Donald Trump has talked up big infrastructure investment, around a trillion dollars worth. Trump being Trump, you should be asking “So how does this work?” Paul Krugman has some thoughts.
Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do. It is, instead, supposed to involve having private investors do the work both of raising money and building the projects — with the aid of a huge tax credit that gives them back 82 percent of the equity they put in. To compensate for the small sliver of additional equity and the interest on their borrowing, the private investors then have to somehow make profits on the assets they end up owning.
emphasis added
Ever notice how many Republican proposals always seem to include getting out of paying taxes somehow? Trump, the non-taxpaying President-Elect, should be able to take that to new depths.
Krugman points out 1) There’s no need to bring in private investors when the government can borrow the money just as easily. 2) Private investors are only going to do projects where they can make money — which means there are lots of needed projects that will not get done. 3) Some of these projects would have been done anyway — but instead will become public assets converted into private gain. It’s a win for the rentier class.
Short version: this is an elaborate wealth transfer scheme, from the public to the private. Critical infrastructure will end up in the hands of people with every incentive to cut corners and maximize profits — and limited accountability.
What happens when these public-private deals go bad? It turns out the great state of Texas has a wonderful example of just how bad it can get. Via Katherine Blunt and the San Antonio Express-News, here’s a look at what happened when Texas decided to try a private-public partnership to build 41 miles of highway:
...The deal allowed Cintra, a Spanish infrastructure developer, and San Antonio-based Zachry Construction Corp. to build, operate and maintain the 41-mile southern section of Texas 130 for 50 years as part of a lease agreement with TxDOT. Slicing through farmland between Seguin and Mustang Ridge, south of Austin, the road would become known for its 85-mph speed limit — the highest in the country.
“Over the 50 years, we would receive, it’s estimated, a substantial amount of revenues,” former TxDOT tolling official Phil Russell told the Texas Transportation Commission before it approved the deal in 2006. “It would be worth $245 million (in toll revenue) and a long-term funding source for operation and maintenance.”
Less than a decade later, Cintra and Zachry plan to walk away from the project and hand their bankrupt joint venture, SH 130 Concession Co., to its lenders. The company owes federal taxpayers more than a half-billion dollars and is engaged in a years-long dispute with TxDOT about maintenance and construction problems on the sparsely traveled road. And so far, it has paid the state only about $3 million in toll revenue.
The company, which owed the U.S. Department of Transportation and a group of European banks about $1.1 billion when the road opened in 2012, now has debts of about $1.6 billion, including interest. When it filed for Chapter 11 bankruptcy protection in March, it noted that traffic had fallen substantially short of projections and claimed the recession had played a key role in the problem.
Read the whole thing. It’s long, but the story is fascinating. Blunt gets into some detail about all the ways this has unfolded, and looks at several other similar efforts. If you’ve read Matt Taibbi’s Griftopia, you probably have a good idea of what’s going to happen. If you liked the way the Crash of 2008 turned out, you’ll love Trump’s infrastructure plans. The Trump administration is filling up with all kinds of grifters in top slots — this will be one more honeypot for them to loot. (Past as prologue?)
The difference this time, unlike past scandals, is that we already know the President-Elect has a long track record of swindling investors, stiffing contractors, screwing employees, cheating business partners — and walking away with his own pockets filled. It’s already taking shape.
This time his whole family is going to be in on the scam, aided and abetted by the Republican Party and the oligarchs behind them. Any Democrat foolish enough to go along with any of this is too stupid to be trusted with political power. Unfortunately...
It’s going to be epic, and not in a good way.