Is Trump’s $1 Trillion Privately Funded Infrastructure Plan Feasible?

Saturday, November 12, 2016
By Paul Martin

by Tyler Durden
ZeroHedge.com
Nov 12, 2016

President-elect Trump has made a $1 trillion infrastructure investment one of his first priorities as president, promising in his victory speech early Wednesday morning to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.” As Goldman’s economics research team points out, Trump’s plan, as detailed in a report released by his economic advisers Wilbur Ross and Peter Navarro, calls for $1 trillion of spending over 10 years to be funded largely by private sources which would be repaid with tax credits and usage taxes (i.e. toll roads).

His infrastructure plan calls for up to $1 trillion in additional spending over ten years, most of it privately financed. A memo released in late October by Mr. Trump’s economic advisors Wilbur Ross and Peter Navarro detailed a plan to finance up to $1 trillion in infrastructure spending over ten years, equal to $100bn per year or about 0.5% of GDP. We previously estimated that a spending boost of this size would reduce the unemployment rate by about 0.3pp and raise inflation a touch, leading the Fed to eventually hike one or two more times by 2019 relative to a baseline without the infrastructure package.

The plan described by Ross and Navarro would be largely privately financed, but encouraged by tax credits. The plan would seek to incentivize the private sector to increase investment in infrastructure projects that would be supported by future usage fees, such as road tolls. Ross and Navarro suggest that 17% of the initial investments could be financed with equity and the remainder with debt. The government would then provide a tax credit equal to 82% of the equity to reduce the cost of financing. The large role of debt-financed private investment in Mr. Trump’s infrastructure plan implies that a significant increase in interest rates could be a hurdle for the plan’s feasibility.

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