Sense of déjà vu as US infra hits the headlines again

Just like the last two years, there’s talk around US politicians being poised to enact large-scale reform. But investor expectations are probably at their lowest.

It feels like we’ve been here before – and we have. At the end of 2016, investors were brimming with anticipation at what a Republican-led government, headed by President Donald Trump, could do to rebuild America’s infrastructure. In 2017, with the tax law out of the way, excitement again built for the possibility that politicians would now focus on infrastructure.

This year, it’s the same story. US political winds have shifted, with Democrats winning the House of Representatives in the November midterms. The question now is: will a divided Congress work together to pass an infrastructure bill? The thinking goes that a compromise can be reached since there’s not much else they agree on.

Year after year, there is new belief that US politicians are finally going to make a meaningful push to invest in their country’s infrastructure, with public and private money. And every year, it seems to fall through.

In 2018, the year started with Trump proclaiming in his State of the Union address in February the need to “permanently fix the infrastructure deficit,” touting a $1 trillion plan to use a mix of public and private money. A few weeks later, the White House unveiled its framework, which revolves around using $200 billion in federal money over a decade to entice state and local governments and the private sector to invest in infrastructure.

The initiative began losing steam almost immediately amid several distractions. In April, DJ Gribbin, Trump’s top infrastructure advisor, left the White House (now at Stonepeak Infrastructure Partners) and by summer infrastructure was shelved until after the midterms.

To be fair, the cycle of shuffling infrastructure to the bottom of the priority list predates the Trump administration. President Barack Obama included infrastructure as part of his economic stimulus package in 2009 and didn’t sign his next marquee infrastructure legislation until 2015, the $305 billion FAST Act.

However, investors are becoming cynical about the act and, importantly, are moving on without a large piece of legislation. Asked whether a divided Congress can pass a major infrastructure bill, reactions from people at this year’s Infrastructure Investor New York Summit included: “generally pessimistic”; “expectations are so low”; and “low probability, but it would be a nice surprise”.

Some investors at this year’s conference noted the Trump administration has improved the infrastructure market in smaller ways that may pay off in the next few years. Trump has actively pushed to reduce project-permitting regulations to a maximum of two years, which many in the industry believe will lead to more projects being developed, though critics say at the cost of hurting the environment. Just this week, the Trump administration proposed limiting the amount of US waterways protected by the Clean Water Act, allowing for more construction.

In a sign of brewing disagreement, Senate minority leader Chuck Schumer, a Democrat, coupled the idea of addressing climate change with investing in infrastructure in a Washington Post op-ed, saying without such measures, “Trump should not count on Democratic support in the Senate.” These are things the president and Republicans are not likely to prioritise.

Even with progress made with permitting, investors will eventually move on if all these investable projects people talk about never fully materialise. That’s what CalPERS hinted at this week in meeting documents the pension fund published. Its real assets group has recommended decreasing its maximum exposure to US infrastructure by 10 percent and increase international markets exposure by the same amount.

According to one former transportation official, Martin Klepper, who used to direct the Build America Bureau (now at Fengate Asset Management), it’s 50-50 whether Congress will get something done next year. “On the one hand, there’s a consensus among politicians that infrastructure legislation is needed,” he told Infrastructure Investor. On the other hand, “there will be drama on a regular basis”.

Years down the road, when the US is (hopefully) considered a mature infrastructure market, 2018 probably won’t be remembered as the singular moment things began to change, and the federal government probably won’t be remembered for helping all that much.

For once, though, we’d like nothing better than to be proved completely wrong…

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