2020 has been a year for the U.S. history books. But the pandemic and other challenges have overshadowed a critical issue facing U.S. voters as they approach the Nov. 3 election: the urgency of investing in and shoring up U.S. infrastructure.
Regardless of whether President Donald Trump or former Vice President Joe Biden wins the election, infrastructure — particularly transportation improvements — will be a key priority, experts say.
Bloomberg Intelligence analysts hosted a webinar recently to discuss what infrastructure may look like under a Biden administration. Litigation and government analyst Matt Schettenhelm said Bloomberg Intelligence's focus on Biden is not to suggest he will claim victory in this election, but to explore "what a change in the status quo might mean."
"We think that leads to more interesting developments, and I think that's especially true on a topic like infrastructure that really hasn't seen much movement over the past four years," Schettenhelm said.
From funding to industry implications, these analysts shared a look inside Biden's proposed infrastructure plans and how — if at all — they tackle the challenges facing today's states and cities.
What are Biden's infrastructure goals?
While it's too early to predict what will come of either candidate's infrastructure promises, we can "read certain signals about what's likely," said Schettenhelm. The Trump administration's reelection campaign website touts the president's infrastructure investments in rural America and efforts to "rebuild." But the president has yet to advance infrastructure legislation through Congress after nearly four years in office, despite initial optimism and bold plans.
Meanwhile, Biden has touted his focus on developing "modern, sustainable infrastructure" to create jobs, improve equity and deliver a clean energy future. But how does he plan to do this, if elected?
Biden has hinted at modernizing highways and roads, investing in light rail networks, updating ports, investing in 5G technologies and expanding rural broadband, among other goals, Schettenhelm said. These proposed efforts have long been the goals of many Democratic leaders, and would likely see success in a new Congress.
"Passing that legislation becomes much easier the bigger the 'blue wave' that Democrats ride in this election," Schettenhelm said. "Everything is easier to get done if you don't have to engage in the horse trading with the other party to get it done."
Yet even without Democratic control of Congress, a Biden administration could be successful in passing infrastructure legislation if it keeps a particular eye on timing. The temporary extension to the Obama administration's Fixing America's Surface Transportation Act is set to expire on Oct. 1, 2021, therefore, the time leading up to Q4 will provide a "natural focus for lawmakers to consider moving infrastructure legislation forward," Schettenhelm said.
How would infrastructure goals be funded?
Funding is a critical component of successful infrastructure legislation, and taxes can be a key driver of that cash flow, said Bloomberg Intelligence tax policy analyst Andrew Silverman.
"Infrastructure repair is expensive. It's actually very expensive, and governments — federal, state and local — need cash to make their infrastructure projects happen," Silverman said. "Taxes are the easiest way to create that cash."
In contrast to Trump's tax-cutting measures, Silverman said, a potential Biden administration would likely raise taxes in one of the following areas to fund infrastructure projects:
- Gas tax: If the gas tax were increased 35 cents, it would raise about $515 billion over the next 10 years for road and infrastructure funding, Silverman said.
- Carbon tax: A $50-per-ton carbon tax would raise $1.8 trillion over 10 years, Silverman said, yet that number does not account for a dividend or tax credit included in many carbon tax proposals today.
- VMT tax: A vehicle miles traveled tax may be a promising tax option for infrastructure funding due to the "enormous" number of miles Americans travel in a year, Silverman said. He projected that if a VMT tax was set at one cent per mile, it would produce $322 billion over 10 years — likely higher, as VMT miles see a compound annual growth rate of 2%.
"The issue with all these taxes is that they're regressive. They hit middle- to lower-income people more so than the wealthy," Silverman said, yet he noted that tax measures are not the only way to secure infrastructure funding. The American Society of Civil Engineers suggested the United States would need to invest $4.5 trillion in infrastructure by 2025 to avoid "serious economic consequences," and a multi-faceted funding plan may be necessary to reach that.
Look to President Dwight D. Eisenhower's national interstate highway system plan, for instance: Through a combination of funding taxes, tolls and bond issuances, the former presidential administration paid for one of the largest infrastructure projects in American history, Silverman said.
In 2009, Congress introduced Build America Bonds that helped to finance $182 billion in new infrastructure spending following the 2008 financial crisis, Silverman said. "If BABs were received by investors similarly today, they could pay for about 10% or so of what Congress thinks it'll take to fix our infrastructure," he said.
Silverman also pointed to public-private partnerships as a viable source of funds, one that "didn't exist in Eisenhower's time."
Impacts on US transportation
Biden's infrastructure plan brings a "green vision" to the table that is "really different from what we've seen before," said Bloomberg Intelligence Infrastructure and Building Analyst Sonia Baldeira. Biden's infrastructure plan is based on a "net-zero economy, a transition economy," she said, that can transform today's transportation landscape.
- Railways: Baldeira first pointed to Biden's plans for a "second great railroad revolution" that could make America a leader in clean and fast rail transport. This plan targets air pollution and climate mitigation, and intends to connect more U.S. cities in a style resembling the European rail system, Baldeira said.
- Urban transit: Biden aims to improve the quality of public transport for cities of 100,000-plus by 2030, Baldeira said, which can advance the development of smart cities. This would likely be done through "flexible federal investments" to assist cities in the installment of light-rail networks and the improvement of existing transit and bus lines, Baldeira said.
- Airports: Airports account for about $2.3 trillion in domestic travel, Baldeira said, making them a top priority for transportation-related infrastructure improvements. Trump has defended a public-private partnership financing model for airports, which Baldeira suggested would likely be what a Biden administration would follow.
- Highways & Streets: Biden does not bring any new ideas to the table regarding the funding of highways and streets, Baldeira said, noting the revitalization and maintenance of highways is a "common element" for Trump and Biden.
Impact on utilities, energy & industrial services
Utilities are a large part of U.S. infrastructure, but how much of infrastructure funding should be allocated to utilities?
"Obviously, we don't know for sure," but tax advantages, grants and bond guarantees have all been proven as ways to support utilities' capital budgets, said Bloomberg Intelligence Utilities Analyst Kit Konolige. He suggested that if Biden spent $500 billion a year on infrastructure, and allocated 25% of that to utilities, it would increase utility capital budgets by 50%-100%.
"I think it's reasonable to assume that if Biden were to win, and especially if the Senate is Democratic, that there could be some substantial increase in federal support for utility spending," Konolige said.
Democrats would intend to support renewable energy and reduce fossil fuel use, as evidenced by the Biden campaign's emphasis on ending oil and gas subsidies in the U.S. federal budget. If this net capital is reinvested in renewables, earnings for utilities can potentially increase, Konolige said. He also suggested utilities' capital budgets could see a boost from support for electric transmission.
Other industrial services including telecom and defense will see movement under a Biden administration, said Bloomberg Intelligence Industrial Services Analyst Scott Levine. He suggested 5G has "taken off as a catalyst for increased spending," and a Biden administration supports adding $20 billion to fund rural broadband opportunities. This boost could also benefit specialty contractors working to deploy 5G networks in underserved markets.
Defense is also an area most "larger diversified engineering construction companies" are active in, Levine said, but a Biden administration would likely shift funding away from defense and toward infrastructure, which would impact government-focused defense contractors. The U.S. is at low levels of defense spending however, at about 3% of the GDP, so "we don't see a lot of downside ... based on where we already are today," Levine said.