Repackaging Questionable State-Level Infrastructure Projects as Federal Projects

President Trump and Senate Democrats have been touting the idea of increased infrastructure spending on airports, highways, mass transit, and energy generation. In the abstract, the case for more infrastructure spending may have political appeal as a means of increasing economic activity, and the idea tends to appear popular in public opinion polls.

Economists have long recognized the economic value of roads, bridges, airports, and canals as the conduits through which goods are exchanged, so investments in these facilities tend to increase the flow of goods and services. The fact that these benefits exist does not mean that a surge in federal infrastructure spending will stimulate the economy in the short run or be a good investment in the long run. As Veronique de Rugy and Matthew Mitchell point out, “The political process is often biased against valuable projects, like road maintenance, in favor of more grandiose and flashy projects, like high-speed trains. The political process also encourages a systematic tendency to overestimate the benefits and underestimate the costs of infrastructure projects. In other words, the most politically valuable projects are not necessarily the most economically or socially valuable.”

The list of infrastructure projects that Trump proposed shortly before his inauguration includes airports, highways, bridges, river channel dredging, hydroelectric plants, light rail projects, and power plants. Some of these projects may be popular with voters and may potentially offer more economic benefits than costs. Others, however, are likely to have more political support than economic justification. While this series of essays focuses on transportation, the experiences gleaned from analyzing how governments choose to support other types of large infrastructure projects can inform how policymakers respond to future proposals for transportation infrastructure funding.

Infrastructure projects are often intensely supported by specific concentrated special interest groups. Government decision makers have strong incentives to favor such special interests. As a result, many government funding mechanisms become oriented around picking winners and losers instead of rewarding success or punishing failure in the same way the market does. When supporters of a large infrastructure project seek federal funding after years of delays, that alone should indicate that political support exceeds economic justification, and policymakers should look skeptically on such a project.

One item on Trump’s list is the Chokecherry and Sierra Madre Wind Energy project in south-central Wyoming. The project, proposed in 2008 as the largest wind farm in the United States, has been delayed by regulatory and funding issues. Notably, very little of the electricity it would produce would be sold in Wyoming. Instead, most of it would be exported to California to help meet that state’s renewable energy mandate. At a time when other energy sectors are thriving and wind farms are being built around the country, this seems like a particularly questionable candidate for subsidized construction.

The California electricity market also would benefit from the Energy Storage and Grid Modernization project on Trump’s list. This project’s stated purpose is to provide greater storage for electricity generated during the day and used at night. In effect, this is a federal subsidy for a state’s decision to increase its renewable energy mandate. Although such mandates may arguably have benefits, shifting the costs to residents of other states seems particularly questionable.

One surprising item on Trump’s list is the Gordie Howe International Bridge, which will cross the Detroit River to connect Detroit with Windsor, Canada. The project has been planned for many years and has faced delays owing to lawsuits and land-acquisition issues. Its projected cost of $4.5 billion makes it one of the most expensive projects on the list, and this price tag seems particularly high in light of the promise by a Canadian public-private partnership to pay the entire construction cost of the project, as well as the cost of a customs plaza on the Detroit side of the bridge. The Canadian plan was to recoup these costs through tolls after the bridge is completed. It is not clear what benefits the United States can achieve by taking over these funding responsibilities.

Another project on the list is the Champlain Hudson Power Express, which would lay a 333-mile transmission line from Quebec to New York City to bring in cheap electricity. However, critics of the long-planned project claim that its $2.2 billion estimated cost is unrealistically low, judging from the costs of similar, shorter transmission projects.

Six more projects would support new light rail lines or expansions in Boston, Chicago, Dallas–Fort Worth, Detroit, New York, and the Maryland suburbs of Washington, DC. Light rail lines consistently suffer from higher-than-forecast deficits, require increasing subsidies to cover operating costs well below their fares, and often are far less efficient than a metropolitan bus system. These light rail projects have been planned for years and have been delayed mostly because of an inability to obtain funding. As de Rugy and Mitchell note, historically, rail infrastructure usage and costs have been significantly underestimated, while their congestion-reduction benefits have been overestimated.

State regulators and politicians have pushed these and other projects on Trump’s list for years, but they were not getting any traction at the state level—often for good reason. Those state champions now have an opportunity to see their pet projects funded at the federal level. If those projects were not able to attract sufficient support at the state or regional level, then they likely lack much economic or social value, despite their backing by politicians. Such projects do not become more valuable simply by having federal dollars pay for them, and they likely would divert funding from projects offering greater benefits relative to their costs.