This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we explain some of the candidates' policy proposals that affect the federal budget.
This week, former Secretary of State and Democratic Presidential candidate Hillary Clinton released her infrastructure plan that proposes to invest $275 billion over five years in a broad range of projects including highway, rail, sea, air, and broadband expansion. This plan would directly invest $250 billion in projects and would provide $25 billion in seed money to create a National Infrastructure Bank. She also pledges to ensure taxpayer dollars stretch as far as possible by streamlining processes, promoting innovation, and encouraging private investment in American infrastructure. Clinton intends to fully pay for this plan with revenue-positive business tax reforms, although she doesn’t offer additional specifics on the tax reform proposal.
National Infrastructure Bank and Build American Bonds
Since the 1980s, various iterations of a National Infrastructure Bank have been proposed to encourage investment in infrastructure projects. This federally-created bank would offer credit assistance to state and local governments as well as private investors in the form of loans and loan guarantees at below-market rates to be used exclusively for infrastructure. State and local governments currently sell tax-exempt municipal bonds for infrastructure projects that are appealing for investors with high marginal tax rates but don’t attract investors who are exempt from federal income tax like international investors, pension funds, and endowments. With federal financing, tax-exempt entities may be more willing to make equity or debt investments in infrastructure.
Clinton’s plan doesn’t offer much detail about how her bank would be funded or how it would be structured. We do know that the bank would receive $25 billion in seed money to issue loans, loan guarantees, and other forms of credit, and would provide up to $225 billion in additional financing. Presumably, this additional $225 billion would come from private and state/local investment in infrastructure projects. This proposal appears to be similar to, albeit larger than, a proposal from President Obama to create a federal infrastructure bank with $10 billion in startup capital. The President’s plan would require that all government-issued loans be matched by the private sector or local governments to cover at least half of all project costs; it is not clear whether there would be a matching component in Secretary Clinton’s plan.
Secretary Clinton would also restore the now-expired Build America Bonds (BABs) and charge the new infrastructure bank with administering them. BABs were created the American Recovery and Reinvestment Act of 2009 that offered state and local governments a direct 35 percent subsidy on the borrowing cost of taxable bonds in lieu of the traditional tax-exempt bonds, the goal being to expand infrastructure investment by attracting private capital. If designed in the same way as the original BABs, we estimate this would cost about $20 billion over ten years.
Other Direct Investments
The remaining $230 billion would be spread among twelve infrastructure categories that include dredging seaports to accommodate larger vessels, creating an internationally competitive passenger rail, and increasing the capacity of highways and freight rail systems. The specifics on who or which industries will receive federal investments is not made clear. However, Clinton intimates that she would prioritize investing in green energy infrastructure, reducing congestion for travelers and freight (with a specific commitment to initiate “upgrades of at least the 25 most costly freight bottlenecks by the end of her first term”), expanding public transportation options, updating aviation technology, expanding broadband access, and ensuring that the country has safe and reliable water sources. She would also make improvements to the grant-making process by increasing funding for merit-based grants as well as streamlining the process and rewarding projects that integrate multiple modes of transportation.
Clinton argues that such a plan will provide an added benefit of reduced costs for the American worker, with decreased gas and car maintenance costs due to faster-moving and less congested roadways, and cheaper prices for goods because of alleviated freight congestion in the waterways, ports, and highways.
The list below outlines the infrastructure policies Clinton has proposed.
|Cost of Clinton's Infrastructure Plan|
|National Infrastructure Bank: Create a bank with $25 billion seed money||$25 billion|
|Build America Bonds: Reauthorize the BAB program to federally support infrastructure development||~$20 billion|
|Highway:* Increase capacity, improve road quality, reduce congestion||~$230 billion|
|Public transit: Expand public transportation investment to keep up with demand|
|Mechanical: Support bicycle and pedestrian infrastructure|
|Freight Rail:* “Initiate upgrades of at least the 25 most costly freight bottlenecks by the end of her first term.” Upgrade rail tunnels and bridges, expand highway corridors, eliminate at-grade railway crossings|
|Passenger Rail:* Create “world-leading passenger rail system”|
|Sea: Build deeper ports to accommodate post-Panamax vessels|
|Air: Ensure the FAA’s “NextGen” upgrade happens; invest in building “world-class American airports” with world-class air hubs|
|Broadband: Connect all households with affordable broadband by 2020; invest in low-income communities and digital literacy programs; invest new federal dollars so public buildings can offer free Wi-Fi; foster evolution to 5G wireless networks; promote shared spectrum technology|
|Research: Fund basic research for transportation sensors and “intelligent transportation system projects”|
|Energy: Invest in clean energy to modernize pipeline, and enhance grid security|
|Potable Water: revitalize aging water infrastructure with public and private resources|
|Dams and levees: Increase funding to inspect, repair, and expand hydroelectric power capacities|
|Total Cost||$275 billion|
|Unspecified corporate tax reform||-$275 billion|
|Total Net Deficit Impact||$0|
Sources: Clinton Campaign, President’s FY2016 Budget, CBO
* In his FY 2016 budget, the President proposed increasing spending on surface transportation by $48 billion in the first five years. Although Clinton’s proposal doesn’t allocate specific amounts to her ideas, the $48 billion figure is a model for the cost of surface transportation improvements including rail and highway projects.
Paying for the Plan
Clinton has proposed to pay for her plan with revenue-positive business tax reforms that would generate enough to cover the $275 billion price tag of her infrastructure projects. While she doesn’t offer specifics for her business tax reform plan, one option would be to follow in the footsteps of President Obama’s tax plan, who has put forward a framework for business tax reform that would set aside $268 billion of temporary revenue for infrastructure. In the case of Obama’s plan, those funds would come from a one-time “deemed repatriation” tax on foreign-held income.
Whether Secretary Clinton would take the same approach is still unclear, though we look forward to seeing more specifics as the campaign season develops.