On the campaign trail he vowed to rebuild US infrastructure “on time, on budget”. He tapped one of the industry’s leading lights, GIP chairman Adebayo Ogunlesi, to join his (now defunct) business advisory council and his budget proposal in May called for $200 billion of federal spending over 10 years to be matched with $800 billion of private investments.
Unsurprisingly, investors responded. Some US pensions made their first infrastructure commitments this year and others have increased target allocations. Blackstone (whose head, Stephen Schwarzman, helmed Ogunlesi’s business council) unveiled an ambitious new infrastructure strategy anchored by a $20 billion commitment from Saudi Arabia’s Public Investment Fund.
In early October, however, the president apparently told US legislators that public-private partnerships are not the solution to his $1 trillion infrastructure pledge. “He dismissed it categorically and said it doesn’t work,” The Washington Post reported Democrat Congressman Brian Higgins saying.
After generating all this private sector momentum, Trump is now apparently looking the other way.
Why? Perhaps he was scared by stories of Indiana’s troubles with PPPs when Vice-President Mike Pence used to govern the state. It’s possible the headlines generated by the Indiana Toll Road bankruptcy and the takeover of the I-69 project helped poison the private sector well.
Or maybe Trump is pursuing a deal with Democrats, who are more likely to support legislation that has less to do with privatisation. However, he’s mistaken to think Republicans will stomach large-scale federal spending if their recently proposed tax plan becomes law. By some estimates, tax revenue would decrease by $1.5 trillion over the next decade.
It’s also important to caveat that there have been no official statements (or tweets) on Trump’s alleged about-face. That means it’s entirely possible this position will be clarified, reversed or dismissed as “fake news” a couple of weeks down the line.
Regardless of what happens, the US infrastructure market will go on. It’s well-known that most PPP opportunities originate at state and local level. And while the model has had a slow start, it is picking up steam. The $4 billion LaGuardia modernisation project is under way, a consortium was selected to build a terminal at Denver International Airport and Alabama recently launched procurement for a $1.8 billion bridge project. This week alone, Los Angeles and Pennsylvania said they were mulling unsolicited PPP proposals.
The question now is whether Trump will actively impede the progress being made?
For a potential answer, look closely at what will happen with the recently announced Maryland highway PPP. A week prior to Trump’s apparent change of heart, Maryland Governor Larry Hogan announced what he called the “largest proposed PPP highway project in North America”, at a cost of $9 billion. One catch: the toll lane project requires the “transfer” of the Baltimore-Washington Parkway from federal to state hands.
If Trump has jumped off the PPP bandwagon, expect Maryland to have to fight for control of the Baltimore-Washington Parkway. Otherwise, you should see the project move forward, business as usual.
We never thought we’d say this, given how long it’s taken for the US PPP market to pick up pace, but business as usual might really be the best way forward in the end.