What’s not to like in Trump’s infrastructure plan?
OK, we have an Infrastructure Plan on the table. It is dubbed a “Legislative Outline,” which may presage a long course to adoption in whatever final form.
Clearly, there are other priorities on the docket at the moment. Deferred Action for Childhood Arrivals, or DACA, expires on March 5, and it has been very challenging for Congress to act on a new plan. Should we really believe that although there is a greater consensus on infrastructure funding that it will be easier to adopt a plan than for other priorities? The simple answer is probably not.
A lot of infrastructure in the past has been accomplished in the context of an 80/20 split on funding between the federal level and the states and localities. It isn’t inherently obvious that the inverse, a 20/80 split, will be able to produce incontrovertible results. Furthermore, the funding of the 20% federal share will be hotly debated so soon after tax reform. The $200 billion that is intended to be pledged to the effort over 10 years needs to be funded in the budget. Shifting funding from other existing priorities is a more tortured way to achieve the goal. Trucking industry groups among others have suggested an increase in the federal gas tax. A Republican raised the gas tax in New Jersey to fix the roads by providing for more funding for the Transportation Trust Fund in the state. The odds of doing so at the federal level are much less certain.
There is no clear timeline for the Congress to begin debate on a bill that has been widely discussed. One would hope that it would be slotted after DACA and well before the mid-term elections. At least the federal budget will cause fewer difficulties due to the two year adoption.
Despite all of the challenges ahead, there are aspects of this proposal that a municipal professional may admire. If we obtain even a proportion of what is included therein, the approval is likely to lead to more activity and issuance in the municipal market.
The newly established incentives program would allocate out $100 billion of funding for a wide array of projects including: “governmental infrastructure, surface transportation and airports, passenger rail, ports and waterways, flood control, water supply, hydropower, water resources, drinking water facilities, wastewater facilities, stormwater facilities, and Brownfield and Superfund sites.” Invariably, someone’s particular pet project may not be on this list, but there may be other avenues to pursue under the proposal. This thoughtful list includes a great deal of the priority needs.
In order to introduce a note of fairness, no individual state may receive more than 10% of the total funding. The more onerous restriction is that the Incentive Grant cannot exceed 20% of “new” or project revenue.
A full $50 billion is devoted to a Rural Infrastructure Program. It has been a long time since President Kennedy’s efforts in Appalachia, and there haven’t been many efforts of this kind that have been strictly dedicated to rural parts of the nation. Out of the total, 80% flows to the governors to dole out via formula in each state. The remaining 20% would be dedicated to rural performance grants that would be allocated in block grant style to rural areas with less than 50,000 in population. We do not know what the qualifying criteria would be, but we have to think that the key priority in any given rural area would be championed, whether it is providing broadband or fixing culverts. A portion of the rural funds are to be allocated to tribal infrastructure. Once again, the rules for same await drafting in the future. Tribes would probably apply for projects that are not eligible for tax exempt funding.
Another $20 billion would be allocated to the Transformative Projects Program to be administered by the Department of Commerce as the lead agency. Funds may be applied to demonstration projects, planning, and capital construction. Criteria would largely be determined by the Department of Commerce. One has to conclude that the impact of such a project would be on a grand scale and would eminently worthy from a cost/benefit perspective.
Another $20 billion of the overall proposal would be dedicated to advancing and funding “major & complex” infrastructure projects by expanding federal credit programs and the enhanced use of Private Activity Bonds. The former would account for $14 billion and the latter would account for $6 billion.
The $6 billion of expanded PABs has caused a stir in the municipal market. Figuring that the $6 billion could be leveraged several times would be tantamount to creating more supply in the market. As part of this aspect of the proposal, TIFIA would be expanded to include non-Federal waterways, ports, and airports.
As we have experienced, TIFIA is now a very well used tool that had a somewhat rocky start. Part of the challenge was due to a plethora of rules that would apply to any project under consideration. One has to believe that the rule writers will have learned from the history. WIFIA, a relatively new program for water, would also be expanded and an existing cap of $3.2B is slotted for repeal. Other programmatic aspects of WIFIA would also be expanded. One aspect of the proposal as it applies to WIFIA may not be welcomed by the rating agencies. The requirement that two rating opinion letters be obtained by prospective WIFIA borrowers would be reduced to only one as a cost reduction initiative. However, the agency would retain discretion in cases where it believes two would be beneficial.
Following the Legislative Outline leads us to other significant aspects that may bear fruit. Eliminating the AMT preference on PABs is designed to lower costs and increase usage. Another significant proposal is to eliminate state volume caps and transportation volume caps for infrastructure projects including ports and airports. It is refreshing to see that the federal drafters had probably consulted some municipal professionals on these aspects. The input is not always an automatic assumption.
Another proposal that has merit is the divestiture of certain federal assets for which the municipal market has had many and varied interactions with over the years. These assets include: Southwestern Power Administration’s transmission assets; Western Area Power Administration’s transmission assets; Ronald Reagan Washington National and Dulles International Airports; George Washington and Baltimore Washington Parkways; Tennessee Valley Authority transmission assets; Bonneville Power Administration’s transmission assets; and Washington Aqueduct. This proposal is reminiscent of the refinancing and restructuring of the federal debt for Washington Metro with municipal debt in the 1990’s. Whether the prospective debt to achieve the goal would be taxable or tax exempt, the opportunities would create quite a field day for investment bankers.
On the transportation side, states would be permitted to toll Interstates in order to provide funding for infrastructure. This permission has had very limited application to date. The process to obtain Passenger Facility Charges for small airports would be streamlined. Commercialization of rest stops would be championed. The plan also wants to encourage expanded use of State Infrastructure Banks. SIBs have provided much lower cost financing over the years and could be expected to do more in the future with proposal adoption.
Many other provisions are included in the plan. One proposal would create a Superfund Revolving Loan Fund and Grant Program. Included are easing constraints on Public-Private Partnerships in Transit; expanding Clean Water Revolving Funds to privately owned public purpose treatment works; lowering thresholds for carrier approvals for airport projects and many other ideas that are quite constructive.
Another entire section of the proposal is dedicated to the streamlining of the permitting process. One would expect that some of the proposed element in this section would encounter relatively strong push back. However, restricting the timelines for review and National Environmental Protection Act processing has some merit but will encounter turbulence. On Design-Build highway projects final design activities would be allowed before final determination on permitting. Up to 10 pilot programs would also be selected to fine tune the permitting process.
Judicial Reform and Workforce Development are also treated in the plan. The latter begs the question of where all of the skilled workers required for these projects will be supplied from. In many parts of the nation there are already skilled-labor shortages. Texas comes to mind in this regard.
Given the votes that will be required for approval of this plan, we are of the mind that not all of the sections will withstand the legislative process. However, there are many thought provoking aspects of the plan that have real merit from a public policy and economic viewpoint.
Municipal bonds would be expected to fulfill various aspects of the plan in concert with other funding options. We are optimistic that some part of the plan can be achieved in the near term, even in the headwinds of the midterm elections.