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Infrastructure Spending Plan Puts Burden on State & Local Governments

Posted by Meaden & Moore on Nov 1, 2018 8:00:00 AM

If President Trump’s $1.5 trillion infrastructure spending plan is to succeed, the money is going to have to come from somewhere. If anything can be considered a bipartisan initiative in this day and age, it might be the call for additional infrastructure spending, not only here in Ohio, but for the nation as a whole. In fact, the United States earned an embarrassing grade of D+ in the 2017 Infrastructure Report Card and Ohio has plenty of infrastructure issues of its own.

Almost 2,000 bridges in Ohio are rated as structurally deficient, 72% of regulated dams are under an emergency action plan, there is estimated over $12 billion needed for drinking water infrastructure construction and another $15 billion for wastewater treatment, and a $700 million shortfall for school capital projects.

On the campaign trail, President Donald Trump announced a plan for $550 billion in federal spending on infrastructure construction projects. In February, the president upped the ante to $1.5 trillion in infrastructure spending over the next decade; however, it is still unclear as to how much of the $1.5 trillion will be footed by the federal government.

According to a study performed by the University of Pennsylvania's Wharton School of Business (as well as other studies), the plan calls for closer to $200 billion in federal spending, with the remaining $1.3 billion to be funded by state and local government, as well as private ventures. The plan involves attracting state and local agency and private investment through a number of incentive programs.

If the $1.5 trillion plan is to succeed, the money for the infrastructure spending bill is going to have to come from somewhere, which for state and local governments would have to be satisfied through additional revenue or spending cuts elsewhere. As previously discussed, the infrastructure report card was less than flattering at both national and state levels, and with billions of dollars in current infrastructure spending gaps here in Ohio alone, something has to give. One way states can increase revenue is through an increase in their gas taxes and other motorist fees. Thus far, California, Oregon, and Indiana have already increased their state fuel taxes in order to help meet the funding gaps for needed infrastructure projects.

It was back in 1993 that the federal government last increased fuel taxes, which are used to satisfy the obligations of the federal Highway Trust Fund (HTF). The HTF provides funding to federal, state, and local infrastructure projects. The plan introduced back in February does not provide monies for the HTF, which is forecasted to need an additional $18 billion per year on average beginning in 2021, in order to achieve its current spending level. What’s worse, at the current funding level and spending level, the HTF will be completely insolvent by 2022.

Unfortunately, based on the administration’s current infrastructure plan, there appears to be more questions than answers as to how $1.5 trillion in spending will be achieved. That is not to say that the plan will not be successful, but it is apparent that only $200 billion will come from the federal government.

For instance, the plan calls for a $100 billion program whereby federal monies can be used to fund a 20% maximum of project costs. Again, the remaining 80% commitment will need to come from state and local agencies and/or private investment. Under other arrangements, the plan includes $50 billion in rural infrastructure projects, $20 billion for “bold, innovative and transformative infrastructure projects,” $20 billion for the expansion of existing financing programs, and the remaining $10 billion to aid federal agencies in purchasing real property.

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Topics: Tax Planning & Strategies