On April 5, 2017, Thomas M. Hanna writes on In These Times:
Trump’s investor-friendly plan and other conventional approaches are likely to fail—it’s time to try something new.
In their 2017 infrastructure report card, the American Society of Civil Engineers (ASCE) gave the United States a dismal D+—and for good reason. ASCE notes, for instance, that each day 188 million trips are made across the nation’s 56,007 structurally deficient bridges. Another catastrophe like the 2007 collapse of the I-35 bridge in Minneapolis (which killed 13 people and injured 145) seems only a matter of time. In fact, just this past week an elevated section of I-85 collapsed in Atlanta after a fire. A recent state inspection had found numerous cracks and spalling (concrete deterioration) in the structure.
Beyond the visibly decaying bridges, dams and railroads, various hidden issues also plague the country. The people of Flint, Mich., are still without clean, safe drinking water nearly three years after state emergency managers switched the city’s water source to the Flint River. The highly polluted river water was treated with high levels of chlorine, making it around 19 times more corrosive than the previous supply from Lake Huron, causing aging pipes to leach iron and lead into people’s water. Across the country, deteriorating infrastructure—including poorly designed or maintained roads, railroads that don’t use the latest available track technology, and pipelines that leak and explode—is responsible for thousands of deaths, injuries and illnesses every year, to say nothing of tens of billions of dollars in economic costs.
Clearly, America’s infrastructure is in desperate need of repair and modernization. But there are right and wrong ways to take action.
On the campaign trail, and in his February address to Congress, President Donald Trump promised a $1 trillion infrastructure plan that would create jobs and “rebuild” the country. In January, labor leaders from several building and construction unions met with Trump at the White House and affirmed their support for such a program. On the surface, this may seem like a bright spot in the Trump policy agenda—but the plan appears seriously flawed.
As Sean McGarvey, president of North America’s Building Trades Unions, confirmedafter the meeting, the administration’s approach to infrastructure involves substantial private sector investment and so-called “public-private partnerships” (PPPs). Once considered an innovative and novel way to finance infrastructure, PPPs have lost their appeal to many experts and policymakers amidst high-profile bankruptcies, extortionary contracts, and spiraling fees, tolls, and rate increases for users. Just last year, the private operator of parts of State Highway 130 in Texas declared bankruptcy. This follows on the heels of the 2014 bankruptcy of the company running the Indiana Toll Road (once considered the country’s marquee PPP project) and similar failures in California, Virginia and South Carolina.
There’s a reason PPPs are a risky, costly bet. In a recently released policy brief for the Next System Project, Ellen Brown (president emeritus of the Public Banking Institute and former Green Party candidate for California Treasurer) explains that one of the problems with private-sector approaches is that the investor (often a large financial corporation) requires a considerable rate of return on its investment to pay off its debt and turn a healthy profit. (Full disclosure: I am director of research at the Democracy Collaborative, where Ellen Brown is a fellow, and which hosts the Next System Project.) This return is generated on the back of higher user fees and rates, subsidies and guarantees from governments, and contractual restrictions on competition.
The traditional alternative of financing infrastructure involves state or local governments issuing bonds to be bought by investors and paid off over time. However, this isn’t ideal either—paying off interest on the bonds can sometimes as much as double the cost of a project. According to Brown, there’s a much better way: The federal government can finance infrastructure by simply issuing new money.
There are at least two ways to go about this. In one, the Federal Reserve would create money just as it did through its post-financial crisis “quantitative easing” (QE) program, when trillions in new money was pumped into the financial system through the purchase of securities from banks. These funds could then capitalize a national infrastructure bank or a network of state-level infrastructure banks. She calls this “qualitative easing,” because the money would be injected into the real economyrather than into the balance sheets of the major Wall Street banks.
The other approach would be for the Treasury, Federal Reserve or Congress to create the money and just directly invest it in infrastructure projects. Whether funneled through a public bank or banks, or invested directly, the funds could be provided at no or very low interest, allowing states and localities to pursue a host of pressing infrastructure projects without levying or raising taxes, tolls and user fees.This isn’t so radical as it sounds: As president, Abraham Lincoln printed $450 million (almost $11 billion in today’s dollars) in “Greenbacks” to help pay for the Civil War, and even Milton Friedman proposed “helicopter money”—a metaphor for “dropping” newly printed money directly into communities—as a way to combat deflation.
Critics will, of course, scream “hyperinflation” and conjure up images of wheelbarrows full of money in Weimar Germany or last decade’s worthless Zimbabwean bank notes. But Brown has a different take. Neither QE (despite the dire predictions of many in the economics profession) nor Lincoln’s Civil War money-printing caused hyperinflation. Given the persistence of relatively low inflation (as well as other factors) there is good reason to believe that in the current economic climate, investing new money into the real economy through infrastructure projects would merely provide a much-needed boost.
While Brown’s proposal may seem outside the mainstream of contemporary U.S. political discourse, it is exactly what is being proposed by major economic figures and politicians in Europe, ranging from Yanis Varoufakis, the leftist former finance minister of Greece, to Rick Rieder, the Global Chief Investment Officer of BlackRock, the world’s largest investment management corporation.
A large-scale commitment to rebuilding America’s decaying infrastructure is long overdue. A smart infrastructure policy could directly and indirectly create between 10 and 15 million jobs over the next decade, including good-paying union jobs in some states. It would benefit the economy: Alleviating traffic jams and improving public transit could work wonders for productivity. It would also save people’s lives and keep them healthy, and keep the country competitive with others that already are actively and energetically upgrading their infrastructure.
The Trump approach, however, would likely increase the already heavy burden on local taxpayers, infrastructure users, workers, and public budgets by allowing private financial interests to syphon off substantial resources, driving worsening inequality and economic hardship. It’s time to reject such failed conventional approaches, and mobilize around new ideas and possibilities.
Infrastructure upgrades and development are necessary to the quality of societal development and life. This is a necessary expenditure by government funded with taxpayer extraction and debt. What has been missing throughout America’s societal development is there has been no stipulation that the contracts issued to the private sector companies performing the upgrades and development demonstrate that they are broadly owned by their worker employees. Thus, the greatest immediate economic benefit resulting from taxpayer payment obligations accrues to the company owners and not the workers who are paid in wages and salaries.
There is no question that rebuilding and expanding our infrastructure is an effective way to both create jobs and address the rampant infrastructure problems that are accumulating in our country.
But the “create jobs” justification does not position working people where they need to be in our future economy. There is MORE INCOME to be earned by workers through OWNING the companies (corporations) who are awarded the taxpayer-supported contracts to do the work. As a major component of an infrastructure initiative, there must be included the stipulation that the companies bidding and ultimately awarded the contract work be EMPLOYEE OWNED. These companies can transform to employee-owned companies by structuring themselves using an Employee Stock Ownership Plan (ESOP). Already there are over 7,000 companies who are structured using an ESOP.
To fully understand and undertake this policy approach see http://www.cesj.org/learn/capital-homesteading/ch-vehicles/employee-stock-ownership-plans-esops/, http://www.cesj.org/learn/capital-homesteading/ch-vehicles/employee-stock-ownership-plans-esops/infrastructural-reforms-tax-incentives-encouraging-employee-stock-ownership-plans-esops/, http://www.cesj.org/resources/articles-index/whose-pie-and-why-esops/ and http://www.cesj.org/resources/articles-index/beyond-esop-steps-toward-tax-justice/
With ALL the subsidizing of business interests, never questioned is WHO OWNS the resulting productive capital asset investments financed with taxpayer extractions and national debt. The rich get richer, while the subsidizing is defended on the basis of CREATING JOBS! This just keeps America’s propertyless serfs for the wealthy ownership class to exploit.
A policy to ensure that future infrastructure added to the economy creates new owners as well as jobs is necessary to put the nation on a path to inclusive prosperity, inclusive opportunity, and inclusive economic justice. As owners, the workers would benefit additionally from a second income and the capital gain value of the private sector companies they share in the ownership of. And this can be accomplished without reliance on “past” savings and without reduction in worker wages and salaries.
On the larger scale there is a better way to finance infrastructure revitalization efforts, public works projects and environmental cleanup that is an alternative to traditional “public-private partnership (PPP)” financing that produces the result that an already wealthy ownership class of “investors” will end up owning the redevelopment improvements and new developments on which they will either sell off at a profit or lease the use thereof at a profit, or charge user fees and road tolls, etc.
A national infrastructure revitalization and expansion plan will necessarily include, to a degree, using eminent domain powers of the State. The taxpayers will pay for an billions of dollars, if not a trillion worth of improvements to revitalize and create new infrastructure projects, including widening bridges, restoring wetlands, cleaning up industrial waste and acquiring privately held parcels.
As usual, the question of “Who will own the properties, once improved, is NEVER addressed, but smart people know that it will be wealthy investors who will end up with the prized income-producing capital assets.
As an alternative we should use a Citizens Land Bank (CLB), a for-profit, professionally-managed, citizen-owned-and-governed community land planning and development enterprise, designed to enable every citizen of a community of any size to acquire a direct ownership stake in local land, natural resources and basic infrastructure.
A Citizens Land Bank is a social vehicle for every man, woman and child to gain, as a fundamental right of citizenship, a single lifetime, non-transferable ownership interest in all the Bank’s assets, share equally in property incomes from rentals and user fees from leases or use of the Bank’s assets, accumulate appreciated equity values from enhanced land values, and gain an owner’s voice in the governance of future land development.
The Bank is an innovative legal and financing tool empowered to borrow on behalf of all citizen-shareholders and service the debt with pre-tax dollars to meet the land acquisition, capitalization and operational needs of the Bank. The CLB shelters from taxation the equity accumulations of citizen-shareholders and protects the outside assets of the citizens in the event of loan default or if the enterprise fails.
A Citizen Land Bank is a social tool designed to encourage a just, free and non-monopolistic market economy. It applies the democratic principles of equal opportunity and equal access to the means to participate as an owner as well as a worker. It demonstrates that anything that can be owned by government can and should be owned, individually and jointly, by the citizens.
The provisions and unique aspects of the Citizens Land Bank are:
- Make debt service on a leveraged CLB (a special kind of REIT) established within an eligible Super Empowerment Zone a tax-deductible business expense (as with an ESOP), so that area voters without savings can purchase a major block (up to 100 percent) of a CLB’s voting, full-dividend-payout common stock on borrowed funds repayable out of pre-tax CLB corporate profits and dividends. To the area voter, the principal payment on their stock acquisition loans would be treated as deferred income until CLB benefits are distributed as consumption incomes.
- Give the CLB tax-free status (as with an ESOP trust or an REIT) so that shares of CLB stock acquired by area voters and CLB earnings can be accumulated within individual CLB accounts free of taxes until the benefits are distributed to participants, generally on leaving the area. When distributed, the CLB benefits would be taxed the same as distributions from an ESOP or IRA.
- To create an in-house market for CLB shares, require the CLB to plan for the repurchase of distributed shares through a tax-free liquidity fund within the CLB, thus adding to the shares of remaining participants.
- Encourage the CLB to pay out dividends to area voters as supplementary incomes from their growing equity stakes in local real estate development by allowing CLB dividends (as with dividends on ESOP shares) to be taxable at the personal level but deductible at the corporate level. Together with the incentives of #1 and #2 above, this feature, by eliminating the discriminatory double tax on corporate profits, helps to restore private property in corporate equity.
- Defer personal income taxes on CLB-sheltered stock accumulations of area voters until the stock is distributed, sold and converted into spendable income. Allow the CLB participant a tax-free “roll-over” into a tax-exempt “Individual Retirement Account.” i.e., to further delay paying personal income taxes if the cash proceeds are re-invested into securities of other private sector equity investments. The objective here is to encourage savings and investment and to provide new sources for financing new ventures.
- Similar to #5 above, provide a tax deferral to the seller of stock to a CLB (e.g., joint venture partners and other CLB investors) from any proceeds on the sale, provided that the seller re-invests the cash proceeds in securities of other productive enterprises within the Super Empowerment Zone. This simultaneously reinforces both the goal of expanded share ownership opportunities and of providing new sources for financing development within the zone.
- Require an annual independent professional appraisal of the fair market value of CLB shares and provide regulatory oversight of CLBs to minimize abuses, promote understanding, disseminate reliable information on the CLB among area voters, and generally protect the property rights of CLB participants.
- Monetize private sector productive credit by making “eligible” CLB and ESOP loans (as determined and allocated by local banks) within Super Empowerment Zones eligible for discounting under Section 13 of the Federal Reserve Act. New money issuances would be subject to 100 percent reserve requirement and made at a discount rate limited to a low Fed “servicing fee.” This reform would radically reduce capital credit costs, accelerate private sector growth rates and increase the competitiveness of enterprises within Super Empowerment Zones, reduce dependency on tax subsidies, and broaden citizen participation in capital ownership and profits.
For more information on the Citizen Land Bank seeÂ http://cesj.org/resources/articles-index/citizens-land-bank-what-it-is-and-is-not/,Â http://cesj.org/learn/capital-homesteading/ch-vehicles/citizens-land-banks-clbs/tax-incentives-and-infrastructural-reforms-needed-to-encourage-citizens-land-banks-clbs/, andÂ http://cesj.org/learn/capital-homesteading/ch-vehicles/citizens-land-banks-clbs/.
Providing a way of legitimately getting productive capital ownership into the hands of the people who now don’t have it is the solution to America’s economic decline in wealth and income inequality, which will result in double-digit economic growth and cause EVERY American’s income to significantly grow, providing the means to support themselves and their families with an affluent lifestyle, and provide the necessary tax base to gradually pay off American debts. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.