The $50 billion infrastructure initiative President Obama announced in his State of the Union address ignited hopes that federal spending on local public works projects would be heating up just as stimulus funding was cooling down. But political realities surrounding federal deficit reduction imperatives have doused the optimism. Those same realities make Senate Budget Committee Chairman Patty Murray's $100 billion infrastructure spending initiative, offered on March 12 as part of the Democrat's fiscal 2014 budget proposal, more pipe dream than potential pipe-laying reality.
At least the President mentioned four specific programs he hoped to initiate. But legislative details had not arrived on Capitol Hill by the time Murray made the Senate Democrats' vague infrastructure spending plan available. The four new Obama programs were a "Fix it First" public works repair program, National Infrastructure Bank, Rebuild America Partnership and America Fast Forward bonds.
Kerry O'Hare, Vice President, Director of Policy, Building America’s Future, a group that advocates for infrastructure investments, says as far as she knows the Obama administration has not identified a specific funding source for the $50 billion. "Even without sequestration, it’s difficult to imagine any appetite to direct new spending to this proposal as many on the Hill view this as another round of stimulus spending," she says. "And without specific details and an identified ‘pay for’, this is not being considered a serious proposal by many on the Hill."
White House documents specify that $40 billion would be targeted to fixing highways, bridges, transit systems, and airports most in need of repair. That is the "Fix it First" element of the program, apparently. "Fix it First" would not address water infrastructure needs. The Rebuild America Partnership, National Infrastructure Bank and America Fast Forward bonds could be used to beef up local spending on water and sewer systems and local communication. But the National League of Cities (NLC) is lukewarm about the last two initiatives. "NLC remains very concerned about the White House-proposed national infrastructure bank," says Clarence Anthony, Executive Director of the NLC. "A poorly funded bank would be no substitute for municipal bonds."
The Obama administration sees the America Fast Forward bonds as a replacement for the Build America bonds, authorized under the 2009 economic stimulus bill. That program was a boon for local infrastructure projects before it expired on December 31, 2010. But the NLC, for example, is less interested in a resurrection of Build America in the guise of Fast Forward than it is about harm to the much larger municipal bond market generally arising from the possibility of capping deductibility of municipal bond interest payments on individual tax returns.
Rep. Paul Ryan's (R-Wisc.) 10-year budget plan which reduces the top individual tax rate from 39.6 percent to 25 percent would put that deductibility--and many other deductions--at risk, says Rob Leonard, a partner at Akin Gump, who spent 20 years as a top staffer on the House Ways & Means Committee.
But Roderick A. De Arment, Senior Counsel, Covington & Burling, and a former Senate Finance Committee staffer, doesn't think Congress will pass a tax reform bill this year. Even if it does, he believes it unlikely that deductibility of municipal bond interest will be reduced, although he thinks tax advantaged status of private activity bonds, also used to fund local infrastructure, could come under more pressure.