Outlook from the leaders in infrastructure

Top muni industry executives will share their views on the current developments and a road ahead.

Transcription:

Peter Keating (00:07):

Well, thank you. My name's Peter Keating. I'm a contributing writer at The Bond Buyer. My daughter texted me 15 minutes ago cuz she looked at the agenda and she said, you're in big trouble. And I said, why coz of the subject? And she said, no, because you're following an item on the agenda that says dessert with exhibitors. So yes, we're awake, we're here. Thank you for coming. We have an extremely esteemed panel. I wanna thank everybody for taking the time and effort to join us. I'm gonna ask each of you to introduce yourself by name and title. That way we get everything and we can all refer to each other. Don't you start with you, Michael.

Michael Lexton (00:47):

Great, thanks Peter. Michael Lexton, the head of transportation, MP3 finance at UBS. Been doing this for a couple of decades now.

Kevin Dunphy (00:59):

I'm Kevin Dunphy. I'm the Head of Public Finance at MUFG Union Bank and also been doing this a couple decades. I think I may be an official member of the silver tsunami, I heard this morning.

Warren Payne (01:13):

My name's Warren Payne. I am a partner at the firm of Mayor Brown here in DC where I work in our tax in infrastructure practice areas.

Gregory Remec (01:23):

I'm Greg Remec, I'm a Senior director at Fitch Ratings and I manage the US North American infrastructure and project finance team.

Peter Keating (01:32):

Great, thank you. So we're just past, I think mostly past an election. The silver tsunami is unstoppable, but the red wave proved to be stoppable and so we're gonna look at a few big picture questions starting with that, and then our panels can get as small bore and as detailed as you want and going over some of this stuff. So the first big picture thing I wanted to talk about is what do these midterm elections mean for the amount and the allocation of infrastructure funding around the country? I'm guessing the really basic answer is that even if they gain a small majority in the house, republicans are not gonna be able to stop the flow of funding from the infrastructure bill or the tax credits or other financing in the IRA. So questions now shift right before we get to what's going on at the federal level and the tranches of money coming in the direction of states and counties and cities all over the country.

(02:36)

Let me ask you about what happened at the state and local level. Voters in 18 states just approved 88% of the transportation ballot measures that they faced. So that's almost 20 billion in new financing. Plus there was a environmental bond in New York worth more than 4 billion that got approval. Plus there were housing finance initiatives across an interesting cross section of the country. Does this indicate anything more than the general popularity of budgeting by ballot? Is there more willingness, do you think? I mean, adjusting for the environment we're in by municipalities to issue debt, possibly more willingness to leverage the federal money that's coming their way? Or is this just a bunch of popular stuff made it onto state local ballots? Anyone want to take that?

Michael Lexton (03:31):

Sure. I think that what we're finding is that the public has an understanding about the needs that our infrastructure has in this country. Even though they won't put it anywhere near the top of their list of issues that they vote on, it still becomes a primary issue when it comes to raising capital for infrastructure. The approval approval ratios that you mention sort of indicate that and yes, I do feel that we will start to see more leveraging of that money as it comes in, and I also think it will help potentially spur additional private sector investment in public infrastructure going forward also.

Peter Keating (04:13):

Do you have any opinions on what leads some places to leverage federal money, either to greater amounts or more effectively than others? Is it political culture? Is it a type of project? I mean, you'll find states right next to each other like Pennsylvania and Ohio, and one will manage to convert a dollar of federal money into four or $5 of federal financing or state local financing and the other barely, budgets. What more can we expect to see if you're right about more leverage and more willingness to more willingness to build on what's coming from the feds?

Michael Lexton (04:52):

I mean, I do think it could be a very local issue. For example, in the transportation sector, just the concept of tolling comes with controversy depending on where you are. Whereas in certain places it's become a very well-accepted means of raising capital for infrastructure. In other areas it's become a political hot button people not wanting to pay for tolls to see what they wanna do. And again, it gets down to the local politics, I believe.

Kevin Dunphy (05:24):

Yeah, I think in addition to that, sometimes labor plays into the factor too. There's a general disdain for the P three model in some groups, so that's also a local area, but also statewide.

Peter Keating (05:35):

Do you think we're gonna see new issuance or issuance in new areas or new things backed by bonds, new kinds of projects? Maybe. I mean one idea could be more private activity bonds, but do you think states and local governments are looking to expand what they're borrowing and able to fund?

Warren Payne (05:56):

Because I think part of this gets to the answer to your first question, which is what's happened at both the federal and state level I think exemplify how infrastructure is generally a nonpartisan issue. So even when we have very pop partisan fights, there's still the ability to do nonpartisan or bipartisan action on infrastructure. And part of that is because the definition of what qualifies is expanding into the social infrastructure area. And so yes, there's an area where you could see more activity. The difference in state and local governments is a good point. And I think a lot of that has to do with the investment the political leadership has made in that state. So for when we do our work, we'll look at a state like Virginia, which has a very active and sophisticated P3 operation versus a state like Washington and Northwest, which the state laws more or less prohibit. And so if you want to talk about where the industry could do more investment, it's at the state and local government level and educating and helping them get more sophisticated, it's hard to leverage the federal dollars for the private sector dollars if you're in a state that doesn't let you do P3's.

Peter Keating (07:09):

Well that's really interesting because so much of the infrastructure investment and jobs act was decided by people looking at numbers in the budget as opposed to people's people zeroing in on exact infrastructure needs. I don't know how many times I heard President Biden say this bill will let us take care of the 10 most important infrastructure projects in the country. He never said which 10 those were. Right. So there's a tremendous amount of funding and financing coming down and there are strong federal guidelines, but exactly what's gonna get funded is still really taking shape.

Warren Payne (07:48):

Yes. I think part of that's a large chunk of that money's formula, so it's gonna go to where it's gonna go. But then otherwise, and you look at the discretionary grants, not just in transportation but in all forms of infrastructure you're seeing the administration try to be fairly strategic about it and thinking about it from a supply chain standpoint as opposed to just a project standpoint. That confluence of all the supply chain issues with infrastructure issues is new, and I don't know that it's something that we fully wrapped our arms around.

Peter Keating (08:26):

Is this an agenda standpoint from the Biden administration, right? There's a new focus on several areas where the formulas are gonna apply. One that people bring up all the time is renewable energy, right? I mean, one of you give me a sense, is that really taking off you'd expect given all the rhetoric, is that where big bigger percentage of projects are gonna come from?

Gregory Remec (08:51):

I think single word that really drives the massive changes we're seeing in policy and as well commercially is decarbonization, right? Getting away from burning of fossil fuels. I think it's going to happen at a much slower pace than most people hope that it'll happen. But renewable energy is now, it's kind of funny, we refer to some people refer to solar and wind now as traditional renewables or conventional renewables. About 15 years ago when we first started rating our initial renewable energy projects, it was no one had any idea how these things would work out in the capital markets and required all sorts of a federal funding and support. So now we've kind of come full circle that's been proven that that's worked the way that it was supposed to, that you have large, very well qualified entities guaranteeing the repayment of the debt for these projects while the technology gets worked out, we're there on solar and wind but those alone aren't going to get us to that long term goal of a decarbonized transportation economy where we really have to focus on how are we going to charge all these batteries.

Peter Keating (10:15):

So is that what counts as ultra renewable or what? What's beyond traditional renewable? Is it batteries? Is it?

Gregory Remec (10:22):

Batteries are probably where solar and wind was 10 or 15 years ago. So now I think replacement, replacement liquid fuels, so biofuels for what's traditionally been oil fuels, oil based fuels is probably the next wave, I have a feeling.

Peter Keating (10:41):

I think if we wait just a few more years, we'll circle all the way back around to nuclear and then we'll know we've really come full circle.

Gregory Remec (10:48):

So no greenhouse gas emissions with nuclear still a dangerous way to boil water, but we're thinking about it as a solution.

Peter Keating (11:01):

In addition to renewables, this administration is also seems to be putting a much bigger focus on equity or social concerns. Do you think, first of all, is that already filtering down? Is that part of the formulas? Is that gonna be a bigger part of the project? Is that an area where if you're thinking of developing a project, do you have to shoehorn that in as a concern in order to make it work with the bill or is it just something that they're emphasizing more so people are more aware of it?

Warren Payne (11:34):

Well, I can say from our perspective in terms of advising clients on all the grant money that's out there. So for example, whether it's the Department of Energy, department of Transportation, the disadvantaged Criter Disadvantaged Community criteria, the Justice 40 initiative that the administration is pushing out, those are real, and whether a grant applicant can really demonstrate strong commitment to helping meet those goals makes a difference in whether or not you're gonna get a grant award. I think we saw that in a big way with the most recent round of Department of Energy grants towards the EV supply chain. You saw a lot of pairing with stakeholder groups that are very involved in those initiatives.

Peter Keating (12:24):

That's really interesting because the direct funding for the Reconnecting Cities initiative was cut in one of the last rounds of the IJ negotiations from I think 20 billion to 1 billion, which doesn't sound like a lot nationwide, but that suggests that those concerns are actually permeating through a lot more money than the direct 1 billion of funding.

Warren Payne (12:46):

We're in, you'll see that across, and this is where the White House is getting very involved in influencing how all the different agencies are implementing their own little slice of whether it's IJA or what will be IRA. If you look at, for example, the grant programs put out by USDA, compare them to grant programs from Department of Energy to Department of Transportation, you will see commonality in the disadvantaged communities criteria. You will see commonality in asking grant applicants to meet justice 40 initiatives. So they are being very strategic about that.

Peter Keating (13:29):

So I had a lot of people, I think the whole Inflation Reduction Act passage caught some people by surprise. It seemed to come together at the last minute. I had a lot of people tell me last year that the climate change and renewables provisions in the first infrastructure bill, the second overall big trench of money set a lot of worthy goals for 2050 and a lot of targets, but that it was gonna take massive tax credits to actually hit any intermediate targets, and behold, those showed up in the IRA. I'm wondering from where you guys sit, if the needs that being expressed and the demand and basically the necessity for more renewables, more climate change or projects either for mitigation or for prevention or whatever whether you think the provisions that made it into the IRA are sufficient to meet the needs that people were discussing, experts were discussing and municipalities were discussing before any of this past at all, how strong do you think the IRA will turn out to be?

Gregory Remec (14:38):

The tax credits are really, really key, and the fact that they can now be used by entities that don't have typical need for tax credits. So public issuers for example at the ability for it, the earlier rounds were all focused on renewable energy production, but now you can, if you're part of the chain that builds that renewable energy capital the capital equipment, you're eligible for utilizing some of those incentives and that's enormous because that's a real part of your profit component. Additional incentives for building in the US for example that I think that's really going to drive a lot of investment not only in the energy production but in all the manufacturing and the equipment that goes into it and everything that that's tied into it. I think that's key. That was a major driver behind building that renewable energy technology as I described earlier from being nascent to conventional. Now it's absolutely gonna have a big impact.

Peter Keating (15:46):

I wanna talk about TFIA for a moment because it brings together several of the subjects you each have brought up in the new legislation. The bite administration has both expanded the financing available through TFIA, expanded what's eligible through TFIA, and also created TFIA analogs in the water sector and in the space of carbon sequestration. So they must think that's a valid model to build on. At the same time when there are a lot of issuers or municipalities, at least when you talk to them, they're not sure if all of the paperwork and the process, I don't get the sense that all too many municipalities know how to get through the TFIA process really efficiently. There are some that do an amazing job, there are others that don't. Is this someplace where the industry or the federal government could offer more technical assistance? I mean, this is something where the government is saying, here's a model that works so well. We're gonna give more money, we're gonna make more things eligible for it and we're gonna create other programs based on it yet, I'm not sure mean, what do you think about its actual utilization rate? Can you get things done?

Michael Lexton (16:59):

Well, I think Mortaza had mentioned during his talk that the technical assistance that the bureau is trying to implement there, I do feel it's become a very valuable tool for many issuers to leverage additional funding because of the low cost and the ability now to stretch it out to 75 years and to subordinate the debt, defer to the debt repayment, et cetera, makes it very attractive for additional debt to be layered on top of that to raise additional capital. And I think we will see more use of that program to the extent it's given the authority to continue to grow in that regard. And in the other sectors as well, including the energy sector where we're seeing more similar type programs coming forward in providing loans. I mean, for years, one of the problems with federal grants and being able to look at federal grants going forward was the scoring aspect of how that's done in the budget. And one of the benefits of the TFIA program is how favorably it shows up in federal scoring as a loan program, which makes it a lot more amenable to Congress to continue to implement that program.

Kevin Dunphy (18:15):

I also think it was mentioned by several speakers earlier today that just the cross-functional efficiency of getting the information out, getting the money out the door, the feds working with the states, the states working with the locals, that's the challenge. There are various techniques from the Biden administration before them with summits accelerators were mentioned, all those types of information sharing where they bring people with very strong skills, but diverse skills together for a change. Whether it be the finance guys may know how to sell bonds, but they have the construction, the architects, the lawyers, all the other groups together to get these things done more, much more quickly and much more efficiently.

Peter Keating (18:55):

While we're talking about transportation, would you like to show Sure. Some slides about this, a recent report, is that right?

Michael Lexton (19:01):

Yes, Donald. I think we're ready to hit these slides now.

Peter Keating (19:05):

This is a UBS report.

Michael Lexton (19:08):

Public or so UBS published a report a couple weeks ago called The Future of City Transport is 117 page report geared to our investing clients. So unfortunately, unless you're a client of ubs the report isn't available generally to the public, even out on the sponsors table. Even out on the sponsor's tables. That's one of the things that DOD Frank did was create all these walls between banking and research.

Peter Keating (19:39):

Blaming the regulators!

Michael Lexton (19:42):

I had even just to get my hands on this report, took an effort having to go through our research concierge to be able to even talk to somebody in our research department. So that being said, I was given permission to highlight some of the aspects of this report, and I'll sort of start it off with this. I'm not a futurist and I don't have a crystal ball. And so when we were told that this was gonna be outlook by leaders in infrastructure and I thank the bomb buyer promoting me to a leader in any event, I do feel a little bit like we might be underestimating the impact of technology, particularly as we talk about energy but also mobility. And here you see times Square in 1903, mostly horse and buggy, and then less than 20 years later Times Square was filled with trolleys and cars.

(20:43)

Cars. And now of course today times Square is a traffic nightmare. And what do we have in the future for those of you who follow? George Jetson was born in 2022, so assuming however old his children that's probably 2042 for 20, well I guess a little bit later than that. But in any event we really don't know where things are headed. And I wanted to point out one of the things from this report. So we took a baseline of mobility in 2020 where 30% of people get around through micro mobility, which is bikes walking mostly just going from short distance to short distance public transport, representing 34% of mobility and personal vehicles representing 35% with the rest being other self-driving cars, et cetera. So you don't really have very much of yet. So the report, which again was for our investing clients, it's like looking at where investments might want to be made in the future and looking at companies that are in these businesses.

(22:03)

It took a variety of different scenarios of what could happen by 2040. So just 20 years from now. And the first base case scenario was a huge increase in micro mobility. And you can already see that even in a city like New York with the creations of the bike lanes certainly scooter technology, all this people getting around on e-bikes you have to watch out just crossing the streets. You don't hit by a delivery guy on an e-bike or just a commuter even. But the big impact that could have according to the base case, was a reduction in the use of public transport down to from 34% in 19%. So as we look at making investments in the transit sector, and I know there are a few transit CFOs here in the audience the thought is that that would mostly affect buses and not underground, that that would still be critical. But then of course we see self-driving vehicles growing from zero to 30%. The phrase in the report is robo taxis, but basically the ability to hop in an automated vehicle and have it take you from place to place. So from a transit agent perspective, you wouldn't necessarily need the last mile because it would take you from point to point directly. So that could change a lot of how we're looking at investing in infrastructure these days. The other highlights of the report were before

Peter Keating (23:37):

We, can I ask you a quick question about the drivers of those changes you just showed is I noticed the beginning date of 2020, is this happening in your estimation because of changes started or triggered by the pandemic that then take root? Or is this just a function of working at home, let's say? Or is this a function of technology that where self-driving cars become available and safe and

Michael Lexton (24:04):

Think it's people gonna use it more? A function of technology and the improvement in technology, although people we see here E V T O L or which is air taxis without a driver those people tend to, when they're polled, we have a group called the UBS Evidence Lab that collects data and does surveys and people are hesitant about getting up in a automated vertical takeoff in landing taxi to go someplace just because of the fear of not having a driver. Whereas when they were asked about just transporting their body vis-a-vis Star Trek that actually got a higher percentage in the survey. So we'll see how this work, but it is a matter of technology. I think going forward you have technologies for longer term, longer distance travel like Hyperloop and the boring company again, will people be comfortable in those types of vehicles? But we do see an increase in a lot of automated travel. High speed rail. Again, this is a global report, so not necessarily in the us although we're starting to see a few green shoots for high speed rail here in the us. Finally, could

Warren Payne (25:27):

I ask a US based question on the micro mobility? I'm kind of curious. We talked about going from conventional renewable to the newer tech and I think people would, in the renewable space would argue federal support for that was a big reason it got us to the critical mass we are today. I think I look at things like micro mobility and you made a comment earlier about what fell out of the recent legislation or what got cut back and the support from micro mobility is one of those things that fell out. So I'm kind of curious whether what the report thinks about the need for that kind of support long term, the technology matures, but how do you get it to market? How do you make it affordable for the consumer?

Michael Lexton (26:15):

I think that's an excellent question and I do feel that in that I highlighted one the base case, there were three other cases that the group analyzed as well. And I think from that standpoint it does become, as I said, people are feel a certain way if it's easier to get around, even now just driving in the city with all the bike lanes and bus lanes and everything else, it incentivizes people to get outta their cars. And so I think we will start to see more of that going forward in terms of people just wanting to figure out the best way to get from place to place. And that includes airports and other parking garages and the need for parking garages and how that will be impacted whether ride hailing will continue to grow. Again, the analysts fell here that it'll grow upwards from now just by 2026 to a 500 billion a year industry.

(27:17)

It's now about 150 billion a year. And then tolling and the advantages of electronic tolling and what that's done in terms of mobility and congestion managed lanes. But of course in New York, we're looking here at using congestion pricing, which wouldn't be a possibility without electronic tolling going forward. And then finally, the advent of electric vehicles and the government support for electric vehicles is certainly very strong. And also not only that, but the manufacturers are piling on to create all electronic vehicle, all electric vehicles here going forward with over 450 billion of 540 billion worth of investment. Noted. And there was just an article in the Times yesterday about the mainstreaming of EV technology and people wanting to buy electric vehicles happened to borrow my brother-in-law's Tesla this weekend. And I was like, wow, this, why am I not doing this, Well,

Peter Keating (28:27):

The adoption of EVs by manufacturers is one of the great stories of our time. I mean Ford. Plowing dozens of billions of dollars racing each other to go electric. Who do you think ends up being responsible for the infrastructure? Is that gonna be a public task, charging stations maybe development of batteries? Is that going to end up being public and private?

Michael Lexton (28:51):

So I should participate in another panel on that topic with some state DOT leaders. And at least the initial reaction is no, they don't want to be in that business much. They didn't want to be in the owning of gas station business when we started having cars. And in fact, now though, all this money was given through the national EV grant and all these states are getting money for EV charging. But I think most states now are really tending to look at being more of a bank for that as opposed to being the ones responsible for owning, building, owning and operating EV charging infrastructure.

Peter Keating (29:34):

Well you mentioned all that money being available and Kevin, you mentioned before, the big question is how does the money get out the door? I mean, is it interesting, interesting question. Can Amtrak spend, is it 63, 60, 65, 65 in the middle, 65 billion? How, who's gonna be? I mean the administration is kind of shoveling a lot of that money out of Washington. It's coming down. How do we know who's gonna use that money effectively? And is the money used to grow more? Is it a financing situation or is it more like you're gonna build as many EV charging stations as the governor in charge at that time thinks is viable? And it,

Gregory Remec (30:18):

I think Michael's point about the government not wanting to own the gas stations is really applicable here. I think the government's responsibility is going to be in building the infrastructure, the transmission that's required to get all this power to all these ultimate sources. And we keep talking about electrification decarbonization impossible without really drastically improving our transmission systems, transmission and distribution. I'm sure your report has to touch on that at some point because it's the pipeline to develop all of this mobility, all of this technology. And it's also critical for bringing those renewable energy resources from where it's generated to the end public. Renewables in general are typically fairly not very energy dense. They're dispersed. And so you really need to have large areas where you can concentrate that renewable energy and then make it something that's transmittable to the end user. We don't have an infrastructure right now that can handle it that, and that can deal with the variability of renewable energies. Some of it is less variable than others, but it, it's gonna be in all of the above solution. We're gonna have to have it created in many different ways so that we're not overreliant on any single technology or fuel resource and then we've gotta get it to the people and that infrastructure part, I think that's the key piece that the government has to be part of because it's essentially a monopolistic style of business. You have to have the ability to create these large, expanded broad systems that are just the very nature infrastructure.

Michael Lexton (32:14):

And I mean, one of the issues and one of the difficulties, and actually just turning the next slide, you can see EV adoption is going faster than anticipated today. And battery technology has been growing exponentially as well. So today we talk about a Tesla that can go 300 miles under a single charge, but 10 years from now, maybe it doesn't need to be charged till once a month and we just don't know what that's gonna be like. And so as we build out EV charging infrastructure and the electrical grid to support that, one of my concerns is that at the pace that government sometimes goes, that as this gets developed, we'll already be behind the next phase of where the technology will be. And we're working with a expressway authority in Florida where they're already working with the University of Utah in developing, in-road charging. So much like you can now put your phone down on the table and it charges here. This will be, you know, drive your car on the road and it charges and all these plugins that we're developing could become obsolete and who knows when, not tomorrow. But certainly those are the things that need to be thought about going forward, which can serve me a little bit relative to the pace at which the government can keep up

Peter Keating (33:34):

Honestly. And they all apply not just to transportation, but to home and business use of energy and the management of all that power and the grid as well as everything to do with EVs. We're down to about 15 minutes. So let me hit another couple of questions that have somewhat to do with, well they have to do with, at least now we know what the contours of the federal government are gonna look like after the elections. What do you all think happens now with oversight of esg? I know that many advisors were advising their clients sign simultaneously include this material in your disclosures because investors want it, it's necessary. At the same time, brace yourself for a more what would the word be? Recalcitrant or hawkish or brace yourself for a Congress that was going to disapprove of considering any of those measures. What do you feel that looks like now for issuers?

Warren Payne (34:28):

I don't know that the size of the majority in anybody makes a difference. It's a question of who controls the agenda and that's a majority. And whether the majority is 10 or a hundred doesn't really matter. So the committees of jurisdiction are still gonna hold those hearings. It's still gonna be a top of mind issue and it's, it's gonna be something investors are gonna have to wrestle with and be prepared to answer questions on. And I think there's some interesting, let's call them interesting and novel and leave it at that. Theories being put forward by in Congress that relate to ESG and antitrust.

Peter Keating (35:09):

Be more specific on that.

Warren Payne (35:11):

There were a group of senators sent letters to a lot of law firms a few weeks ago telling them to preserve documents under the theory that, you know, ESG is being used as a way to stifle competition by restricting lending to the fossil fuel industry. So it's a novel concept, don't know how far it's gonna go, but it's out there. So if they're gonna start espousing potential antitrust concerns, then the Congress is taking it seriously, let's put it that way.

Peter Keating (35:52):

So we're gonna see more fights between S sec, who wants to get more aggressive on this and members of Congress getting creative in ways to figure out how to stop or roll that back. Oh, for sure. I'm gonna rattle off a few key priorities that Bond Buyer always lists as key for the municipal bond advocates. Things like protecting tax exemption bringing back tax exempt advanced refunding, raising the ceiling on bank qualified debt, create a direct pay bond program restoring the state and local tax deduction. Now those things, I don't think, well they're still on the list, none of them got accomplished while Democrats were in control of Congress. I note that many members of the municipal finance caucus were reelected and returned to office several key salt, can we call them reformers? The folks who wanted to restore the deduction either didn't run again or went down to defeat Tom Malinowski, Tom Swazi Sean Patrick Maloney. So I'm guessing that despite all the Huan outcry since 2017, that the salt is gonna stay limited. But do you see any prospects for any of those other positions in this new divided government that we're likely to have for these priorities of the muni industry?

Warren Payne (37:20):

That's a good question. I'm gonna answer it two ways and I'm gonna go backwards. So first of all, on salt, remember that provision actually that salt cap expires in 2025. And so what I advise clients is in 2025, we are going to have the largest debate and tax policy in the history of the United States, even bigger than the one we had in 2011 with the Bush tax cuts and anything and everything will be on the table in the lead up to that debate. One of the things we're trying to figure out right now post-election is yes, a lot of those salt relief members lost or did not come back. One of the places Republicans won a bunch of seats was in New York. And so are we gonna just replace those with a new group of salt relief members. In terms of the other issues you've flagged, this is probably the next two years are probably not going to be hot and heavy on tax policy in Congress.

(38:28)

With a couple exceptions, there are a couple we consider must pass legislative issues coming up from 20 23, 1 of which is reauthorization of the faa. That's a tax vehicle. The few, the fuel excised taxes are gonna be part of that. So there will be a tax debate around that. The other is the farm bill and there's often a tax title in the farm bill. And so there are opportunities for Congress to legislate on tax related infrastructure issues. And I think one of the things we're gonna have to see is once we know what the final majorities are, and once we know who all the chairman are and which members get put on which committees, we'll be in a better position to forecast some of that. But I think I wouldn't rule out 2023 as an opportunity

Peter Keating (39:16):

Since you brought it up. There's also no dedicated funding for the entire infrastructure act. They grab money from excess covid funds from rounding errors and calculating pension obligations. The whole thing is last for five years and then in 2026 we're back to arguing how to pay for it. Is anyone concerned we're gonna have an awful lot of half completed broadband networks or bridges or EV charging station networks because money's gonna run out on a 10 year project in five years?

Warren Payne (39:53):

Well, at least on the discretionary side, one would presume that's being factored. Another grant applications in your criteria

Peter Keating (40:01):

You hope? Yes. you probably?

Warren Payne (40:05):

On the formula side. It's a good question. I mean I think this will be my third J was my third major infrastructure bill and the first one outside the government map 21, we did the same dig around the couch cushions to find funding and we got slightly higher numbers in terms of overall spend on the bill. We fast, we go up several years in time to the FAST act again. We're rooting around in the couch cushions. We find a little more change. We up the baseline a little bit more. We come to I J A, we're really shaking out the couch cushions, but the base is still going up again, even if it's incremental. So yes, it's a risk. I think the one thing Congress has found demonstrated experience and is it's good in shaking out the couch cushions

Peter Keating (41:00):

While,

Michael Lexton (41:01):

So one of the problems with shaking out the couch coaches is nobody carries change anymore. So no, I do feel that we are at a point where this money has to be leveraged with other sources of revenue over time. And whether that's some form like in the transportation sector, some form of road user chart or something going forward, we're just gonna need to see other types of non-tax revenue generated. Whether it be a, I think it's the state of Washington now has a freight charge that they implement. Whether that becomes some kind of federal funding source, I think those are things we're gonna have to look at in the next bills in the Congress.

Peter Keating (41:47):

Do you think that requires populous support that will only be there if some of these infrastructure projects are prove out?

Michael Lexton (41:58):

A lot of it, this is where I look at popular support for infrastructure. We talked about at the very beginning of this panel being important, but I do feel that it's ultimately the elected officials that are gonna have to make those decisions. And in particular when I look at road user charging where they've been doing surveys on road user charging for over a decade, and if you look at all the various surveys, it's like 50-50 depending on how you ask the question. And so at some point somebody just needs to pull the trigger in a state legislature or at the federal level and saying, we need money, this is what we gotta do. And in the end, I feel like the public will understand that and come along.

Warren Payne (42:40):

I just wanna

Peter Keating (42:41):

Bring up though, the gas tax is federal gas tax has been sitting at the same place since 1993.

Warren Payne (42:47):

To me, this goes back to a point I made earlier about how sophisticated your state and local governments are on the issues of P three s, right? And if you have a really sophisticated confident state like Virginia or Indiana or Maryland, you're gonna get a different answer than a state like Washington or elsewhere where either they're prohibited from engaging in that kind of activity or they just don't have any experience. And that's where I think the industry can be helpful because right now there's a lot of money sloshing around and there might not be a view that state and locals governments need to invest in that savviness and that skill and p threes but that skill and savviness and experience takes time to build. And so if they start now getting ready, then five years from now when you might really need and want it, you'll have the toolkit.

Peter Keating (43:43):

That is an excellent advertisement for our 4:40 PM panel on trends in p threes. Come back and find out if states can not just shake the couch but sell the couch and monetize the couch and build something with that. Alright, we're down to about one minute for each of you to tell me beyond things that we're have our eyes focused on right now, beyond transportation or deep into the future, what should we be thinking about that we're not? What kinds of new infrastructure do you think came to the table would make a big difference that if you had your fantasy of advice you would give, this is something we should be thinking about?

Michael Lexton (44:26):

Well, you saw the picture of the Jetsons the beginning of my slides. I, I do feel that there will be the need for faster forms of transportation and we will see the technology being directed towards that.

Peter Keating (44:44):

Would you get into a self flying vehicle?

Michael Lexton (44:48):

I probably wouldn't be the first person to get into one but if somebody is starting to do it, I probably would. And I mean feel we're, one of the things that we lack in this country is some form of supersonic transport by air which we had with the Concord. But I think technology there too is getting to a point where, I mean, think of all the things that have happened that take seconds, that used to take hours and minutes, but it still takes six hours to fly from New York to California which it took that much time in the sixties. So I do feel like we'll see some technology change there in particular,

Kevin Dunphy (45:31):

Along the same lines thinking about autonomous drivers and those types of things. Getting in a car with no driver or a subway car with no driver, those types of things. But I think the technology will catch up and that will be something barely soon that we see.

Warren Payne (45:46):

I don't know if I could guess as to one particular type of project. I could have strong views about a particular framework, which is convenience. We've gotten very used to your point, instant gratification, Amazon Prime. And so what form of transportation provides that level of convenience? And what do you need to do to convince the consumer to make sure their elected leaders facilitate that? Again, are we gonna run into a tolling conundrum where in many cases it's the right policy answer, but it's the wrong political answer.

Gregory Remec (46:26):

I'll just add on to that concept of speed and transportation. The US has a woeful record in trying to build high speed transit. Well, Michael referred to Supersonic air transport. I think the Hyperloop concept underground high speed travel has some real legitimacy to it. We have technology in place that can help make it energy efficient and I think that that's an area that we could exploit because we've certainly got the territory, we've got the geography but yet we've remained very resistant to building a truly integrated high speed rail or otherwise transportation system.

Peter Keating (47:13):

That's really interesting to see all of you find from different perspectives, find per consensus on the need for convenient high speed transportation. I mean, it is fascinating that even with all of this money coming down with all of this popular support registered with elected officials backing thing, backing projects, that high speed rail even in California is still a kind of a warning. It's a cautionary story rather than an aspiration. I mean the San Francisco to LA Train by 2030 we'll connect Bakersfield and Merced. So we gotta do better than that but nobody could do better than these guys. Thank you very much for coming. I appreciate it.