This is not the infra plan you’re looking for

With President Trump’s infrastructure plan now thoroughly politicised and the industry reacting tepidly to it, it’s probably time to let go of any hopes of a grand public-private bargain.

They say the devil is in the detail but after Tuesday’s State of the Union address – and a full year of whispering and speculation – we are still bereft of any regarding President Donald Trump’s much-vaunted infrastructure plan.

Here’s what we actually know: As of last night, President Trump wants Congress to produce a bill that unlocks “at least $1.5 trillion” of new infrastructure investment; “every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private sector investment”; “any bill must also streamline the permitting and approval process — getting it down to no more than two years, and perhaps even one”. That is the long and short of it, with a full plan set to be unveiled in the coming weeks, Trump advisor DJ Gribbin, a former Macquarie alumnus, hinted earlier this month.

Here’s what we are almost certain of: Thanks to countless leaks – including a recent six-page outline of the administration’s plan, courtesy of Axios – we know the administration is likely to ask Congress for $200 billion of federal spending over the next decade to help catalyse local and private investment and generate the above-mentioned $1.5 trillion. We know states will have to jostle for grants from the federal government that cannot exceed 20 percent of a project’s cost. And we know that states are encouraged to put forward projects that can secure their own revenue streams, which could open the door to increased private sector participation. To help make this happen, the administration plans to allow state governments to toll interstates, eliminate constraints around the use of PPPs for transit projects and reduce barriers to alternative project delivery for airports.

Here’s what we can infer: Infrastructure was supposed to be the ‘easy one’, the Trump administration’s great bipartisan initiative, but at the moment, it’s looking anything but. Nobel Prize winning liberal economist Paul Krugman called Trump’s infrastructure plan “a scam”: “Trump’s proposal – Trumpfrastructure? – isn’t remotely serious. At best, it would be a trivial sum of money pretending to be something big. At worst, it would amount to an orgy of crony capitalism, privatising public assets while generating little new investment.” What’s worse, it’s not like the industry is feeling very excited either. Industry veteran Joel Moser, founder and chief executive of Aquamarine Investment Partners, called Trump’s infrastructure plan “a pig with lipstick” (the lipstick being “its tip of the hat to private investment”), because of the way in which its grant-based system puts “the pork back into the federal-funding process after decades of moving toward needs-based federal spending”.

For those of us who had harboured hopes of a grand bargain that would finally open the US market to private investment, it’s probably time to disabuse ourselves of that notion. Barring a sea change in attitude, this will not be the US market’s asset recycling moment, nor the start of a federally-endorsed PPP push.

Yes, Trump’s focus on infrastructure is already impacting the asset class positively by raising its profile with state, local governments and institutional investors (as one source put it, “it’s a great icebreaker”); and yes, the president’s focus on cutting red tape will hopefully reduce the inordinate amount of time it currently takes to push US projects over the line. Given the momentum PPPs are already enjoying, some of the measures in Trump’s plan will no doubt encourage states to do more of them too (ominously, though, an infrastructure fact sheet released by the White House following Trump’s speech failed to mention the word ‘private’ at all).

But as we wrote last August, delivering a $1 trillion-plus stimulus requires a unifying vision, one that bridges the bipartisan and the public-private gaps; otherwise, private infrastructure investment risks becoming dangerously politicised. This plan does not deliver on that. Or as the great Obi-Wan Kenobi might have put it in a galaxy far, far away: “This is not the infrastructure plan you’re looking for. Move along.”