It is exasperating to be enticed by positive talk coming out of Washington once again on infrastructure. We have been disappointed so many times that it’s almost not worth counting the total.
Should we have more hope this time? I want to believe in the possibility, but I am having trouble getting there.
The one aspect that makes this time different is perhaps the notion that we need to move on to something positive after all of the impeachment machinations. In many respects, a focus on infrastructure would be clearing the air a bit and would reinforce the message that we still may achieve positive policy outcomes in a bipartisan fashion. It is true that revised NAFTA has progressed while all of the drama has been unfolding, so it gives us some hope.
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It is forward looking and not to despair, there is a lot for the municipal industry to applaud in the release.
First, bringing back a version of Build America Bonds and expanding the reach of private activity bonds are certainly positives. Some industry participants may lament that BABs are not municipals and that often the municipal professionals were not always the ones bringing BABs to market and trading them thereafter. However, BABs were often employed in projects where they were just one element of the finance plan. Expanding PABs almost seems incredible given that they were almost taken away from us in the debates leading up to tax reform. Of course, the elements of the plan are only proposed and would be subject to considerable debate despite the acknowledgment that the improvements are very needed.
Other proposals on the financial side include reinstating advanced refunding and expanding Tax Credits. I would applaud both of these actions but as usual how to offset the costs associated with these actions in the federal budget would be an important detail. It is often hard to win back what has already been lost in the budget calculus. I have always believed that attacking municipal provisions constitutes easy pickings.
A total of $760 billion over five years would be an incredible surge in public sector spending by any account. One only has to compare the proposed amount with our annual municipal bond issuance of about $420 billion to appreciate the size and scope. While dealing with large numbers, another good one to keep in mind is our annual $1 trillion deficit. The bottom-line consideration is essentially whether the proposal will add to the deficit or will the proposed spending be offset in other ways.
Another incredible element in this discussion is that we have not encountered any difficulties in financing our deficit with Treasury bills, notes and bonds. In fact, we have so much demand for Treasury paper that launching a 20-year maturity would appear easy to accomplish later this year. The MMT supporters even posit that debt is not much of a factor in the current environment and most Republicans have ceased talking about the topic. So, it would seem, some expansion of the deficit to accomplish the goals of the plan may be tolerated.
The planned spending of $760 billion is divided among Highway/Transportation spending of $434 billion and all other categories. Among the other designations, Broadband at $98 billion and Clean Water at $50.5 billion are greater priorities.
In regard to water, the proposal points out that there is a need to spend $655 billion over the next 20 years to make water systems compliant. This need makes the proposed $50 billion appear to be a modest goal. The plan also mentions that there is a relatively new Environmental Protection Agency Municipal Ombudsman. We have to think that this person will be busy in the days ahead if this plan is adopted.
Some other interesting elements of the plan include a number of considerations, including that the passenger facility charge (PFC) for flights be raised, though a dollar figure was not given. As has been suggested many times in the past, the plan also recommends indexing the PFC to inflation. Congress has chosen not to do so in the past. Keeping with airports, Next Gen for the air traffic control system is mentioned in the framework. Canada was able to modernize their system a long time ago by using privatization. There are barriers for us in doing so, but it still should be explored.
There will continue to be an emphasis on expanding the application of TIFIA. Surprisingly, there was no mention of WIFIA.
Another matter that is addressed in the plan is the insufficiency of a skilled workforce to bring all of these projects about. To address that drafters include a workforce development plan. As we know, the ebbs and flows of the construction sector have meant that many of the workers needed to find employment elsewhere. Construction work is often physically challenging and dangerous and is not always the first thought of folks who are glued to their phones.
Now that municipal rates have set record lows for the 10 year and 30 year maturities at 1.15% and 1.80% it is an opportune time to bring some of the larger projects on the drawing boards to market. There is every reason to suspect that these levels should persist for some time but will change after a period.
We are heartened to see that folks on the Hill have dedicated some time to this plan during the maelstrom. We think the time may be right after the impeachment process concludes for a positive action. But, hopes have been dashed before. Perhaps, the time is ripe.
