Trump’s $1 trillion infrastructure fund opens bank/bond debate
US President Donald Trump’s plan to spend up to US$1 trillion upgrading the country’s infrastructure has triggered the first serious bipartisan debate in Congress on whether the United States should establish a National Infrastructure Bank and/or a national bond authority.
The video shows Donald Trump speaking with Capitol Intelligence/BBN at the Economic Club in Washington, DC, on December 15, 2014, before entering race for the US presidency, at the opening of Trump International Hotel in Washington.
The chairman of the House of Representatives Transportation and Infrastructure Committee, Republican Bill Shuster, says he opposes the establishment of a National Infrastructure Bank, while Democratic Senator Mark Warner is pressing for such a bank or independent financing authority.
Trump’s proposed US infrastructure fund is the brainchild of Warner, a former Virginia governor and private-equity principal, who quietly proposed a $1 trillion fund to be managed by a public-private National Infrastructure Bank in February 2010. Warner proposed banks putting between $100 billion and $200 billion into the fund and the US government financing the rest through leverage.
Federal Transportation Secretary Elaine Chao and Maryland Governor Larry Hogan (see video below) have said the $5.6 billion, 25.7-kilometer suburban Purple Line light railway connecting Maryland’s Montgomery county and Prince George’s county is a model that could be used for public-private partnerships (PPPs) across the US.
Chao noted that while such projects are the norm around the world, public-private financing of public infrastructure is even banned in some US states.
Hogan said he personally told Trump that his administration needed to use the successful public-private Purple Line project as an example of best practices for the proposed $1 trillion infrastructure bank/authority.
Paris-based Meridiam leveraged its vast experience of major infrastructure projects in Africa and Europe to take over the project financing and financial control of the Purple Line, Meridiam founding partner and chief executive Thierry Déau (video below) told Capitol Intelligence/BBN in an interview during annual meetings of the International Monetary Fund and World Bank in Washington.
Meridiam is uniquely positioned to benefit from Trump’s plan to invest $1 trillion in US infrastructure via PPPs along with other infrastructure funds such as Australia’s Macquarie, the Abu Dhabi Investment Authority and Singapore’s Temasek Holdings.
The Port of Baltimore is viewed as a model for PPP as its partnership with Oaktree Capital Management unit Highstar Capital allowed the State of Maryland to reap $1.8 billion in economic benefits and create 5,700 jobs without spending a cent of taxpayer money.
Baltimore’s deep-sea Panamax facility has become the most efficient port on the United States’ east coast.
Like Warner, US Senator Chris Van Hollen, a Maryland Democrat (video below), says he strongly supports the creation of a National Infrastructure Bank and points to the Port of Baltimore as an example of a successful public-private financing of a strategic US infrastructure project.
Warner’s proposal, while it was supported by president Barack Obama and his treasury secretary Timothy Geithner, faced insurmountable opposition from liberal Democrats against private-sector infrastructure funding and neoconservative/Tea Party opposition to government-sponsored corporate welfare.
Trump’s rival Hillary Clinton lifted much, if not all, of Warner’s proposal in her campaign for the presidency, and the $1 trillion figure was quietly re-appropriated by President Trump and highlighted during his first State of the Union address to Congress on February 28. “I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States,” he said on that occasion.
One solution aimed at winning support from Shuster is to bring back and expand the scope of Build America Bonds. Originally enacted by Obama as part of the American Recovery and Reinvestment Act of 2009, the taxable municipal bonds that carry special tax credits and federal subsidies expired on December 31, 2010.
Above: US House Transportation and Infrastructure Committee chairman Bill Shuster appears at a hearing with FedEx chairman and CEO Frederick W Smith and Cargill Inc CEO David W MacLennan in Washington on February 1, 2017.
The leading lobbyist for the US bond market, Securities Industry and Financial Markets Association (SIFMA) managing director Michael Decker, raised the reissue of Build America Bonds at the Bipartisan Policy Center think-tank in Washington, DC.
However, Decker noted that Build America Bonds are only interesting to US investors seeking tax credits and not to sovereign wealth funds and major foreign infrastructure funds looking to invest in US infrastructure projects as equity investors.
While the privatization of public utilities has been the norm for decades in Europe and much of Asia, it remains a highly controversial subject in the United States, where only a handful of elected officials have the temerity even to raise the subject in public.
A notable exception is Baltimore’s newly elected mayor, Catherine Pugh (video below), who does not rule out an eventual privatization of the city’s utilities if it would bring the best cost-benefit solution to her citizens.
Baltimore, Washington and countless other US cities face the real dilemma of how to finance billions on billions of dollars in urgently needed water-infrastructure upgrades without eventually privatizing their utilities under a long-term concession to a private-sector operator such as New Jersey-based American Water, French water giants Veolia and Suez Environnement, or Germany’s RWE.
While the United States is the world’s largest and most vibrant economy, the state of its general infrastructure is either poor or substandard because of inefficient and opaque financing mechanisms. Much of the blame lies in Congress, which continues to make annual appropriations to fund infrastructure, putting every long-term investment project at risk from partisan and pork-barrel politics.
Trump’s pragmatic “Art of the Deal” approach to politics and policy will in all likelihood bring about structural reforms for private-sector financing of infrastructure projects throughout the United States.
Warner, one of the most effective cross-aisle deal makers in Congress, has in his own way found a compromise solution to the equity or debt solution for the president’s $1 trillion infrastructure fund by simply renaming his proposed National Infrastructure Bank as the National Infrastructure Financing Authority.
Warner told Capitol Intelligence in an interview that the proposed financing authority would provide a one-stop shop to finance public-private infrastructure projects for domestic and foreign investors and at the same time create an agency representing key stakeholders: the US Treasury Department, US states and territories, and local governments and authorities.
Observers say a majority in Congress exists between fiscally conservative and moderate Republicans and conservative and/or pro-business Democrats to push a major infrastructure reform bill and package through.
One member of Congress who can bridge the current divide between a National Infrastructure Bank as pushed by Warner and Van Hollen and the bond-market approach favored by Shuster is West Virginia senior senator and former governor Joe Manchin (below).
While a Democrat, Manchin has crossed the aisle numerous times in support of President Trump and is the senator least concerned about party or partisan politics.
Copyright Capitol Intelligence Group – Turning Swords into Equity®.