Trump will focus on regulation

Martin Klepper, who recently resigned from the US Department of Transportation, has a better idea than most about where the Trump administration’s infrastructure plan is heading. From January to October, he served as the first executive director of the Build America Bureau, a federal agency providing transportation project financing.

His up-close view of how President Donald Trump’s vaunted infrastructure package may play out is valuable insight for those in the private sector waiting for drips of information. After delivering a keynote speech at Infrastructure Investor’s New York Summit last week, he sat down with one of our reporters to talk about the latest infrastructure news from Washington.

 

Q: What has changed about the US infrastructure market in the past year?

MK: The president’s focus on infrastructure has been a real boon to the entire space, to the entire industry. By talking about a trillion-dollar infrastructure plan, about our infrastructure deficit and how the rest of the world is far ahead of us in infrastructure, it’s made it much more important to state and local government officials than I think it has been in the past. And that’s spread across the board, not just to government officials but to the private sector.

Q: How has President Trump’s administration affected US infrastructure?

MK: When the administration first came into office, they were considering a range of innovative mechanisms to provide incentives for PPPs and for brownfield development. Over time, that changed. The focus on the dollar part of their infrastructure package seems to have become less important than the permitting and regulatory part, which doesn’t cost anything.

I have the sense that bringing new federal dollars to the table for infrastructure is going to be a real challenge for the administration. A bipartisan bill may be what allows significant new dollars to be available from the federal government for infrastructure.

Q: Trump entered office in January indicating he would move quickly on an infrastructure package, but almost a year later that hasn’t happened. What kind of effect has this had on projects?

MK: There are people who have not moved forward with projects because they have been waiting for a big federal infrastructure funding programme that hasn’t yet happened. It’s been a year. The longer you delay these projects, the more expensive they become.

An example is the Gateway project in New York where they have been looking for a federal government commitment. That’s a huge project. The new passenger rail tunnel under the Hudson River is an enormously important project to the city of New York, to the state and to the national economy. Eventually, that project will need funding. Not just loans and financing, but funding. It’s going to be incumbent on the federal government to reach some agreement in order to move it forward.

Q: In September, Trump reportedly told a group of congressmen that certain PPPs “don’t work”. What was your reaction when you heard that?

MK: I was shocked when he said that because everything that had come out of the administration up until that point indicated PPPs were going to be a key part of their programme. I don’t have any idea where that came from, but I can tell you it’s not consistent with the experience that we had with PPPs at the Build America Bureau. We helped finance 24 PPP projects, 21 of them worked beautifully. Three of them got into trouble (Pocahontas Parkway, South Bay Expressway, SH 130). The three that got into trouble have all been worked out in a way in which the federal government has not been significantly adversely effected. Perhaps most importantly, the public has continued to have the benefit of the roads. When you look at the whole portfolio, it is doing much better than had been expected when the loans were made.

Q: There’s a lot of talk right now about what happens if private activity bonds are eliminated in the tax reform bill. How does that affect infrastructure financing if that’s the case?

MK: I believe the White House would like them to be included. The PPP industry has learnt to use private activity bonds as a significant source of capital for PPP projects that have been done.

Right now, TIFIA is statutorily allowed to lend up to 49 percent of a project cost. By policy, because TIFIA was allowed to loan only 33 percent up until 2015, they never changed that standard. So right now, the most you can borrow from TIFIA on an eligible project is a third. That means you need to come up with two-thirds of the money from elsewhere. That’s a large chunk, and PABs make that two-thirds cheaper.

If they are eliminated, it places more need for a larger share of federally subsidized financing. If PABs are eliminated, it will create the need for an alternative source of low-cost financing: a 49 percent TIFIA loan would help meet that need.