Infrastructure: A policy reality or political unicorn?

The differences between Republicans and Democrats can often be obvious when it comes to many policy issues, but one that often blurs the lines is our nation’s infrastructure.

Whether on the campaign trail or in town halls or committee hearings, Republicans and Democrats appear united on the pressing need for bipartisan solutions to provide adequate funding for and investments in surface transportation and broad infrastructure. Both parties view it as a political “winner” that helps spur job and economic growth, supports businesses and unions, eases an everyday life issue (who doesn’t want to spend less time in a traffic jam?), and increases the international competitiveness of the United States.

President Joe Biden campaigned on the importance of passing a $2 trillion comprehensive infrastructure package, calling it a “critical need to invest in modern and sustainable American infrastructure.” But Biden’s Build Back Better plan is more than just infrastructure. It involves investments in a host of other sectors, including manufacturing and supply chains, caregiving, diversity, and education, to name a few.

So why is a winning issue that enjoys bipartisan enthusiasm both back home with voters and among Washington politicians, and also scratches the itch of multiple stakeholders, so elusive? The simple answer is that at $2 trillion, the plan is incredibly costly, and the parties cannot agree on how to pay for even a portion of it. Will Biden catch the political unicorn and deliver on one of his biggest campaign pledges with the support of Republicans? Or will the Democrats avoid the tricky question of how to pay for infrastructure and attempt to use budget reconciliation (for a second time) as a means to pass it with unrelated taxes and fees to pay for it? While the size, scope, substance, and timing of any infrastructure legislation are still in flux, and with many moving parts, let’s take a look at what a package might include and some of the political hurdles to expect.

It is conventional wisdom that the base of any infrastructure bill will build on legislative efforts from the last (116th) Congress when House Democrats introduced H.R. 2, the Moving Forward Act, and the Senate introduced the bipartisan S. 2302, America’s Transportation Infrastructure Act (ATIA). Neither bill ever reached President Donald Trump’s desk, but both would have reauthorized many of the federal government’s surface transportation, highway, road and bridge grant, and safety programs. There was a one-year extension of the surface transportation authorization enacted in last year’s continuing resolution (CR) that is set to expire on Sept. 30, 2021. Expiring programs are always good motivators for Congress to take action.

It is important to put these different bills into context. The traditional “Highway Bill” — surface transportation reauthorization — includes highways, rail, and mass transit as core constituencies. In the House, all of this jurisdiction falls under the Committee on Transportation and Infrastructure. In the Senate, there are three committees with jurisdiction, including the Senate Environment and Public Works (EPW) Committee (highways), the Senate Commerce Committee (rail), and the Senate Banking Committee (mass transit). The ATIA was a product of only the EPW Committee and is not a 1:1 counterpart to the House’s Moving Forward Act.

ATIA can be described as a more traditional surface transportation bill as it authorized a record $287 billion in spending from the Highway Trust Fund (HFT) over a five-year period. ATIA included highway formula grants for states, freight program grants, and competitive grants for bridges, roads, and safety programs. In addition, ATIA included both Republican and Democratic priorities. Republicans were successful in including language that codified the “One Federal Decision,” which mandates agency coordination, timelines, document repositories, and accountability to ensure infrastructure projects meet deadlines. And, for the first time ever, there was bipartisan consensus to include a climate title with program funding for competitive grants for resiliency, incentive programs for lowering carbon emissions, support for alternative fuel infrastructure, and traffic congestion reduction programs.

Similar to ATIA, the House Democrats’ Moving Forward Act included many traditional surface transportation reauthorization programs for highways, roads, bridges, and safety programs ($500 billion in reauthorization spending), but also included rail and transit and took a much broader approach to infrastructure ($1 trillion in additional, one-time spending). At a price tag of $1.5 trillion, the Moving Forward Act also sought to help rebuild schools, build affordable housing, rebuild and reinvest in the country’s drinking water and wastewater infrastructure, prioritize clean energy investments (electric vehicles, charging stations, and “greening fleets”), and increase broadband access.

There are the obvious concentric policy circles overlaying the House and Senate’s visions of an infrastructure bill, but once the traditional contours are expanded, challenges emerge in cobbling together the votes in both the House and Senate to pass a massive authorization that could cost trillions. One area that could find consensus is broadband. By investing in the expansion of broadband infrastructure, both political parties can deliver on promises to critical constituencies — small businesses and rural communities — and reduce or eliminate the digital divide that continues to have a negative impact during the pandemic.

House Democratic Whip Jim Clyburn (D-South Carolina) has emphasized the need to take a broader approach to define what qualifies as “infrastructure” investment, and Biden has called for the “largest mobilization of public investment since World War II.” With these comments on broadening and expanding investment, you start to see the budget difficulties standing in the way of an infrastructure package coming together. For example, Congress has not approved an increase in the federal gas tax —  the primary vehicle to fund the Highway Trust Fund — in nearly 28 years (1993) and with a pandemic, economic uncertainty, and gasoline prices on the rise, it is hard to see a gas tax increase on the horizon.

If increasing the federal gas tax is politically toxic, Congress will need to find another way to pay for at least part of the infrastructure package. We believe that the first taxes in Congress’s crosshairs will be on the corporate side — increasing the corporate tax rate from 21% to anywhere between 25% and 28%, implementing a 15% minimum book tax for companies with $100 million in annual revenue, and changing the tax rate for a company’s international operations. On the individual taxpayer side, the first targets seem to be increasing the tax rate for high-income earners over $1 million and the tax rate for capital gains. There is also discussion of reinstating the State & Local Tax Exemption (SALT) that was limited under the Trump tax bill in 2018. However, this would cost money and offset some of the revenue raised from other tax increases. This is just a glimpse of the minefield that must be navigated to get an infrastructure bill across the finish line.

Former Environment and Public Works (EPW) Chairman Jim Inhofe (R-Oklahoma) recently attended a White House infrastructure meeting with Biden and cautioned against overstepping policy areas in an infrastructure package, such as aggressive environmental or climate policies, as a way to keep the proverbial trains moving. He also stressed the importance of treading carefully around plans to pay for it — i.e., avoid tax increases. On the other side of the aisle, Senate Budget Committee Chairman Bernie Sanders (I-Vermont) has pushed aside concerns on costs and environmental policies. He is going all-in on a robust, $4 trillion infrastructure package. That’s a long way from the more modest bipartisan effort in the Senate last year (ATIA), the House’s $1.5 trillion infrastructure package (Moving Forward Act) last year, or even the president’s comprehensive $2 trillion campaign plan.

Do these differences in the definition of infrastructure and how to pay for it mean that a package escapes Congress again? Not at all. The Senate has set an ambitious bipartisan timeline of Memorial Day to move their highway bill through EPW, eyeing possible floor action this summer, and it is expected that the House will move at even a faster pace.

There is always interest in infrastructure. It is considered a “must-have” rather than a “nice to have” among legislators in both parties. But what policy pieces get placed into the all-encompassing infrastructure category, and who and what is going to foot the bill is the billion-dollar or, more likely, trillion-dollar question. If House and Senate Democrats decide to use the reconciliation process to pass an infrastructure package loaded with climate policies without Republicans, policymakers are more likely to dislodge the Achilles heel of previous efforts. And with “earmarks” returning, a practice where funding can be targeted for specific projects in members’ congressional districts and states that they can take credit for, there will be more incentives for members to vote for an infrastructure package. However, it won’t be easy. Whether through reconciliation or with Republican support, they will need to decide whether to pay for all or just part of the bill, and that will determine how expansive and expensive a bill they can pass.

One last option that may gain legs over time is splitting the comprehensive infrastructure bill into two parts — continuing the bipartisan route for the regular surface transportation reauthorization and using reconciliation to pass the additional infrastructure funding and programs with the environmental and other potentially unrelated programs. Since many of the surface transportation programs are policy-related and might not fit within the criteria for reconciliation, keeping it bipartisan may be the better path. In addition, as Democrat ambitions grow on what they might want to get done in a second reconciliation bill, you could see attempts to include health care and immigration policies in the bill, which would have no chance of garnering Republican support.

Hold on for what is likely a long, winding road ahead.