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Year in review: Waiting on US infra policy

Promises of a $1trn plan and a focus on the role of the private sector raised hopes for investors. Will 2018 be another let-down?

From a US policy perspective, 2018 is set to begin just as 2017 did – with the sector awaiting promised legislation to produce $1 trillion in infrastructure spending. This time around, though, optimism is muted for two reasons.

For one, the industry has understandably begun tuning out the administration’s promises on this front. As a candidate, Donald Trump vowed to put forward an infrastructure bill in his first 100 days in office. That turned into his first 200 days; then, a plan was promised in the autumn. Healthcare and tax reform pushed infrastructure to the back burner and as the year draws to a close, all we have is a six-page outline released in May.

This year, with tax reform passed and a healthcare overhaul (presumably) dead, the door may be open for infrastructure to at least have its day in court. The Trump team is promising a lengthy statement of principles to be released between the New Year and the president’s 30 January State of the Union speech. While the timing may be ambitious, expect something by the start of spring.

Trump’s plan will not be a legislative proposal; rather, it will be a comprehensive blueprint to guide Congress, with legislators expected to work out the details. Though improving American infrastructure has bipartisan backing in theory, Democrats and Republicans differ on how to get there. Democrats favour direct federal spending, while Republicans tend to support easing of regulations, pushing spending to the local level and tapping the private sector.

That last point leads to the second reason investors have cooled to the president’s ambitions. Though Trump gave few details about his plan before the election, it seemed certain he envisioned a larger role for private sector capital. The most detailed plan put out by his campaign called for tax incentives going to private sector investors, with no direct federal spending involved.

The early months of Trump’s term reinforced the view that the administration saw a growing private sector role. Industry specialists including DJ Gribbin, a former Macquarie director, and James Ray, who worked for KPMG, were appointed to key positions. Asset recycling – a plan in which federal incentives are given to states that privatise infrastructure and put the proceeds into new construction – began to creep into the mainstream political vernacular after Vice President Mike Pence lauded Australia’s execution of the scheme. Trump’s team talked so much about public-private partnerships that even some Republicans began to worry that the plan would consist of nothing else.

Then, sometime over the summer, Trump had a change of heart. In September, the president shocked the industry by proclaiming that PPPs “don’t work”. While the administration is still aiming to turn $200 billion of federal spending into $1 trillion of total investment, the talk has shifted to making states and local governments pay the bulk of the difference. PPPs, once a focal point, were demoted to the proverbial “tool in the toolbox”.

The plan promised this winter will likely focus on funnelling federal investment into projects that draw additional funding. This means funding will go mostly towards states willing to complement Washington’s money with their own revenue source, which can include proceeds from selling off assets.

This, of course, assumes that Congress acts on whatever Trump proposes. Given divisions within the GOP over infrastructure spending and the difficulty of passing significant legislation in an election year, that assumption may be a long shot.

The past year was not a total loss for the infrastructure sector on the policy front. Trump has begun rolling back some of the regulatory burden slowing down projects. And, as former Build America Bureau director Martin Klepper told Infrastructure Investor earlier this month, the renewed focus Trump has given to America’s infrastructure needs has been a boon.

In 2018, investors may have to settle for more of the same.