Waiting in his well-appointed and busy office in the neo-classical Longworth House Office Building just south of the Capitol, one can’t help but notice the many books lining shelves. One stands out in particular
– its cover features Bruce Springsteen, the American singer/songwriter whose songs have covered themes such as the American working class and political sentiments. Springsteen also happens to be from New
Jersey, John Delaney’s home state.
The Northeastern state is not the only thing Springsteen and Delaney, who now represents Maryland’s second-largest district in the US House of Representatives, have in common.
The son of a union electrician, Delaney grew up in a blue-collar household. Scholarships from his father’s union, the veterans’ organisations American Legion and Veterans of Foreign Affairs, as well as from the Lions Club, enabled Delaney to attend Columbia University and Georgetown University Law Centre.
His background serves as a useful reference point in examining his journey from his home state to US Congress in Washington DC.
“I wanted to do public service,” he replies when asked what prompted him to seek public office, leaving behind a successful career as an entrepreneur who started two companies.
The first, founded in 1993, was Health-Care Financial Partners (HCFP), a healthcare finance company which provided loans to smaller healthcare providers overlooked by larger lenders. HCFP went public in 1996.
In 2000, Delaney co-founded Capital-Source, which lent money to thousands of small businesseshroughout the country and was recognised by the Treasury Department for lending to disadvantaged communities. That company was listed on the New York Stock Exchange (NYSE) in 2003.
But political office, according to Delaney,is not much of a departure from his previous career.
“People are actually quite surprised to hear this sometimes – but this is actually a pretty entrepreneurial job because you can work on anything you want to,” he explains.
One of the things Delaney began working on even before assuming office in January was the Partnership to Build America Act, a bill that seeks to find alternatives to public funding for investment in infrastructure.
“I started looking at domestic economic policy: ‘Where can government really make a difference to drive growth and create an environment where the private sector can succeed?’” he says, recounting the thought process behind the bill.
“It was pretty clear to me that infrastructure investment should be our top economic priority because it creates jobs in the short term and the jobs actually provide for a decent standard of living,” he continues.
“It makes the country more competitive and I think we have a very significant competitiveness issue in this country.”
A big part of that is due to globalisation and technology, which according to the Congressman, have “fundamentally changed” the economy and led to income inequality since these trends have largely benefitted those who are educated, possess specific skills or have access to capital.
“For most the rest of the country, globalisation and technology have been pretty disruptive,” he argues.
Therefore the country needs to figure out how these trends can benefit more Americans than they hurt.
Investing in infrastructure is one way to improve the country’s competitiveness; another is tax reform, which is also a key piece of what Delaney calls his competitiveness agenda.
“Infrastructure jumped off the page because, as I thought about tax reform, I saw all the cash sitting overseas, and it just struck me as a natural way to accomplish two important objectives,” he explains. One objective, long advocated by his fellow Democrats, is investing in infrastructure; the other that Republicans have pushed for, is repatriating corporate foreign earnings to invest in the economy at home.
“I thought if we could marry these two concepts we could have a sort of double bottom-line public policy,” he explains.
The Partnership to Build America Act (HR 2084) achieves this by providing for the creation of a $50 billion infrastructure bank that could finance up to $750 billion in new projects. The bank would be capitalised upfront through the sale of 50-year bonds. US corporations would be incentivised to buy the bonds by being allowed to repatriate a portion of their foreign earnings tax free for every dollar they spent on purchasing these bonds.
The percentage of earnings companies will be allowed to bring home tax-free will be determined at auction.
“Companies will look at this, they’ll calculate what the cost of buying these bonds is, they’ll equate that with an effective tax rate and they’ll essentially bid a tax rate,” Delaney explains.
However, it is precisely this funding mechanism and the decision not to use appropriated funds that has drawn some of the sharpest criticism.
Those opposed to the legislation claim that it will deprive the government of billions in tax revenue.
The Congressional Budget Office, which scores a bill based on how much it estimates it will cost the government, places that cost at around $70 billion.
“The Congressional Budget Office has an assumption – that that money will come back and pay full tax,” Delaney says.
“That’s just fiction. […] The companies are going to keep the money overseas because it effectively lowers their cost of capital and they’ll deploy it overseas,” he counters.
He is not alone in making that argument.
The Brookings Institution, a Washington DC-based think tank, in a paper released in August last year said: “Short of comprehensive tax reform, the American government has few options to recoup lost tax revenue on overseas corporate profits,” which it estimates to be between $1.45 trillion and $1.7 trillion.
Brookings also called for the creation of a national infrastructure bank that would be funded through a “onetime repatriation tax holiday”.
The issue of tax reform has not only been talked about but was addressed in a piece of draft legislation introduced on the day of this interview.
Dave Camp, a Republican from Michigan and Chairman of the House Ways and Means Committee, introduced the Tax Reform Act of 2014 which seeks to “fix America’s broken tax code by lowering tax rates while making the code simpler and fairer to families and job creators,” according to Camp’s statement.
The bill would also make available $126.5 billion to the Highway Trust Fund (HTF) by taxing corporations’ foreign earnings at a reduced rate of 8.75 percent, payable over eight years. These revenues would in turn fund highway and infrastructure projects through the HTF during that same period.
A week after Camp’s tax bill appeared, President Barack Obama presented his proposed budget for 2015, which included $302 billion allocated towards transportation infrastructure. Part of that funding would come by simplifying the tax code including closing loopholes and lowering tax rates for companies which create jobs at home.
However, many lawmakers and business executives have ruled out any meaningful tax reform in 2014.
In fact, a survey conducted by Washington DC law firm Miller & Chevalier and the National Foreign Trade Council found that none of the 129 leading business tax executives surveyed believed tax reform was possible this year. Some of the reasons given included a divided Congress, mid-term elections scheduled this November, and competing legislative priorities.
Regardless of if and when tax reform happens, it still would not affect the nearly $2 trillion currently overseas since “the way we change taxes in this country is on a prospective basis; in other words we change the law going forward,” Delaney explains.
“That’s why I think this bill [Partnership to Build America Act] fits so well in comprehensive tax reform because if you fix the system going forward then this approach is the perfect way to deal with the money that sits over there,” he stresses.
Despite the criticism, Delaney’s proposed legislation had 13 co-sponsors from the beginning and at the time of writing that number stood at 56, with equal representation from both parties.
The bill received a further boost in January when Senator Michael Bennet, a Democrat from Colorado and Senator Roy Blunt, a Republican from Missouri, introduced their version of the Partnership to Build America Act.
Like the House version, the Senate bill would provide funding for projects in the transportation, energy, water/wastewater, communications and education sectors (schools). However, it has been described as being more conducive to public-private partnerships (PPPs; P3s) since it allows loans to be made directly to private entities – not just government entities as in Delaney’s version – and increases the amount of capital that can be allocated to P3s to 35 percent from 25 percent in the original bill.
Another difference between the two bills concerns governance of the bank’s board of trustees. In the House version, seven of the 11 board members would be appointed by the seven entities purchasing the largest amount of bonds.
Asked whether this might have posed a conflict of interest, Delaney responds: “I don’t think it would because we specify in the legislation that the companies have to certify that the people they appoint are experts in infrastructure finance and that they have no financial or any other interests in the companies.”
“But people kept raising that point so in the Senate bill we cleaned that up; there’s no longer that provision,” he explains.
The Senate version provides for a nine-member board of trustees all of which would be nominated by both chambers of Congress.
The Senate companion bill also has bipartisan support including that of Mark Warner who is co-sponsoring the bill. A Democrat from neighbouring Virginia, Warner introduced the Building and Renewing Infrastructure for Development and Growth in Employment (Bridge) Act last November.
At a high level, the Bridge Act as well as both versions of the Partnership to Build America Act are “designed to create infrastructure financing capability to help solve this [infrastructure deficit] challenge,” Delaney says.
“It would probably be a better outcome if they were merged together,” he believes.
One of the Bridge Act’s key differences is the way it is funded. Instead of an infrastructure bank, the bill calls for the creation of an independent government entity, the Infrastructure Finance Authority (IFA).
The IFA would receive initial funding of $10 billion from the government, but the objective would be to ensure the entity becomes self-sustaining over time. This would be accomplished by establishing fees for loans or loan guarantees.
The Bridge Act is also narrower in scope, excluding projects in the communications and education sectors.
NO CRYSTAL BALL
While the fate of this draft legislation remains unknown, there is no denying the efforts from various corners of government aimed at addressing America’s deepening infrastructure problems.
The question is ‘why now’?
“I think there’s been significantly more focus on US competitiveness in the last several years and I think people realise that our infrastructure challenges really do affect competitiveness, so I think that’s a part of it,” Delaney responds.
“The other thing is that we do have some very significant employment challenges in this country and I think people view infrastructure investment as really smart economic stimulus,” he continues.
He is not alone in making that point.
In late February, the Group of 20 finance ministers and central bank governors pledged to facilitate private investment in infrastructure as a means to growing global gross domestic product by more than two percent over the next five years.
Considering Delaney’s professional background it seems appropriate that he would be the one championing a bill aimed at providing private funding for public infrastructure.
The question then arises of how his previous experience in the private sector has shaped his perspective in this current role.
“I think I have a very healthy appreciation and understanding of the private sector – how it works and why it’s important to make sure it can do things it’s really good at, such as creating jobs and driving innovation,” he says.
“I also come to the table with an appreciation of what government can’t do but also with a strong view of things government does really well and probably should do more of, which is providing scale and capacity and a concern for the common good,” he adds.
Should the Partnership to Build America Act become law it will – in the eyes of its supporters – have successfully brought together the best of both worlds.
Photography by William B. Plowman