LOS ANGELES – The Trump administration’s infrastructure push will take a backseat to tax reform and healthcare, said Transportation Secretary Elaine Chao.

From her perspective as former Secretary of Labor during the Bush administration, jobs are a priority for her in crafting an infrastructure plan, Chao said Monday during a panel at the Milken Institute’s Global Conference.

Transportation Secretary Elaine Chao "did the right thing" in approving a full funding agreement for Caltrain, said California Gov. Jerry Brown.
An infrastructure push will follow tax reform and healthcare, Transportation Secretary Elaine Chao said Monday in Los Angeles. Bloomberg News

She said she considers infrastructure to be the backbone of the economy and essential to the U.S. remaining competitive globally.

“Let’s be clear, the federal government will not be in the handout business,” Chao said.

The administration is prioritizing tax reform and healthcare because the first two would “throw off additional funding” that could be used to help fund infrastructure, Chao said.

“One of the byproducts of tax reform is additional funding for infrastructure; and perhaps another would be the repatriation of corporate profits through trade changes,” Chao said.
“What we want most is a multiplier effect, not direct funding, but leveraging seed capital, so you get velocity and a multiplier effect.”

The infrastructure proposal will include $2 billion in federal funds in the hope of leveraging that to $1 trillion, she said.

She contends that federal funding can suppress total infrastructure investment by replacing rather than augmenting state and local funding if the contribution by federal government grows too large.

The standard ratio has been for the federal government to contribute 16% with state, local and private industry providing the remaining 84% in funding. Chao secretary said she thinks that ratio should remain in intact.

“We don’t want federal funding to crowd out private investment or add to our deficit,” she said.

Over the past two years, “we have seen more bipartisan support and a sense of urgency around dealing with the $3.5 trillion infrastructure gap – but we still need action from the federal government,” said Michael Burke, chairman and chief executive officer of AECOM, who moderated the infrastructure panel.

“We saw a $3.5 trillion transportation bill passed last year by Congress; 30-plus states have raised gas taxes. In the November elections, $200 billion in tax measures were passed at the municipal level led by Measure M in Los Angeles and a $54 billion transportation bill was just signed by the California governor,” Burke said.

Panelist Reed Cordish, assistant to the president in the White House Office of American Innovation, said the administration “agrees that P3s are not the only aspect needed to fix the nation’s infrastructure.”

The administration wants to change regulations in the hope that projects that now take 10 years can be completed in two years, Cordish said.

“Countries like Australia have shown you can protect the environment and have a process that makes sense,” Cordish said. “We want to make sure we are solving the problems of tomorrow, not the problems of 15 years ago.”

The focus will not be on shovel-ready projects, but projects that can be completed in two years, Cordish said.

According to an earlier panel that discussed tax reform and the economy, the administration needs to show some progress by the end of the year to avoid having negative market consequences.

“If we don’t see movement forward on tax reform or healthcare by the end of the year, the market will start to doubt the president’s ability to deliver on promises.” said Scott Minerd, chairman of investments and global chief financial offer for Guggenheim Partners.

In a weekly research report, Court Street Group questioned how projects like Northern California’s Oroville Dam will move forward if progress is not made on infrastructure funding this year.

Kiewitt Infrastructure West Co.’s $231.7 million winning bid was nearly $44 million more than anticipated by the California Department of Water Resources, according to Court Street.

The state has not identified where the money will come from, but Joseph Krist, the Court Street managing partner who authored the report, suspects both private money and the federal government will need to contribute a large portion.

Krist wrote, however, that he thinks it unlikely that the Trump Administration will accomplish anything on infrastructure this year.

“We are skeptical of infrastructure truly being addressed in 2017, given the fight that is about to ensue with tax reform and possibly a revisit to healthcare reform, which the House failed to pass a revamped version of today,” Krist wrote.

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