New bond could help highways

The following editorial appears on Bloomberg View:

Oh, dear. Another crisis. The Highway Trust Fund, which pays for the bulk of federal road and transit spending, is on the verge of insolvency. It faces a shortfall of roughly $63 billion over the next four years and may soon be unable to meet its obligations.

Without a cash infusion, the predictions are grim: 6,000 projects idled, 700,000 jobs lost, America’s bridges and roads falling into yet worse disrepair.

In a perfect world, the money for this essential work would be appropriated in a straightforward and transparent way. You’re right to laugh: That won’t happen. The challenge is to come up with an idea that, however opaque or complex, might actually work.

Congress will probably find a short-term fix to keep the fund afloat for now. But that won’t suffice: Simply maintaining roads and transit systems at their current levels would require a 50 percent increase in spending, according to one estimate – to say nothing of improvements, economic efficiency or ambition for the future.

Where will that additional money come from?

The White House has wishfully proposed boosting spending for the highway fund by $87 billion with an unspecified “pro-growth business tax reform.” Here’s a slightly more specific idea. Representative Steve Israel, a New York Democrat, suggests allowing companies holding large cash stockpiles abroad for tax reasons to bring their profits home at a preferential rate – on the condition that they spend about 10 percent of the repatriated income on a new kind of infrastructure bond.

The idea is modeled on Build America Bonds — which is good, because that program, started in 2009, performed quite well. With a direct subsidy to issuers, it supported more than $180 billion in public works, and saved state and local governments an average of 0.84 percentage point on interest costs for 30-year loans. Build America Bonds have advantages over traditional municipal bonds: They appeal, for instance, to pension funds and foreign companies, which don’t pay U.S. taxes and thus have little interest in the tax-advantaged muni market. And subsidizing issuers directly is more efficient than attempting to do so through the tax code. Israel’s plan thus offers a good way to encourage additional private investment in public works.

There’s a catch or two to this plan. Simple, it isn’t. A repatriation tax break worsens the convolution of a corporate tax code that is already far too tangled. The eventual cost to taxpayers depends on the details, especially the rate at which issuers will be subsidized. And the plan, for all its advantages, leaves the trust fund’s longer-term problems unresolved. The fund relies mostly on a gasoline tax of 18.4 cents a gallon, so its purchasing power is bound to diminish as cars grow more efficient and inflation takes its toll.

There’s no appetite for raising the gas tax among Republicans or in the White House, so additional creative thinking will be required. This may mean moving toward a tax on vehicle-miles traveled when the technology allows and privacy safeguards are in place. It may mean an expanded role for public-private partnerships and federal credit-assistance programs, despite their limitations. Or it may mean something more imaginative, such as taxing oil at refineries and doing away with the Highway Trust Fund altogether. One way or another, the bill’s coming due: Total government spending on public infrastructure is at a 20-year low.

One could wish that such a convoluted plan wasn’t necessary to accomplish something as basic as maintaining roads. One could also wish for a telepathic unicorn that shoots lasers and does the yard work.