In the most divisive presidential election in memory, there was perhaps one thing every American could agree upon: The whole damn country is falling apart.

Physically, that is, with most bridges in decay, transit systems unable to cope with growing ridership, and roadways with potholes that blow out tires, snarl traffic, and cause productivity-killing delays. And it has become a cliché to describe U.S. airports as “third world,” as Vice President Joe Biden dubbed New York’s wretched LaGuardia Airport, even though facilities in most emerging countries put America’s outmoded and inconvenient airports to shame.

To that end, both the campaigns of President-elect Donald J. Trump and his opponent, Hillary Clinton, contained platform planks for major infrastructure expenditures. So, if we’re all in agreement, what’s preventing the bulldozers and cranes from getting to work? If it were that easy, it would already have been done.
First, there’s the task of planning and approving projects. Remember all the “shovel ready” jobs that were supposed to be done as part of the Obama administration’s stimulus package? Only a tiny fraction of the $800 billion in the program wound up for infrastructure.
And then there’s the matter of paying for new projects. The Trump campaign envisioned $1 trillion over the next decade, although Trump’s transition Website looks “to invest $550 billion to ensure we can export our goods and move our people faster and safer.”
But after two wars and the worst recession since the Great Depression, federal debt has soared to nearly $19 trillion, leaving far less flexibility for the U.S. to fund infrastructure projects.
That doesn’t mean it shouldn’t be undertaken. The cost may be staggering, but failing to invest in needed infrastructure would be more expensive in the long run, given the toll in terms of productivity and, in some cases, lives.
Moreover, we have a unique chance to pay for investments in infrastructure cheaply with historically low interest rates, including the possibility of issuing 100-year bonds, as discussed here in a cover story two weeks ago (“Taming the Federal Debt: The Case for 100-Year Bonds,” Nov. 19). As the uptick in bond yields in recent weeks suggests, we may not have this opportunity forever.
Adding to the federal debt is the main sticking point for deficit hawks. But there are other ways of financing infrastructure besides simply issuing Treasury bonds. Two of Trump’s key advisors, Wilbur Ross, his pick for Commerce secretary, and economist Peter Navarro, propose a “totally self-financing plan” using up to $137 billion in tax credits to fund up to $1 trillion of projects. Clinton also had proposed a so-called infrastructure bank, which Steven Mnuchin, Trump’s choice for Treasury secretary, has endorsed.

Barron’s offers another option to pay for these much-needed projects: a revival of Build America Bonds, a short-lived program that provided for taxable municipal bonds with a federal subsidy in place of the tax-exempt status of most municipal bonds. BABs were part of the Obama administrations’s 2009 American Recovery and Reinvestment Act, but the program expired at the end of 2010 and wasn’t renewed.

Build America Bonds wouldn’t add directly to Uncle Sam’s debt load and would be a more efficient way to finance much-needed infrastructure programs than traditional tax-exempt municipals. And unlike a big infrastructure-spending scheme, BABs could be added as part of tax-reform legislation, which has become a top priority for the incoming Trump administration. Then states, cities, and public authorities can draw up their own plans to shore up roads, bridges, and waterways without Washington.
WHAT USED TO BE CALLED public works didn’t always get short shrift. From the building of the Erie Canal to public-power projects to the nation’s roads and bridges, these projects have been integral to the market-based economy. And while they’re identified with Democrats and the New Deal, Republican presidents’ names are associated with projects such as Hoover Dam and the Eisenhower Interstate Highway System.

Perhaps the public perception of big infrastructure projects was soured by the legacy of Robert Moses, the so-called master builder of the New York metropolitan area from the 1920s all the way through the 1960s.

Though holding no elected office, Moses was able to construct much of the roadways, bridges, and recreational areas in and around the Big Apple. But he gave short shrift to mass transit, and critics contend he destroyed whole neighborhoods, mostly minority, to fulfill his grand building schemes.
Moses’ legacy, good and bad, persists to this day. Yet there is no way around the decrepit condition of the city’s infrastructure. Past years of neglect were exemplified when a section of the elevated West Side Highway came crashing down during the Big Apple’s fiscal crisis of the 1970s.
While not so severe, the problem is a nationwide one. According to a widely cited 2013 study by the American Society of Civil Engineers, the nation’s roads, bridges, water systems, schools, and transportation systems merited a grade of D+. Some 85,000 bridges were called “functionally obsolete,” while 14,000 dams were said to have a “high hazard.”
That’s the result of the decline in public investment as a percentage of gross domestic product in this century, traced in the chart here. The shortfalls are especially acute for surface transportation.
Even so, there remains resistance to spending government money to bring infrastructure up to snuff.
Opponents conjure up pork-barrel schemes such as “bridges to nowhere.” Japan has spent much of its two lost decades spending trillions of yen on gleaming new projects but has produced little in the way of economic growth. Chris Senyek, chief investment strategist at Wolfe Research, estimates that the Obama stimulus plan yielded less than $50 billion of “shovel ready” projects.
In the U.S., projects that once took a year or two now require more than a generation. An inside joke for New Yorkers in the cable-TV series Mad Men, set in the 1960s, was that the Second Avenue subway was due to open soon. Its long-delayed opening is supposed to take place by year end. By contrast, the original New York City subway system was completed in less than five years, shortly after the turn of the 20th century.
Similarly, many of the shovel-ready projects were bottled up in the federal bureaucracy, observes Greg Valliere, longtime Washington watcher and chief strategist at Horizon Investments. And Republicans seem lukewarm about infrastructure investment, given their aversion to big, new federal spending programs.
BUT THE COST OF NOT PROCEEDING is even greater. Economist Laurence Kotlikoff, one of the leading experts in the total debt burden of the U.S. government, estimates that all federal obligations—bonded debt plus unfunded Medicare and Social Security costs—total $199 trillion, an astounding 11 times the national debt conventionally measured.
Kotlikoff ran for president this year as a write-in candidate on a platform to avert such a fiscal disaster late in this century. Yet he decried inadequate infrastructure investment as a threat to public safety as well as a burden on the economy.
“Much of this cost comes in a form that we may not immediately recognize,” he writes in his campaign platform. “I’m referencing here the cost of our time, whether it be wasted sitting in traffic, waiting on slow trains, waiting to take off from overcrowded airports. Time is money, and, when we waste it due to ancient infrastructure (or outdated, mindless government bureaucracies), our living standards are lower as a result.”
From the heyday of public works: Verrazano–Narrows Bridge... Photo: Dave Pickoff/AP;
This fiscal hawk says the investment should be done without printing money or borrowing.

Other economists suggest infrastructure could be self-financing or that the economic payback would make borrowing worth it.

In a recent report, Goldman Sachs economist Daan Struyven notes that estimates of the short-term multiplier effect from infrastructure spending are higher (1.4 times) than other government spending (1.2 times), tax cuts for upper-income earners (0.4 times) and for businesses (0.2 times).

As for where the spending should be targeted, Olivier Blanchard, former chief economist for the International Monetary Fund, writing for the deficit-averse Peterson Institute for International Economics, argues, “Maintenance of existing infrastructure, for example, which has been badly neglected, may be less glamorous and less politically attractive than brand-new projects, but it is where the government is likely to get the best bang for its buck.” Maintenance and useful public projects also may have higher “social returns” but lower financial returns than those funded by public-private partnerships, he adds.
Among those social returns is getting the one-sixth of adult American males who are idle back to work before their skills get any rustier, argues David P. Goldman, former head of credit research at Bank of America. In the United Kingdom’s Standpoint magazine, he writes, “Repairing aging infrastructure is a basic economic requirement, but it also allows many less-skilled workers to re-enter the labor force after a long and unwanted furlough. More threatening to America’s long-term economic prospects than deteriorating capital stock is the extended idleness of a large proportion of her working-age men.”
AS IMPERATIVE AS IT IS TO FIX ROADS, highways, bridges, mass transit, and waterways is the question of how to pay for them all. The Trump program is forecast to raise the federal deficit to 7% of gross domestic product over the next 10 years, according to analyses by the Tax Policy Center, the Tax Foundation, and Moody’s Analytics, writes Stephen S. Roach, former chairman of Morgan Stanley Asia and the firm’s chief economist, and a senior fellow and lecturer at Yale University. Roach dismisses as supply-side “creative accounting” contentions by Trump advisors Ross and Navarro that a sharp narrowing of the trade deficit will produce a surge in GDP and revenue.
...Holland Tunnel roadways... Photo: AP
To be sure, some on both the right and the left contend it’s worth borrowing at record-low interest rates. Steve Bannon, Trump’s chief strategist, echoed the argument of former Treasury Secretary Lawrence Summers in a recent interview with the Hollywood Reporter: “The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates around the world, it’s the greatest opportunity to rebuild everything. Shipyards, ironworks—get them all jacked up. We’re going to throw it up against the wall and see if it sticks.”

That said, infrastructure investment will pay off more than any other fiscal measures, according to estimates cited by Goldman Sachs. The return should come in greater productivity for the economy as impediments from crumbling infrastructure are reduced. After all, it’s hard to see how self-driving Teslas could cope with the crater-size potholes common in urban thoroughfares. 

Valliere sees Democrats, led by New York Sen. Chuck Schumer, as being more enthusiastic about infrastructure spending than the GOP, especially the deficit hawks. The Ross-Navarro plan of up to $137 billion in tax credits to induce private companies to undertake $1 trillion in infrastructure would supposedly pay for itself out of the taxes paid by workers and companies on the projects. Sounds good, except those self-funding public-private partnerships might not repair the bridges or the waterways needed to move barges of freight.

Those are places for traditional public-sector financing, which is arguably better suited to states, cities, and public agencies. But their traditional mode of financing—tax-exempt municipal bonds—isn’t the ideal method for upward of $1 trillion worth of projects. Quite simply, tax-free bonds appeal only to investors who pay taxes, such as wealthy Americans with taxable accounts, but not those who don’t, such as those with retirement accounts or pension plans, or non-U.S. investors.

THAT’S WHERE BUILD AMERICA BONDS come in. Rather than the backdoor federal subsidy for regular munis (by way of the lower yields from the tax-exempt status for their interest), the federal government paid 35% of the interest on BABs, equal to the corporate-tax rate. Thus, the direct federal subsidy made up for the higher yield versus a tax-free muni. Indeed, a Treasury study found that BABs saved issuers an average of 0.84 percentage point on 30-year bonds compared with traditional tax-free munis.
... and the Hoover Dam. Photo: Benjamin D. Glaha/Library of Congress/Getty Images
A revived Build America Bond program ought to come with a smaller federal subsidy equal to the lower corporate tax rate the Trump plan envisions, 15%, or the 22% rate Barron’s proposed in a cover story on Nov. 26 (“Cut the Top U.S. Corporate Tax Rate to 22%”). That still would be attractive to state and local issuers, who have to pay tax-free yields close to what fully taxable long-term bonds yield.

Equally importantly, BABs wouldn’t add to the burgeoning federal debt as would Treasury borrowing. State and local authorities could choose the infrastructure projects to be funded by bonds, which would either be paid for by revenues such as tolls, or by taxes approved by their state and local representatives, instead of by Washington.

To make America great again, you have to fix its crumbling infrastructure. And make no mistake, that will be expensive. Uncle Sam will probably have to shoulder part of the burden along with private projects backed by tax credits, as has been discussed. But Build America Bonds can help rebuild the U.S. without adding to the excessive federal debt.