For new infrastructure, apply Republican approach to power and communications

Source: By Reed Hundt, The Hill • Posted: Wednesday, December 14, 2016

The incoming Trump administration and the new Republican Congress seem interested in providing tax advantages and new debt availability for infrastructure spending. But project developers will need revenue to pay off debt. So the infrastructure has to generate income.

To pay back debt and guarantee that infrastructure spending is productive, projects need user fees. The problem is that more than 90% of transportation infrastructure is publicly owned, publicly funded and used for free. Without revenue prospects, private sector developers are not going to enter the business of rebuilding most roads, bridges, tunnels, sewers, water systems, and dams.

On the other hand, almost all 21st century infrastructure is privately owned, funded by users through various fees and charges, and ripe for huge new private spending. In particular the two electron infrastructures are ideally suited for the Trump and Republican plans.

One is the system of generating power, transmitting it to local utilities, distributing it to buildings and consuming it from the grid as efficiently as possible. This energy infrastructure attracts about $100 billion a year in capital expenditure, mostly by utilities. But it could use at least double that amount in order to guarantee that only domestic sources — principally natural gas, nuclear, solar and wind — are used. The other goal is to deliver the electricity to end users at the same or lower prices than are paid today.

The other infrastructure is the communications system for coding, storing, carrying and using the electrons that compose the information economy. This communications infrastructure also accounts for about $100 billion a year in capital expenditures, mostly by wireless and cable companies as well as data center and server installers. Particularly because of technological breakthroughs in data analytics and next generation wireless (fifth generation, or 5G), this infrastructure desperately needs about double that rate of spending for at least the next five years.

To really make America great, the new administration and Congress should make the tax advantages and finance benefits for infrastructure applicable to these two 21st century infrastructures. The boom in the power and communications network spending could produce benefits to consumers and businesses that stagger the imagination of the rest of the world and ensure solid economic growth as well as national security for decades to come. Best of all, the private sector already funds and manages virtually all parts of these two infrastructures and can readily turn the new incentives into hugely increased investment.

Meanwhile, on the public transportation side, the key to spending new money is to make block grants of tax benefits and debt capability to states. For example, a cash strapped state could pay off its own bonds issued for public transportation funding and use instead federal debt. It could designate private firms to provide associated services so that they could benefit from tax advantages.

Perhaps some states will want to privatize public transportation. They might impose user fees for driving in congested areas. They might put tolls on certain roads. Or they might want to charge more for parking so as to indirectly provide a revenue source.

States and local governments should be motivated to figure out how to provide revenue sources that in turn could pay back federal debt used for public transportation upgrades. The point is to get the money flowing and the infrastructure upgraded. Flexible approaches are desirable.

For the new administration to successfully spur private investment in infrastructure, the infrastructure projects and financing must be revenue opportunities. It would be sad, even ridiculous, not to define infrastructure to include the ways that the 21st century moves electrons.

No one wants to live in a cold, dark, expensive, and ignorant America; heating, lighting, air conditioning, information creation and consumption are the basic elements of modern life. They should be provided in abundance. They should be available to everyone at lower and lower prices.

The way to achieve that goal is to extend the tax breaks and loan ideas that the new government will soon launch to all infrastructure, especially power and communications.

Reed Hundt is CEO of Coalition for Green Capital and former chairman of the FCC.

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