Trump, Democrats Grasp for Funding Answers on Infrastructure

(Bloomberg) -- President Donald Trump and Democratic leaders enter infrastructure talks on Tuesday already at odds over how to pay for the massive investments that American voters say their communities desperately need.

Before their first White House meeting since January’s government shutdown, House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer made it clear in a Monday letter to Trump that they will push for a “substantial, new and real” source of revenue to pay for infrastructure projects.

Trump, Democrats Grasp for Funding Answers on Infrastructure

Schumer, speaking later on the Senate floor, suggested clawing back part of the GOP’s “massive mammoth tax break to big corporations and the already wealthy” to pay for an infrastructure deal.

The White House has been hesitant to define the scope of investment needed and wary of specifying a funding source or how to deploy federal dollars. Since Trump took office, his aides have favored a mix of some federal spending and seed money to encourage larger investments of state, local and private capital. Congressional Republicans have slammed the suggestion that trimming tax cuts could pay for infrastructure.

“We’re going slowly on this,” Larry Kudlow, Trump’s top economic adviser, told reporters on Monday, adding that White House officials have an open mind and want to work with Democrats on “things that both sides can agree to.”

Infrastructure is the rare public policy issue that unites voters across the ideological spectrum, as well as rival groups like the U.S. Chamber of Commerce and the AFL-CIO union federation. Yet there’s been no agreement on how to offset the as much as $2 trillion that the American Society of Civil Engineers has estimated is needed to upgrade public works. Trump has long promised that the projects would renew communities and juice the economy.

Heightened Tensions

The last time Democratic leaders met with Trump, on Jan. 9, he walked out when Pelosi said she wouldn’t appropriate taxpayer money to finance his wall on the U.S.-Mexico border. Tensions have only heightened since then, as House committees investigate almost every aspect of the Trump administration and some Democrats are calling for his impeachment after the release of Special Counsel Robert Mueller’s report on Russian election interference in 2016.

Trump, Democrats Grasp for Funding Answers on Infrastructure

Schumer and Trump, both from New York, are also at odds over a $12.7 billion project to build a new rail tunnel under the Hudson River linking New Jersey and Manhattan, and renovate a deteriorating century-old tube. This so-called Gateway project, essential for the daily operation of a region that generates 20 percent of the U.S. gross domestic project, has been criticized by the administration for seeking too much federal funding without a firm commitment of local funds.

Pelosi told reporters earlier this month she would like at least $1 trillion -- and as much as $2 trillion -- in direct federal spending for for a nation-wide infrastructure plan. To cover the cost, some Democrats have sided with the Chamber and AFL-CIO in backing an increase in federal fuel taxes, arguing a higher tax on gasoline and diesel fuel would be the most efficient method.

Others, including Schumer, say undoing part of the rate cut wealthy Americans received in the 2017 tax overhaul should be on the table to limit any increase in the 18.4 cent-per-gallon gas tax.

Lawmakers who attended a closed-door meeting with Trump in February 2018 said he told them he’d support a 25-cent-per-gallon increase and take the political heat. But Republican leaders were opposed, and Trump never backed the idea publicly.

Infrastructure Week

Trump in his 2016 campaign pledged to invest at least $1 trillion on infrastructure, but the administration’s attempt to dedicate a week to focus on the issue has become a running Capitol Hill joke. The plan Trump released last year was panned because it included only $200 billion over a decade -- mostly in incentives to spur investments by states, localities and the private sector -- without a defined funding source.

Asked about fuel taxes on Monday, Kudlow said Trump “hadn’t made up his mind on any of that yet” and doesn’t have a specific dollar amount in mind for a package.

Trump, Democrats Grasp for Funding Answers on Infrastructure

“We’re feeling our way on this, and we don’t have anything in concrete,” Kudlow added. “We’re developing our own policies internally, but we very much want to hear what the Senate and House members, what the Democrats want to say, and then we’ll try to react to that.”

While Trump has said he’s eager to work with Congress on infrastructure, Democrats say most Republicans won’t go along unless the president publicly endorses a plan, especially if it includes a tax increase.

‘Credible’ Funds

Complicating matters, other Democratic demands could expand the plan’s scope. In their Monday letter to Trump, Pelosi and Schumer said any deal must include clean energy measures, climate risk mitigation and investments in clean water, schools and housing. They also said the government should give priority to U.S. contractors owned by women, minorities and veterans.

Pelosi and Schumer will be accompanied Tuesday by other members of the congressional leadership and the leaders of committees on finance and infrastructure, according to congressional aides familiar with the meeting plans.

Trump, Democrats Grasp for Funding Answers on Infrastructure

Senate Majority Leader Mitch McConnell, a Kentucky Republican, says it’s up to Pelosi and Trump to find a “credible” way to pay for a package. He also says he won’t support deficit spending like the $900 billion in President Barack Obama’s 2009 stimulus package that was geared toward quelling a deep recession.

“I’m all for taking it up once the president and Democrats and everybody says, ‘O.K., here is how we’re going to pay for it,’” McConnell said earlier this month. “As soon as that magically appears, then I think we have a way forward.”

Even outside groups advocating for infrastructure spending have low expectations for what the talks between Trump and Democratic leaders will produce.

“They’re all afraid to go first,” said Michael Ireland, the president and chief executive officer of the Portland Cement Association. “The truth is only the president can provide cover for his caucus. Likewise, only the speaker and the Senate minority leader can provide cover for their members.”

Analysts agree. Congress probably can’t pass a major public-works bill before the 2020 presidential election, given that neither party wants to give the other a victory, Brian Gardner of the investment bank Keefe, Bruyette & Woods wrote in a note to clients Monday.

“For all of the hope regarding what some thought were common interests to pass a large-scale infrastructure bill, we have never signed onto the view that Washington can pass such a bill given the current political environment,” Gardner said.

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