Infrastructure Summer: One Deal Forward, One Deal Back

The same day the bipartisan bill advances in the Senate, one of its key architects throws cold water on the reconciliation companion.

Joe Biden got exactly what he wanted on Wednesday: a bipartisan deal on infrastructure that he could analogize as akin to the transcontinental railroad and the interstate highway system, and something that “signals to the world that our democracy can function, deliver, and do big things,” as he put it in his press statement. The motion to open debate on the bill passed the Senate by a 67-32 count on Wednesday evening, with 17 Republicans joining all Democrats.

Is the president exaggerating? Folks, come on, this is Joe Biden we’re talking about. Taken by itself, the bipartisan bill is a nice starting point for public-sector reinvestment. It comes out to an extra $110 billion per year for the next five on a variety of projects, offset by a batch of almost comical revenue ideas, which are fortunately more half-baked than actively harmful (though there’s a bit of that too).

It won’t change the world and, importantly, it’s unlikely to reverse a drastic trajectory on climate. But we can say that the legislation would likely return the United States to something closer to an industrialized nation in its built environment.

I say “likely” because several senators indicated they were only agreeing to open debate and not yet to support final passage. More important, the bipartisan bill was never supposed to be taken by itself; in fact, numerous House Democrats will not allow it to go forward without that additional budget reconciliation bill for investments in health care, climate, child care, education, and more, currently slated at $3.5 trillion. That makes Sen. Kyrsten Sinema’s (D-AZ) statement about the reconciliation package much more important than anything else.

Let’s go over the bipartisan bill, or as I’ve been calling it, Portman-Sinema. The original framework came out on June 24, and the agreement a month later honestly not different enough to have wasted a month. I did a little comparison of the topline spending in the two bills, and only two things went away: a $20 billion “infrastructure financing authority” and about $9 billion in transit spending. (The second half of this bill, the surface transportation reauthorization, has been mostly unremarked upon, despite the transit elements being the main sticking point through the weekend.)

The financing authority, also called a national infrastructure bank, ran up against objection from the municipal bond industry, who roared against anyone else being able to finance public-works projects except their rather punitive selves. The transit funding was a Republican objection, and Democrats relented. The White House fact sheet claims that the surface transportation piece has a “larger share” devoted to transit than normal, so Democrats may have gotten their overall 80/20 split on older funding sources. (See here for details).

Either way, we can say that this bill is even more tilted to the fossil fuel end of the equation now. Nevertheless, that still leaves $39.2 billion in extra money for transit, and combined with $22 billion for Amtrak, $12 billion for intercity and high-speed rail, and $24 billion for Northeast Corridor modernization (all of which is in a “passenger and freight rail” section), it could have been plenty worse.

The revenue offsets did change quite a bit. We knew about Republicans ditching the tax enforcement piece. But there was a big victory here for progressives. A few weeks ago, it looked as if much of the bill would be financed by selling off public assets and allowing investment firms long-term concessions of roads and water and power systems and whatever else they could land. The privatization agenda was extremely dangerous, and in my view enough to oppose the effort entirely.

But it has mostly vanished in this new version. After significant pushback from the left, a good deal of the privatization schemes are gone. That was an important show of force.

There is $100 million in “asset concession incentive” grants to help cities establish public-private partnerships (P3s). Some larger transportation projects will also be required to evaluate a P3 option, to ensure it’s given “a fair shot.” Tipping the scales to P3s is bad news, and these measures give them a foot in the door. But there was talk that the overall bill would save up to $100 billion by offloading the investment to P3s, which would really have been a fire sale. This is definitely more minor.

Portman-Sinema also extends tax-free “private activity bonds,” (PABs), which were circumscribed to specific transportation projects, to broadband and carbon capture, and it doubles the use of PABs on transportation. This is a tax giveaway to Wall Street investors, but in Congress that’s called Wednesday. More distressingly, projects financed this way do not have to pay prevailing wage requirements under the Davis-Bacon Act.

In place of tax enforcement and privatization are mostly a bunch of gimmicks: “unused” COVID relief spending, wireless spectrum and petroleum reserve sales, “pension smoothing,” customs fees, the usual gruel of Washington “pay-fors.” There’s $56 billion derived from long-term economic growth, which is another way of saying, “We’re not covering all this.” Adding reporting requirements for cryptocurrencies to prevent tax avoidance is not bad, and overall I’ll take gimmicks and nonsense over real and bad.

I don’t want to paint too rosy a picture. I did another chart showing the difference between this bill and how much Biden wanted for these measures in the American Jobs Plan, and it turns out Biden sought $923 billion for what became $550 billion. There are “program integrity measures” to prevent unemployment fraud, which could easily just make it much harder to access needed benefits at the most urgent time. One pay-for delays a Trump-era rule outlawing rebates to pharmacy benefit managers, which the CBO scores as saving $49 billion but which really just empowers predatory PBMs to continue to inflate drug prices. There’s at least a Davis-Bacon exemption for certain projects with private funding, and maybe for more (the summary is very poorly written on that point).

But despite the setbacks and the general fossil fuel–heavy nature of the plan, it would be relatively acceptable if paired with a solid, think-big agenda that Democrats can pass themselves in reconciliation. That’s what makes Sinema’s comments so disturbing.

The co-architect of the bipartisan bill told The Arizona Republic that she will not support a reconciliation bill at $3.5 trillion, though she would support the process moving forward. That means she would likely vote for the budget resolution that Senate Majority Leader Chuck Schumer plans to pass before the August recess. But that would just delay the fight.

Some impossible choices on what the left sees as already a compromise down from $6 trillion would have to be made to accommodate Sinema. House progressives, who have much more than enough numbers to block anything, could use that to reject Sinema’s changes. And several have already said that they would not pass the bipartisan bill without the reconciliation bill. In a real sense, you either get both bills or neither.

That’s a fight for another day, and it will be an excruciating one, carried out entirely among Democrats. This was actually the Republican plan: give a modest infrastructure package that’s more about things they can tout like highways and internet access, and watch the opposition party devolve into madness trying to wrestle the rest of the agenda into one package. We’ll see if they were right with that assessment.