Now that President Trump has been clearer about his Infrastructure plans, I want to send this around about his initiative, his objectives, and key features. I think it is important to have a sense of it, as little reporting is happening.
Last week was Infrastructure Week for President Trump.
He gave two main speeches and the White House released an important brief plan. On Wednesday, the president spoke about inland waterways and rural infrastructure in Cincinnati. Later in the week he convened meetings with public officials. And, on Friday, he talked about streamlining the environmental and regulatory review process at the U.S. Department of Transportation. President Trump also devoted a YouTube Address to infrastructure.
President Trump is now unfolding his Infrastructure plan. For the most part, the week received little attention given other political events, but the White House can walk and chew gum.
Public-Private-Partnerships are the cornerstone of his plan.
Before jumping in, it is important to know what President Trump is talking about when he speaks about infrastructure. It includes the usual suspects: transportation, water, and broadband. However, importantly he also includes so-called Social Infrastructure: schools, colleges, universities and veterans hospitals. Also, President Trump includes oil pipelines. In fact, we will be hearing much more from him about cutting through red tape expeditiously with reference to the Keystone Pipeline and the Dakota project.
President Trump speaks frequently about how he understand the challenges facing infrastructure from his time as a developer, for example tied to regulatory hurdles. This is no doubt the case.
Importantly though, infrastructure investment has played a role in the President's success as a developer.
In the Art of a Deal, Mr. Trump's best-selling book recounting his ascendency as a businessman, he talks about one of his most important deals: the redevelopment of the Commodore Hotel in Midtown. The Commodore was a run down hotel which Trump took an interest in. It was near Grand Central Station, which is decidedly not what it is today. Trump would go look at the hotel in the mornings and end-of-work and see commuters from Westchester and Connecticut streaming through the neighborhood. He thought to himself that this commuter traffic was a harbinger for a bright future for the Commodore.
Trump then embarked on a long dramatic process to acquire the property and secure a series of tax incentives from NYC.
It turned out that this investment in the neighborhood and in Grand Central Station paid off in spades. The Commodore is now the Grand Hyatt. So, a clear case for transit-oriented development.
So, this is a president who understands not only how government can get in the way of projects, but also how infrastructure creates wealth.
The President ran for office on making an investment in infrastructure. For most of his campaign the approach was to buttress traditional financing mechanisms. However, in the Fall, right before the election, one of his advisers released an infrastructure plan which contrasted candidate Trump's approach with Secretary Clinton's.
The cornerstone of that plan was public-private partnerships. It sought to use tax credits to stimulate private investment and in doing so produce a high single digit returns for investors.
Since coming to office, the president's views have evolved although partnerships remain the cornerstone of his approach.
Here is a brief rundown of the President's approach to infrastructure investment--
* $200 billion over ten years brings $800 billion of outside money - from states, cities and private sector to the table
* Lower the average permitting from ten-years to two-years
* Harness private sector - 'innovation and capital' - to drive the infrastructure program
* Invest $15 billion in transformative projects
* Spend $25 billion on rural projects
* Invest $100 billion in localized projects
* Implement skills-based apprenticeships which we will learn more about this week.
It may be useful to give a little on how the President approaches infrastructure spending. Then, we can turn to some of the programmatic initiatives he has in mind.
For President Trump, it is all about leverage. Right now, he sees government as spending too much money in a not-so-targeted way. In his view, the federal government should help catalyze projects but not be the main driver or financier of them.
When Mr. Trump talks about leveraging federal dollars, he does not simply mean using federal money to attract outside private capital. Instead, he is talking about using federal money in a more targeted judicious way. That money should be used to bring in state, city, and private capital.
So when the federal government spends $200 billion over the next ten years to bring $800 billion of additional outside money to the tale, he is including states, cities and private contributions as outside capital.
This fact is significant for two reasons. First, his plan is not just a public-private partnership one.
The White House is now turning to cities and states and telling them to bring ripe projects to them. They must be 30-60-90 days from RFQ and the city or state must agree to pony up the bulk of the money for the project.
This is already starting to happen. Although we will eagerly await infrastructure legislation and, no doubt, bemoan its tardiness, plenty will happen between today and legislation. It already is. We will see, increasingly, focus on what the Administration is doing without legislation.
The infrastructure plan envisages what is called asset recycling. Asset recycling is simply a deal where the private sector advances the government a large lump sum payment for the infrastructure asset in exchange for the right to charge user fees for the upgrade, operation and maintenance of the asset. Importantly, the government can use that upfront lump sum payment to pay for other projects in its capital program.
The President makes a number of concrete proposals for how specifically federal leveraging money will be spent. He will increase the capitalization of what are called TIFIA and WIFIA. These are loan programs for transportation and water projects, public and private ones. In fact, most of the water ones will end up being for public projects.
The President was in Cincinnati talking about Thomas Jefferson, NY Governor Dewitt Clinton, and the Erie Canal. He was speaking about making investments into our internal waterways in America's Heartland to help bring goods to market, move steel, and assist our agricultural economy.
There's some stuff about giving good bonds to the public and private sector.
For urban projects, the President seeks to promote the use of congestion charging. A new source of revenue for investors.
Importantly, the president wants to permit the tolling of the interstate highway system. This could unlock tremendous capital.
Interestingly, the administration is seriously talking about creating a federal revolving fund. It would focus on creating new capital assets rather than simply the operation and maintenance of existing ones. It would exist in parallel to the appropriations process. The aim of the fund would be to help pursue projects with strong return-on-investment potential.
Beyond these proposals, the President feels very strongly that tremendous amounts of money can be saved by cutting down on approval processes. The previous administration made efforts to do so as well; however, this administration is seeking much more sweeping change.
It will conduct pilot programs, greater accountability of our federal agencies, create a single point agency to lead an application through the system, devolve regulatory decision making to cities and states, and decrease litigation. There is now a council put in place to guide applications through the process.
Overall, the Trump Administration takes the position that the federal government is in fact a junior partner in most infrastructure projects. For them, why should projects be subject to onerous federal regulation.
Three things then--
We will see projects getting done while we wait for legislation
This isn't a Wall Street plan, although private investment is a cornerstone
First come, first serve for projects.