In early February, the White House released President Donald J. Trump’s legislative goals for rebuilding U.S. infrastructure. Implementation of these goals would rely heavily on states, the private sector and private funding to leverage federal investments in infrastructure. This presents significant opportunities for the private sector, including REITs that focus on infrastructure investments through public-private partnerships. While the goals of the President’s infrastructure plan are ambitious and broad, they have the ability to impact every aspect of U.S. business, with a particular focus on the transportation, energy, water, utility, communications and social infrastructure sectors.
The White House established six principles with respect to its legislative goals:
- Stimulate Infrastructure Investment: $200 billion of federal funds to spur $1.5 trillion of investment through state, local, Tribal and private partnerships.
- Invest in Rural America: Invest $50 billion of the $200 billion in rural America.
- Increase State and Local Authority: Give states and localities more discretion in prioritizing and making investment decisions.
- Eliminate Regulatory Barriers: Modify or eliminate regulations with an end goal of expediting and expanding infrastructure investment.
- Streamline Permitting: Modify the permitting process with the same end goal of expediting and expanding infrastructure investment.
- Investment in People: Provide a platform to train and prepare American workers for infrastructure-related opportunities.
The legislative goals presented to Congress are divided into four parts:
Part I (Funding and Financing Infrastructure Improvements) establishes four (4) incentive programs for investing federal funds:
- Infrastructure Incentives Program: $100 billion to be awarded by the Department of Transportation, the United States Army Corps of Engineers and the Environmental Protection Agency on a competitive basis to fund up to 20% of selected projects. The remaining 80% of the funding would come from other sources. Projects are likely to involve surface transportation and airports, passenger rail, ports and waterways, flood control, water supply, hydropower, water resources, drinking water facilities, wastewater facilities, storm water facilities, and the cleanup of Brownfields and Superfund sites.
- Rural Infrastructure Program: $50 billion to be awarded to invest in infrastructure in areas with populations of 50,000 or less. States and tribes would receive funds, with 80% of the funds allocated by block grant (by formula), and the remaining 20% reserved for specific projects grants selected on a competitive basis. Projects are likely to involve transportation, broadband, water, waste, power, electric and water resources.
- Transformative Project Program: $20 billion to be awarded by the Department of Commerce to fund “ambitious, exploratory, and ground-breaking” projects that fundamentally transform the way infrastructure is delivered and operated. The program encourages public-private collaboration to provide additional resources for these projects. The program would fund 30%, 50% or 80% of the eligible costs, depending on the life cycle stage of the project. Projects are likely to involve transportation, water, energy, commercial space, and broadband.
- Infrastructure Financing Program: $20 billion to increase the capacity of existing federal credit programs (including TIFIA, RRIF, WIFIA and RUS) and broaden the use of Private Activity Bonds (PABs).
Part II (Additional Provisions for Infrastructure Improvements) addresses four (4) categories of infrastructure: (1) transportation, (2) water infrastructure, (3) veterans affairs, and (4) land revitalization. Specific recommendations are detailed for enhancing each infrastructure category, including programs for financings, generating new revenues, streamlining processes, increasing efficiency and expanding the reach of existing programs.
Part III (Infrastructure Permitting Improvement) focuses on the roles of the federal government and state and local governments in delivering projects in a less costly and more time-efficient manner. It details how states and localities will control more decision-making and authorizes pilot programs. Proposed regulatory reforms include creating a “One Agency, One Decision” environmental review structure, narrowing and refining the requirements of the National Environmental Policy Act, and eliminating redundancies in the Clean Water Act and other federal laws, rules and regulations.
Part IV (Workforce Development) identifies specific ways for the federal government to afford U.S. workers with educational opportunities and training for skills that the infrastructure projects will require and provides funding access.
It is important to remember, however, that the goals are just that—goals. Significant challenges lie ahead, with concerns relating to funding, lowering of environmental standards and timing at the forefront of the public’s mind. Specifically, given the recent enactment of tax reform and its related impact on the deficit, many on both sides of the political spectrum question how federal and state governments will fund the sweeping infrastructure plan. To date, few details have been provided. A cut of almost $4 billion in the Department of Transportation’s discretionary budget and a potential federal gas tax increase point to possible funding sources at the federal level, but that still leaves states to procure the vast majority of necessary funds, which may be particularly difficult for those with the greatest infrastructure needs. In addition, proposed changes to environmental standards will likely face heated opposition in Congress. That, coupled with a month-long summer recess and existing funding issues to tackle for fiscal years 2018 and 2019, means Congress has little time to act on the ambitious plan. In reality, shorter-term solutions, such as funding included in the recently enacted Omnibus Appropriations bill, may lead the path to more comprehensive legislative reform. Accordingly, REITs will likely focus on the near-term impact of the goals. As policy details and implementation mechanics are being created now, REITs focusing on infrastructure investments through public-private partnerships can develop strategies around such policies and potential target locations, and the potential outcomes and opportunities.