President-elect Donald Trump’s plan to rebuild US infrastructure earned tepid support from House Speaker Paul Ryan, who rejected the idea of using such spending as an economic stimulus but backed Trump’s proposal to rely on private investment.
Ryan, a Wisconsin Republican, told talk radio host Hugh Hewitt last week that Trump’s proposal to seek $1 trillion in infrastructure spending was “something that President-elect Trump added to our agenda, which we’re happy to do”. Ryan said this would be on Congress’s to-do list during Trump’s first 200 days in office and singled out the president elect’s plan to provide tax incentives to draw in private investment in infrastructure.
“We’re trying to do our best to streamline regulations so that the transportation dollars stretch as far as possible,” Ryan said. “And leveraging private sector dollars so private sector money can be part of the solution instead of always just thinking that this is government only.”
Questions remain on the specifics of Trump’s plan, which in October was outlined in a proposal by policy advisors Wilbur Ross and Peter Navarro. Ross and Navarro propose offering investors an 82-percent tax credit to leverage $167 billion of federal spending into $1 trillion in infrastructure. They wrote that the plan will be revenue-neutral, predicting increased revenues from additional wage income and contractor profits.
Ted Brooks, portfolio manager for globally listed infrastructure at CenterSquare, told Infrastructure Investor that such a plan would stand a good chance to draw in investors.
“You’d see no shortage of interest from private capital to be supportive of – or be a partner to – any plan that either privatised concessions or granted the ability for new infrastructure across the US,” Brooks predicted. “There would be really tremendous global appetite for that kind of risk and return profile.”
Trump’s focus on infrastructure spending has seemingly muddled the partisan divide, worrying fiscal conservatives like Ryan while earning approval from high-ranking Democrats. While reliance on private capital instead of direct government spending dovetails more closely with Republicans’ vision, Joseph Kane, a senior research analyst and associate fellow at the Brookings Institution’s Metropolitan Policy Program, said an appetite for PPPs exists on both sides of the aisle.
“I think that all options, both on the Democrat side and Republican side, are up for consideration,” Kane said, stressing that Congress shouldn’t view projects strictly through a financial lens. “The more important thing, whether you’re an R or a D, is that there is a clear plan of what the returns on these investments are, both at a national and local level.”
While Democrats are open to tapping the private sector, doing so may draw resistance from the party’s progressive wing. Already, the left-leaning Center for American Progress has come out against Trump’s plan, calling it a “nonstarter” in a white paper released last month.
“The only real beneficiaries of this plan are elite investors,” the paper stated. “Average Americans, on the other hand, would be faced with new highway and bridge tolls along with other user fee charges.”
Brooks acknowledged that some Democrats may favour direct spending, but said a proposal with a mix of private and government investment would be difficult for Democrats to oppose. Even Anthony Foxx, President Obama’s outgoing Transportation Secretary, has acknowledged the need to look for additional revenue sources.
And even if a significant infrastructure bill does not pass, a regulatory rollback, which Brooks views as more likely, could be “a material gamechanger in terms of the speed and amount of capital that gets dedicated to infra in the next two to five years”, he said.
“The good news is that there’s no way that I see that any of these items that we’re talking about don’t lean positive for investors. The question is degree.”
Though the 10-page Ross-Navarro paper remains the most detailed plan released by the Trump team to date, it raises as many questions as it answers, particularly on the revenue side.
“A lot of observers seem to say that the math itself does not add up,” Kane said. “The devil really is in the details when it comes to a plan like this.”