Trump’s Infrastructure Plan: A Gift to the Private Sector

 

by Michael Widmann

 

“Decades of underinvestment, neglect, and political stalemate has left much of the nation’s infrastructure dangerously weak” [1], so Donald Trump has proposed plans to revitalize this infrastructure and make it “second to none” [2]. Trump’s American Energy & Infrastructure Act would create over a trillion dollars of infrastructure spending through tax incentives to stimulate public-private partnerships. However, this spending is unlikely to benefit American consumers, nor is the proposal likely to pass a heavily divided congress [3]. Additionally, the recently published Presidential budget has imposed cuts on funding to the EPA and Department of Agriculture’s rural water and wastewater loan programs [4]. US water infrastructure has been in a troubling state since 1981 with many municipalities ignoring necessary expansions and replacements of pipes and tanks, and continued deferral will cause economic and political harm [5]. While water infrastructure is often forgotten in the minds of American consumers, flashpoint events such as Flint’s water crisis have demonstrated that though water infrastructure may be out of sight, it should never be out of mind.

 

Water infrastructure is a complex network of pipelines, wastewater treatment plants, and many other facilities and components that ensure clean and potable water is delivered on demand to consumers. Unseen to consumers, this requires demand and supply forecasting, interregional planning, adjustments for population growth, constant testing and refurbishment, and many other unseen actions. These services are contingent upon adequate funding for expansion and replacement of aging equipment, but the Federal government has significantly underfunded water infrastructure and private capital cannot provide enough to sustain and improve the system [6].

 

Underfunding has caused multiple municipalities and regions to enact crisis plans to protect their water [7]. Eastern states face a crisis where much of their water facilities are reaching their design life expectancy and require replacement, and Western states are facing population growth that requires an expansion of infrastructure [8]. The replacement and expansion of water systems is forecasted to cost over $1 trillion over the next 25 years [9]. To finance these projects, Trump’s administration is promoting the use of public-private partnerships, which is when the private sector provides capital or management skills to public infrastructure. These can cause inflated prices and the loss of autonomy and control of water assets by municipalities.

 

Trump’s infrastructure plans largely ignore water infrastructure and focus on privatization, also called public-private partnerships. These deals tend to favor private companies and gain public opposition, so executives at banks proposing privatization suggest municipalities “describe it as a ‘Partnership’ or a ‘Lease’, not a ‘Sale’ or ‘Privatization'”, hence the usage of the “public-private partnerships” euphemism [10]. Privatization can be beneficial in some scenarios, but private water infrastructure management often incurs large costs to consumers such as increased monthly water bills and favors private industry, specifically Veolia Water and United Water because they dominate 61% of the private US water market [11]. Privatization occurs when a municipality can no longer maintain and manage its facilities by itself or if the municipality is financially unstable and is in need of capital. Private expertise can provide useful insight into solving problems or addressing key issues in the water facilities [12], but in cases where the entire water infrastructure is sold to a private company, both the municipality and its citizens will suffer.

 

Low revenue streams create little private incentive to take over expensive water facilities unless they are offered at a steep discount. This is occurring primarily in Midwestern states and is so profitable to private companies that financially struggling municipalities selling their water systems are called “liquid gold” [13]. Though these deals save the facilities and prolong safe water supplies to consumers, they also bring increased water bills and a loss of autonomy. Without public control, prices can rise quickly and create problems for consumers [14]. This pattern is sure to continue with the deferral of large-scale replacement and expansions that will require future private takeover. Though private takeovers have benefits such as improved water quality and less inefficiency, these benefits are confounded by the significant costs that consumers must absorb from increasing water bills and loss of control over their water system [15].

 

Trump’s 2018 budget cuts major funding sources for rural and minority communities, which will disadvantage these communities further and exacerbate inequities that cause rural communities to face inadequate waste water disposal facilities and access to potable water [16, 17]. Privatization is economically beneficial in larger urban systems because smaller communities cannot afford the large transaction costs associated with financing and planning a system, so rural communities are not able to reap the potential benefits of privatization due to large transaction costs [18]. Trump’s plan both economically disadvantages rural poor communities and favors corporations, which will further disadvantage consumers through higher water bills and loss of assets and autonomy [19].

 

A more nuanced form of privatization than Trump’s is needed for water infrastructure because federal funds alone cannot cover the large costs of repair and private takeovers disadvantage municipalities and consumers [20]. Instead of a focus on full privatization of water facilities, more incentives for private capital inflows and public lending for public water infrastructure must be established to benefit water utilities, consumers, and investors. Incentivization can come through tax-breaks, changing bond yields, and other methods that encourage private investment, yet maintain public ownership such as tax-exempt bonds, state revolving funds, and public-public partnerships [21].

 

Currently municipal tax-exempt water revenue bonds encourage private investment because the returns are tax-free, but they do not cover all expenses. State Revolving Funds encourage public loans that are self-sustaining and fund future loans, but this program cannot fund all the repairs that water utilities require [22]. In an effort to increase their debt capabilities, municipalities are founding special districts. These are small governmental organizations in control of water infrastructure that are capable of taking on debt, which many local governments cannot do themselves [23]. Additionally, public-public partnerships from water utility districts merging to consolidate expertise and experience can greatly enhance the efficiency and profitability of water utilities [24]. Expansion of these programs can lead to revitalizing water infrastructure.

 

Trump’s misguided infrastructure privatization and its consequences can be avoided through measures to increase capital flows to utilities and consolidate public expertise. These can fund replacement, expansion, and reduce water disparities between communities. Since 1981 US water infrastructure has needed repairs and expansion, but little has been done [25]. A more comprehensive effort to address water infrastructure needs in all communities is needed than Trump is proposing, or crises such as Flint will become more commonplace [26].

 

Kameron comment:
I am really glad that you wrote this blog on a topic that I think is very important but largely neglected in the mainstream media currently. Our water infrastructure is crumbking and it’s outdated. Being a resident of California, I experienced first hand the lack of adequate water infrastructure during the recent drought. As you stated eloquently, privatization is not the way. Profit should not be in mind when debating the infrastructure that supplies us one of the keys to human life. I feel as though safe and up to date water infrastructure is a human right as afforded to us by our right to “life, liberty, and the pursuit of happiness”. We need to fix the infrastructure, possibly through a New Deal type government infrastructure project. Investing in water infrastructure is critical to the future of the United States. Great blog post.

 

Brianna comment:
This topic strongly relates to the class discussion about water issues in Lowndes County, Alabama and visit by Catherine Coleman Flowers. There appear to be major implications for low income communities regarding many environmental issues. Whether water infrastructure, as mentioned in this article, or other issues like energy costs. It is typically the poor that can’t afford to buy septic tanks or energy efficient appliances, yet the cost savings from these would benefit the poor the most. The privatization of water infrastructure would impact poor communities the most with the rising costs of water bills. These poor communities could be focused in the city or more generalized in rural areas, which may also hurt the large rural Trump supporters as Trump aims to help large businesses. It is also interesting that many of these types of issues involve large monopolies, whether energy providers, like Duke Energy or AEP, or Veolia Water and United Water, as mentioned in this article. This monopoly based system needs to be managed so costs don’t get too high, but as mentioned by Michael, Trump will not be the one to manage this with his push towards public-private partnerships.
 
Cynthia comment:
This was a great blog post about a really important topic. I really appreciated how you related the importance of water infrastructure to the recent Flint water crisis in order to orient your readers about how crucial this topic is. It was a great way to capture the reader’s attention and set them up for the rest of your post.

You really clearly explained what Trump plans to do and why it is imperative that we come up with solutions to stop these plans. Clearly Trump’s version of privatization is not the best option here as you clearly explained that these public-private relationships will not benefit the consumer or the general American public. Trump’s plans will be harmful to the rural poor and only benefit big corporations. In an issue like water infrastructure, especially in the wake of Flint, it is crucial that the government take into account the benefit of the public.

Your recommendations of increasing capital flows to utilities and consolidating public expertise are well thought out and if implemented, would definitely help avoid such terrible crises like Flint. Really great job!

 

Luke B. comment:
This is a very well thought out post. It thoroughly detailed a rarely addressed problem. You explained the problem, how it is addressed by the media and Trump, and potential solutions. As with many environmental problems, education of the public is important. If the general public isn’t aware of how big corporations are completely controlling their infrastructure, not much is going to get done. It is going to be difficult getting this problem addressed considering our current administration. But exposing these public-private partnerships as what they are, an attack on the working man consumer, will go a long way to getting this problem fixed.

 

Jack M. comment:
I agree that President Trump’s infrastructure plan is likely to provide incentives for the kind of development that can lead to a loss of autonomy for municipalities to control their own water resources, as well as open the door to price increases leveled against consumers. I really think your suggestion that the formation of special water districts capable of taking on debt and forming transboundary water networks is the best solution to the problem of America’s aging water infrastructure. One benefit of private water utilities is their ability to connect multiple municipalities to one water grid, leveling costs among communities that may have vastly different capabilities to independently invest in large scale pipe and treatment projects. Using economies of scale, a larger, more interconnected grid can actually protect against a lot of the issues of racial and socio-economic inequalities as they relate to water access, particularly in rural communities. Special districts can achieve this same end-goal, as they can cross municipal lines and take on the debt to finance large grid expansions, while still allowing local governments to retain a large degree of autonomy over their utilities.

 

Jack G. comment:
Hey Michael, enjoyed your post and agree with your qualms regarding private ownership of water infrastructure. It definitely seems like there could be a middle ground achieved where the government hires private contractors to do maintenance on the infrastructure but doesn’t necessarily take ownership of it (similar to how government contractors work in military settings). Especially in the Midwest and for rural communities, it appears that private ownership is both shortsighted and ‘the easy way out’ of our infrastructure problems.

 
Henry comment:
This is a really great piece. You really seem to have done your research and become familiar with the policy. I really didn’t know anything about different policy strategies for infrastructure plans, so I’m glad you chose this subject. I like how rather than reject Trump’s plan outright with a strategy that continues current plans, you found middle ground that allows smarter partial privatization with more public oversight. In my mind, any good that is seen as a guaranteed good for the country, like water, should not be left in the hands of folks whose primary goal is to turn a profit, unless there are strict regulation and oversight, as you have proposed. Thanks for this informative post!

 
 

Works Cited
[1] Morris, John C. “Planning for Water Infrastructure: Challenges and Opportunities.” Public Works Management & Policy, vol. 22, no. 1, 2017, pp. 24-30.
[2] Jerome, Sara. “What A Trump Presidency Means For Water Management, Infrastructure.” Www.wateronline.com. Vert Markets, 18 Nov. 2016. Web. 19 Mar. 2017.
[3] Frank, Thomas. “Trump Has Promised Big Spending on Infrastructure. His Budget Cuts It.” CNN. Cable News Network, 16 Mar. 2017. Web. 19 Mar. 2017.
[4] Erbentraut, Joseph. “Trump’s Infrastructure Promise Is Leaving Out Water.” The Huffington Post. TheHuffingtonPost.com, 17 Mar. 2017. Web. 19 Mar. 2017.
[5] Choate, Pat and Susan Walter. “America in Ruins.” Challenge (05775132), vol. 24, no. 4, Sep/Oct81, p. 53. EBSCOhost.
[6] Frank, Thomas. “Trump Has Promised Big Spending on Infrastructure. His Budget Cuts It.” CNN. Cable News Network, 16 Mar. 2017. Web. 19 Mar. 2017.
[7] Crow, Patrick. “New Report Highlights Staggering Costs Ahead For Water Infrastructure.” Water World. PennWell Corporation, 2017. Web. 19 Mar. 2017.
[8] “Buried No Longer: Confronting America’s Water Infrastructure Challenge.” (n.d.): n. pag. American Water Works Association. American Water Work Association. Web. 19 Mar. 2017.
[9] Ibid.
[10] Grant, Mary. “Water privatization overview: a public interest perspective on for-profit, private sector provision of water and sewer services in the United States.” Journal of Law in Society, vol. 14, no. 1, 2013, p. 167+. General OneFile

[11] Ibid.
[12] “Buried No Longer: Confronting America’s Water Infrastructure Challenge.” (n.d.): n. pag. American Water Works Association. American Water Work Association. Web. 19 Mar. 2017.
[13] Grant, Mary. “Water privatization overview: a public interest perspective on for-profit, private sector provision of water and sewer services in the United States.” Journal of Law in Society, vol. 14, no. 1, 2013, p. 167+. General OneFile

[14] Ibid
[15] Ameyaw, E. E., & P.C. Chan, A. (2016). Critical success factors for public-private partnership in water supply projects. Facilities, 34(3), 124-160.
[16] Dumke, N. M. (2005). Water privatization threatens low-income families. Journal of the National Medical Association, 97(2), 141.

[17] Grant, Mary. “Water privatization overview: a public interest perspective on for-profit, private sector provision of water and sewer services in the United States.” Journal of Law in Society, vol. 14, no. 1, 2013, p. 167+. General OneFile

[18] Ibid.

[19] Dumke, N. M. (2005). Water privatization threatens low-income families. Journal of the National Medical Association, 97(2), 141.

[20] Grant, Mary. “Water privatization overview: a public interest perspective on for-profit, private sector provision of water and sewer services in the United States.” Journal of Law in Society, vol. 14, no. 1, 2013, p. 167+. General OneFile
[21] Selin, Henrik. “Governing the Tap: Special District Governance and the New Local Politics of Water. By Megan Mullin. Cambridge, MA: MIT Press, 2009. 280p.
[22] “How the Drinking Water State Revolving Fund Works.” EPA. Environmental Protection Agency, 16 Feb. 2017. Web. 19 Mar. 2017.

[23] Selin, Henrik. “Governing the Tap: Special District Governance and the New Local Politics of Water. By Megan Mullin. Cambridge, MA: MIT Press, 2009. 280p.

[24] Grant, Mary. “Water privatization overview: a public interest perspective on for-profit, private sector provision of water and sewer services in the United States.” Journal of Law in Society, vol. 14, no. 1, 2013, p. 167+. General OneFile

[25] Choate, Pat and Susan Walter. “America in Ruins.” Challenge (05775132), vol. 24, no. 4, Sep/Oct81, p. 53. EBSCOhost.
[26] Delaney, Arthur. “Trump Said He’d Fix Flint. Hobbling The EPA Is An Odd Way To Do That.” The Huffington Post. TheHuffingtonPost.com, 21 Mar. 2017. Web. 23 Mar. 2017.

 

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