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Trump’s infra plan: Still looking for direction

While the US president has reaffirmed his promise to produce a $1trn infrastructure plan with both private and public capital, the path forward remains unclear.

Donald Trump’s speech last Tuesday provided reassurance that, despite reports an infrastructure bill will not come until 2018, the US president has not abandoned the issue.

In his first address to Congress, Trump vowed to call for legislation “that produces a $1 trillion investment in infrastructure” financed through public and private capital. But the president shed little light on when a bill will be brought forward, what the balance will be between public and private spending and how he will pay for the public share.

“As yet, I haven't seen any specific proposal out of the White House or on the Hill as to how this will be funded,” former transportation department general counsel Kathryn Thomson told Infrastructure Investor.

“The problem that we continue to see, for more than a decade now, is bipartisan recognition that we have very serious infrastructure needs,” Thomson, who now heads the transportation group at Morrison & Foerster, continued, “but no one has gotten serious about making a proposal for how these needs would be funded”.

If last week’s speech offered one clarification, it came in Trump’s explicit promise that there will be a public spending component to any infrastructure plan. A campaign paper authored in October by two Trump advisors had envisioned relying on federal tax credits to spur private investment, a plan that has drawn criticism across the political spectrum.

Since the election, Democrats have welcomed Trump’s calls for infrastructure spending, with Senate Democrats putting forward their own $1 trillion plan. But Trump may have more trouble rallying support from his own side of the aisle.

“When you’ve had Speaker [Paul] Ryan all throughout the Obama administration criticising the stimulus package, to all of a sudden do a 180 and start embracing a similar grand-style package seems, politically speaking at least, unexpected,” explained Joseph Kane, a senior research analyst at the Brookings Institution’s Metropolitan Policy Program.

A focus on P3s?

Michael Likosky, head of infrastructure for 32 Advisors, sees the emergence of P3s as the cornerstone of Trump’s infrastructure policy.

“President Trump will provide incentives, financial and otherwise, to projects in a way that maintains a reasonable return for investors but also dramatically deepens and broadens the market,” Likosky said, noting the administration has already signed an executive order to streamline the environmental review and approval process for certain projects.

Thomson also sees a role for P3s and said they were a focus of the Obama administration, pointing to the creation of the Build America Bureau in 2016. But, she added, they have limits, particularly in rural communities.

“Projects that are critically important to the economic developments of these [rural] areas are not going to attract private investment because they can't deliver the returns that private investors would seek,” Thomson noted. “They nonetheless have very serious infrastructure needs.”

A paper published last month by the American Action Forum laid out the gap between rural and urban road usage, saying that urban roads comprise just 31 percent of lane miles (the road length multiplied by the number of lanes) but 70 percent of total vehicle miles. With private investors likely to seek out high-traffic areas, roads far from population centres could be ignored by an infrastructure plan that is heavily reliant on private funding.

This poses a political problem for Trump, who won big in rural America and will need support from Republicans representing these states and districts. That is far from a given, especially if an infrastructure bill contains federal tax incentives that rural voters see as subsidies bringing them little benefit.

“Public-private partnerships needing sizeable private returns are not a surface transportation solution for rural states,” South Dakota Governor Dennis Daugaard, a Republican, said at a Senate committee hearing held the day after Trump’s speech. 

The chairman of the committee, Republican South Dakota Senator John Thune, shared a similar message, calling P3s “a valuable supplement — but not a substitute – for traditional infrastructure investment”. And a month prior, Wyoming Senator John Barrasso, also a Republican, expressed similar concern.

That does not mean P3s will not play a role, even in sparsely populated areas. The Bipartisan Policy Center, a research group, pointed to several rural P3 projects across the US. But Trump should not expect across-the-board Republican support for an infrastructure plan relying on the private sector.

Timeline for legislation

Likosky, of 32 Advisors, said he expects to see legislation on infrastructure later this year.

“Things have already gotten done with the executive order and key appointments. You see the market adjusting already.”

Others see the process taking more time. While Ryan has said he hopes to tackle infrastructure in Trump’s first 200 days in office, items like health care, immigration and tax reform are clearly higher on the agenda for Republicans. And last month, Axios reported the party will wait until next year to take on an infrastructure bill. 

“The reality is that there’s only so much time on the calendar,” Kane noted.