Faculty Spotlight: Professor David Schleicher on Lowering the Cost of Infrastructure Projects
In a new paper out this month, David Schleicher, the Walter E. Meyer Professor of Property and Urban Law, makes a bold proposal to improve the immense cost of major infrastructure projects in the United States.
The paper, produced as part of a joint project between the Brookings Institution and the American Enterprise Institute, introduces the idea of the Priority List: a shortlist of major projects that are both nationally important and publicly popular. Congress, Schleicher says, would vote on a list of projects as a whole and those projects would receive planning support from experts hired by the federal government. Projects would be allowed to be financed through Build America Bonds to make them appealing to a broader range of investors. And they would be exempt from some regulations to minimize cost, delays, and litigation.
In the below Q&A, Schleicher discusses his new paper and how the Priority List could solve the crisis in transportation infrastructure costs.
What are some of the goals of the Priority List and what problems does it seek to address?
There is a whole bunch of research showing that transportation infrastructure in America has become really expensive to build — more expensive than building similar infrastructure in other developed countries and more expensive that it used to be. There is also research that points to some explanations for why these costs are so high, including pathbreaking work by my colleague Zach Liscow.
But there isn’t a lot of writing containing what our former dean Heather Gerken called “here to there” ideas, or ways to structurally shift politics in ways that make reforms possible. That’s where the Priority List comes in.
The basic idea is that Congress should authorize the Secretary of Transportation to designate a small number of transformational infrastructure projects that would get special treatment and funding. Congress would then vote on the package of projects, relying on a procedure used during the Base Realignment and Closure (BRAC) process to close unnecessary but politically influential military bases. If the list was approved by Congress, the projects on the list would be governed in ways that would drive down costs. Expert federal officials would be seconded to the state agencies that run them and states would have access to preferential financing tools. The projects would also be exempt from a number of federal laws and regulations, including potentially the National Environmental Policy Act, the Davis-Bacon Act, and the Build America, Buy America Act.
In effect, Congress would leverage the popularity of these megaprojects to pass reforms to regulations and federal oversight that otherwise would be politically impossible. Congress has not been able to reform the factors driving the cost of building — things like regulations favored by environmentalists, protectionists and labor unions, or poor planning and oversight by understaffed state agencies that prefer independence from federal oversight.
But because these projects would be so appealing, and getting them done so popular, Congress could — hopefully — enact politically unpopular but important reforms that would drive down costs of building infrastructure (at least for these projects). These projects — again hopefully! — would serve as examples of how to drive down the cost of building infrastructure.
What criteria would projects on the Priority List need to meet?
The key is that they are popular and nationally important. Whatever projects Americans care the most about actually getting done would work. They’d have to be big projects — giant, complicated bridges; massive pipelines; intercity rail lines; subway systems. The kind of thing a Speaker of the House could say are necessary to keep pace with the massive scale of infrastructure development we see in China. But the key is that they are popular enough to help Congress overcome the interests that have held up reform in the past.
The list would have to have projects from across the country — one or two in each region. I’m betting politicians will have a better sense of what projects are really popular than I would.
How would Build America Bonds help finance projects and reduce municipal debt?
Build America Bonds (BABs) were included in post-2008 stimulus bill, providing state and local governments with a different and cheaper form of financing for infrastructure projects. Normal municipal bonds (munis) issued by state and local governments are subsidized by the federal government through the tax code. Interest on these bonds is tax exempt, allowing governments to offer lower interest rates and still sell their bonds. The stimulus bill allowed state and local governments to issue BABs, which are taxable, to support infrastructure projects. Rather than getting federal subsidies through the tax codes, governments simply received cash payments from the federal government when they issued BABs. The idea was to provide the same subsidy as normal tax-exempt munis, but through a different mechanism.
Why? Tax-exempt munis are only attractive to a particular group of investors — people who pay income taxes and, particularly, people in the top income tax bracket (since they get the biggest benefit from the exemption). But foreigners and other tax-exempt investors have little interest in them, as they don’t benefit from the tax exemption. BABs appealed to these investors, increasing market depth, and provided a more efficient subsidy to state and local governments.
The Priority List revives BABs to provide a special benefit for these projects and makes the passage of the other reforms — the regulatory exemptions and the federal officials — a little more palatable. Some writers have suggested replacing the muni tax exemption with BABs entirely, something I don’t support (the tax exemption provides other benefits, particularly limiting the problem of “contagion” among investors). But for a limited set of projects, it could help make other reforms possible.
