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Private Equity, Construction Groups Applaud Infrastructure Plan Shifting Financing Burden to States, Private Sector

Funding Questions Loom Over President's Plan for $200 Billion in Federal Investment for Overhaul of US Infrastructure
February 12, 2018
President Trump's infrastructure proposal contemplates the sale of Washington Dulles International Airport (pictured above) and other federally owned assets.
Credit: Washington Dulles International Airport.

The Trump Administration on Monday finally sent Congress its long-awaited plan to overhaul the nation's infrastructure, a 10-year program that proposes using $200 billion of federal funding to stimulate up to $1.5 trillion in spending to overhaul U.S. highways, bridges, rail systems and airports.

Half of the federal funds would go toward incentive-based grants to match financing raised by state and local governments for rebuilding projects. The 53-page outline proposes that the federal government consider selling such federally owned properties such as Washington Dulles International Airport, Ronald Reagan Washington National Airport and the Tennessee Valley Authority (TVA) electrical system and other assets "where the agencies can demonstrate an increase in value from the sale would optimize the taxpayer value for federal assets."

In addition to $100 billion for direct grants, President Donald Trump's plan, part of a $4.4 trillion White House budget proposal, calls for $50 billion for infrastructure projects in rural areas, $20 billion for large "transformative" projects, and $30 billion for a variety of existing infrastructure programs.

Lobbyists for construction and private investment groups embraced the president's goal of addressing the estimated $4.6 trillion shortfall in needed improvements to roads, highways, bridges, water systems, schools and transportation systems.

Mike Sommers, president and CEO of the American Investment Council, a lobbying group for the private equity industry, embraced Trump's plan, noting that private investment firms have "record levels of dry powder on hand" as well as business expertise to manage the revitalization of critical U.S. infrastructure projects.

"Private-equity investors of all sizes are ready to invest in new infrastructure projects that will create jobs, improve local services, and strengthen communities across America," Sommers said. "Public-private partnerships are a proven method to bring much-needed financing to large-scale projects, and private equity firms have long been a part of these successful collaborations."

Michael Burke, chairman of the Business Roundtable Infrastructure Committee and CEO of AECOM, a Los Angeles-based multinational engineering firm that builds, finances and operates infrastructure assets in 150 countries, praised Trump's plan as "an important first step." in renewing America's aging infrastructure, but urged Congress to move with urgency..

"Accelerating permitting processes and attracting private investment are critical components to fixing our roads, bridges, airports and seaports," Burke said in a Business Roundtable statement. "In order to sustain and modernize our infrastructure, Congress also must find a solution to shore up federal transportation trust funds. Inaction is not an option."

Democrats, who are promoting their own plan that calls for larger amounts of federal infrastructure spending, said the Trump plan's reliance on private capital would result in hundreds of dollars a year in tolls for regular Americas. Even groups that applauded the president's infrastructure goals such as the Associated General Contractors of America, noted that the plan faces an uphill battle in a divided Congress.

"The details of this proposal are important, and many, including this association, will seek changes to further improve upon the president's concept," said AGC Chief Executive Stephen E. Sandherr. "Yet, the most significant aspect of today's release is that it signals the start of what should be a timely, bipartisan and bicameral process to identify the best ways to fund and finance desperately needed improvements to our public infrastructure."

National Retail Federation President and CEO Matthew Shay noted that the urgent need to rebuild America’s outdated infrastructure has long been a priority for the federation and its members, which face daily challenges in moving freight quickly and efficiently to meet consumer demand amid a rapid rise in e-commerce.

"For decades, we’ve seen a lack of investment in infrastructure, and American companies, workers and consumers have paid the price," Shay said in a statement. "From congested ports to deteriorating railways, roads and bridges, there is no shortage of pressing issues that must be addressed."

"We hope bipartisan discussions will advance meaningful solutions to our infrastructure needs, including a long-term sustainable funding source that treats all transportation system users fairly," Shay added.

Heidi Learner, chief economist with national tenant representation firm Savills Studley, said the funding mechanisms in the proposed budget for the infrastructure plan's goal of building projects through public-private partnerships "is very light on actual details."

"It's particularly light about where the private-sector investment is going to come from, and what the incentives are for the private investment to come forward," Learner said. "It leaves a lot of the decision making to the cities and states."

As envisioned, the proposed budget forecasts an $873 billion deficit in fiscal-year 2018, a $984 billion deficit in 2019 and a $7.1 trillion total deficit from 2019 to 2028. Such a high deficit would likely spur interest rates to move higher, raising the cost of capital as well as the required returns needed on any type of infrastructure investment, Learner said.

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