal grant funds to other forms of Federal support – such as Federal credit under the Transportation Infrastructure Finance and Innovation Act (TIFIA), or Private Activity Bond allocations, which would also incur these requirements. But is a grant for 20 percent of the cost of a project going to be a strong enough incentive to bring net new revenue to the table?

In this scenario, governments -- especially cities -- would need to crank up revenue engines, by monetizing assets, using the increased property taxes generated by projects for project repayment and capturing operational cost savings. Can they do this? It’s likely that the states that are able to step up and generate revenue will be the ones that already have enabled their cities to generate revenue, and where voters have a history of supporting new taxes and fees.

Requiring all transit projects to seek value capture financing in order to qualify for Federal-aid funding is one feature of this plan that may help local governments tap into new revenue sources. Transit investment creates value – Strategic Economics, Inc. found that nearby transit access increases property values by up to 15 percent.

This requirement could be a big carrot to encourage state and local legislatures to give local governments authority to do value capture, where it’s lacking -- or face loss of any potential funding for transit investment. If the plan includes more features like that, it level the playing field between local governments who are highly successful at raising this kind of revenue, and local governments who haven’t even been allowed to try. If every government applying for assistance gets this authority, it would have long-term effects on local infrastructure finance.

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