New York

Why Cuomo’s Hopes for Trump Infrastructure Cash Could Crumble

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When Governor Cuomo called in to NY1 on the afternoon after Election Day to recount the “good conversation” he had had with our surprise president-elect, he made clear that he felt the downside of a Trump administration (as he put it, “the rights of the LGBTQ community, et cetera”) would be balanced with the upside: cold, hard cash.

“We talked about issues for New York and the building that we are doing,” Cuomo said. “Mr. Trump is very much a private sector builder. I’ve built in the private sector also. So, he has a natural orientation toward the needs of this type of urban area. I think that’s a good thing.”

Trump’s commitment to rebuilding the nation’s infrastructure — “which will become, by the way, second to none,” he noted in his acceptance speech — has sparked the salivary glands of local pols nationwide, as they hope that some Trumpian dollars could fall their way if they play their cards right and rejigger public construction priorities to be eligible for any new Washington spending. But Trump’s plan — what little we know about it, anyway — is far weirder than the kinds of government-spending programs that state officials have become accustomed to. As a result, if Cuomo really hopes to use it to help fund the $100 billion in roads, tunnels, airports, and train station malls that he’s been painting as his legacy, he could be forced to roll the dice on untested financial mechanisms — and end up letting private developers set New York’s infrastructure agenda even more than they already do.

So far, the biggest clue to Trump’s infrastructure plans came in a ten-page policy paper his campaign released in late October. Written by leveraged-buyout king Wilbur Ross and UC-Irvine economist Peter Navarro, it promises to create $1 trillion in new roads, ports, bridges, and other concrete-and-rebar public works, all by providing $137 billion in income tax breaks for any private companies willing to front the cost.

Such public-private partnerships, or P3s, have become increasingly popular among local planners nationwide as federal transportation dollars have dried up. (The federal Highway Trust Fund has been underfunded for years thanks to a national gas tax that hasn’t been raised in twenty years.) In a typical deal, a private investor is brought in to provide capital toward a road project, water system, or other infrastructure project, and gets repaid by new tolls or fees on users. In theory, local governments can get more bang for their buck, both by having firms compete for contracts and by leveraging their scant dollars into larger private investments.

In practice, P3s have had decidedly mixed results. The state of Virginia, which helped pioneer P3s transportation projects in the 1995 with the passage of a state law allowing private entities to build and operate public highways, more recently began to shy away from them after it ended up with a slew of toll roads paralleling existing free routes — and got stuck with hundreds of millions of dollars in costs. While public funding is no guarantee against infrastructure boondoggles, making planning decisions based partly on their potential to drive private profits has led to some spectacular fiascoes: The poster child for P3 disaster is probably Texas State Highway 130, whose developer cut corners by installing cheap asphalt rather than sturdier concrete, which resulted in a road that threatened to shake apart any cars unlucky enough to traverse it; eventually, the road’s builders filed for bankruptcy, sticking the federal government with a half-billion-dollar loss.

In the New York area, “there’s not a lot of good models” for P3s, says Tri-State Transportation campaign director Veronica Vanterpool. She cites New Jersey’s Hudson-Bergen light rail system, which was successfully built, starting in the 1990s, with the help of a private contractor — but loses money each year and still requires significant state and federal grants for operating expenses. Despite its name, it has yet even to reach Bergen County.

And transportation experts warn that plenty of worthy projects would likely fall by the wayside if P3s were the only option. “We’re not going to have private companies filling our potholes or expanding our bus system, because those things aren’t profitable,” says Carl Davis, research director at the D.C.-based Institute on Taxation and Economic Policy. For example, if tax credits become the main source of federal dollars, it could doom projects like the build-out of the Second Avenue subway or the Gateway rail tunnel under the Hudson, neither of which could be easily monetized.

That would leave what Davis calls “Goldilocks projects,” those neither so unprofitable that private firms wouldn’t touch them, nor so high-revenue that tax credits wouldn’t be needed to entice private contractors to get involved. Cuomo’s Penn Station expansion plan, for one, is right in that sweet spot: With developers Skanska, Related, and Vornado intimately involved via their construction of a retail mall in the former Farley Post Office Building, and a financing plan more tortuous than the Long Island Rail Road stairways, private tax credits could be enough to boost the project over the top.

For projects with larger budget holes, local government would need to find additional money somewhere else — and if all the feds were offering was tax credits, the only option would be New York taxpayers and transit riders. Ultimately, says Donald Cohen, director of the contracting watchdog group In the Public Interest, “There’s only one source of money to pay for infrastructure — that’s you and me.” This means if the state ends up contracting out a rebuild of the Tappan Zee Bridge or LaGuardia Airport to a private operator, and federal grants aren’t available, it will need to hike tolls and fees to ensure that future drivers generate enough revenue to ensure that a private developer turns a profit. Legislators “like these things because they take them off balance sheets,” says Cohen, “but we end up paying a ton more.”

Perhaps most alarming is that Trump tax credits could lead not just to toll roads to nowhere, but also to government funding going to private projects that would take place without subsidies — but which could now become eligible for subsidies by newly painting them as “infrastructure.” (We’ve already seen corporate leaders trying to move the goalposts here, as when Verizon execs recently proposed their own Wi-Fi police call boxes as a possible candidate for Trump tax credits.) “The risk here is private companies could build stuff and claim that the tax cut was the reason,” says Greg LeRoy of the D.C.-based corporate subsidy watchdog Good Jobs First. “That would be an incredible waste of money.”

The waste would be by the feds, though, not the cities and states making the actual decisions on what to build. (Ross and Navarro’s plan promises to “provide maximum flexibility to the states” in designing P3s.) In the absence of federal criteria — several development experts cite the U.S. Department of Transportation’s TIGER grant program as one that’s well vetted — governors would have a huge incentive to okay whatever projects private companies proposed in order to get a cut of federal tax credits.

Under a Trump tax-credit plan, worries Cohen, “The only question for Cuomo will be: Are the strings attached ones he’s not willing to go for?” If that makes you feel reassured, we’ve got a bridge to sell you.

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