President-elect Joe Biden has provided his most direct articulation of his approach to infrastructure investment during his press event nominating Pete Buttigieg for U.S. Secretary of Transportation.
It is about public-private partnerships with state and local governments and also the private sector. It is about middle class jobs. It is about innovative mission-driven business growth.
Biden was concise. Still, to understand the significance of his approach, it is necessary to understand his economic philosophy, means for executing on his vision, and track record.
This piece focuses mainly on the President-elect’s infrastructure approach as it relates to finance, business, and labor, although health, safety, climate change and national security figure in.
To date, the press corps and key stakeholders have understood Biden as a longtime champion with a razor-sharp focus on leading a 21st century rail revolution. Not since President Abraham Lincoln signed the Pacific Railway Act in the midst of the Civil War to initiate the Trans-Continental Railroad to unite East and West, North and South has a president taken up this mandate.
The country has mobilized around lore of “Amtrak Joe,” because it signifies so much about his character, grit, and respect for the dignity of his brethren who make the system work. It also represents a key plank in the fight against climate change.
Still, Biden’s approach to infrastructure is even richer and multifaceted than what the Amtrak Joe moniker suggests.
The president-elect has a distinct economic philosophy which will drive his infrastructure investments. For Biden, infrastructure is a linchpin of ensuring that American realizes itself as a land of possibilities. Without robust infrastructure (and a highly trained workforce), the American middle class cannot grow or sustain nor can mobility and a vanguard economy. Thus, inadequate infrastructure poses a direct threat to national security. It is a key reason why Biden has made domestic economic security a touchstone of foreign economic and defense security.
What does it mean then for Biden in practice to advance infrastructure investment from a business, finance, and labor perspective?
When business seeks to locate or expand operations within the country, infrastructure plays a fundamental role within the investment calculus. This means looking at areas such as connectivity of the freight rail system to move goods from plant to market. The same goes for the road system. Many companies bring materials and goods in and out of their facility. Workers frequently need public transportation to get to work efficiently and then home to family. The ability of ports to handle large shipments is essential. Plentiful and affordable waste water systems are required and so on and so forth. Without these and other infrastructure advantages, business look elsewhere, sometimes overseas.
Biden takes the view that the fortification and expansion of the middle class stands or stumbles on these infrastructure advantages. The President-elect takes a much more expansively realistic view on the synergistic relationship between infrastructure investment and the middle class.
Like others, Biden sees solid union jobs as accompanying the design, building, operation, and maintenance of the projects themselves. These jobs are not only middle class ones, but they also pay higher wages than other middle class jobs.
Biden, though, takes the strong jobs and infrastructure nexus further. For instance, an infrastructure investment gives birth to a business site location decision. It thus has a direct causal relationship to the middle class jobs within business facilities. As these jobs expand, so do all of the businesses supporting these economic activities including automobile dealers, grocery stores, and hairdressers.
Under this grounded sophisticated approach, Biden views public-private partnerships as a cornerstone. However, he does not define these partnerships in the way that is common parlance. Typically, public-private partnerships connote private equity investments into infrastructure projects. While this approach is certainly one element of Biden’s definition, it is not what is meant by the usage of the term.
Instead and in line with the foundational role of infrastructure in catalyzing middle class jobs, Biden is referring to the leveraging of modest amounts of federal money to bring in outside money. Importantly, the president-elect is a full throated proponent of direct spending and appropriation to cover the full costs of very many projects and programs. Frequently though, this money is not available at the levels to address the magnitude of the need. In these instances, Biden measures the power of federal infrastructure money on its ability to bring in new outside capital within a single project through contemporaneous state, local, and private money.
Many ways exist for doing so. When Biden played the driving role in the execution of the American Recovery and Reinvestment Act, he catalyzed and oversaw a myriad of leveraging programs. Typically, the stimulus act has been understood as a large tranche of federal grant-driven projects undertaken throughout the country to save an economy on the brink of a Great Depression through job-intensive, productive projects.
Biden’s stimulus act public-private partnerships, which are also central to his forthcoming approach, encompassed a myriad of innovative multifaceted vehicles. They included the use of federal funds, often modest funds, to advance loans and loan guarantees to state, local, and private entities. Also within this public-private partnership lexicon are the leveraging vehicles such as tax credits. Biden has also been a champion of competitive grant programs for their ability to bring outside governmental and private funds.
A key area is bond vehicles and enhancements. They can be used in a variety of manners.
Bond vehicles to bring institutional investors, such as pensions and sovereigns, into the government finance market are one way of using a federal incentives. State and local governmental entities can partner with the federal government to bring these investors into projects. One of the advantages of this arrangement is that these investors can lend at a lower rate and stretch out repayments much longer.
These public-private partnerships can be especially useful in today’s era of debt-distressed governmental entities. A number of vehicles can exist whereby the federal government provides modest incentives to catalyze the restructuring of governmental entity balance sheets, in certain ways akin to remortgage ones home in a time of lower interest rates with a sweetener. This approach can unlock capital, which is a valuable thing to do these days for certain entities.
Another key area of federal public-private partnerships called P3s. Here too, the federal government provides modest incentives to state and local governments and also private entities. The federal government is helping to bring in private equity through investment funds, asset managers, and multinational enterprises. P3s can allow government entities with a significant debt load to undertake capital projects without additional debt taking. At times too, the private partner can bring sizable innovation.
Under Biden these P3s will require reconceptualization to reflect labor union participation which can take a myriad of effective forms, rework in sizable ways the role of debt including those innovative ones made available by President-elect Biden which transformed during the Recovery Act and over time with Dodd-Frank, combine diverse types of capital for non-capital stack reasons.
Infrastructure investments are essential for so many of Biden’s core priorities. For this reason, it is key to see his public-private partnerships as emanating from many federal agencies including the Department of Energy. Climate Change programs invariably depend upon infrastructure investments from site location, weather emergency prevention and mitigation, and energy distribution.
We live in an unprecedented time of great crisis. Infrastructure investments are being called upon to ensure that we build back better and face down the existential threat of climate change. The operative questions right now are: How do I participate, can I shape what’s happening, and what’s in it for my organization governmental, commercial, not-for-profit, philanthropy?
The country will need to lean heavily on infrastructure leaders to optimize Biden’s vision.
