Setting the Lens on a $1-Trillion Infrastructure Plan

Setting the Lens on a $1-Trillion Infrastructure Plan

More details on the Trump Administration’s infrastructure plan came out just before Christmas. It’s setting up hopes that Congress will pass a bi-partisan infrastructure package in 2018.

If one looks at the issue through the lens of which Democratic members of Congress represent a district that favors President Donald Trump, it’s easy to see how bi-partisanship over some kind of infrastructure package might just burst forth in the coming year.

The 2018 mid-terms approach. Republicans passed a major tax-cut bill in the closing weeks of 2017 that will show up in workers’ paychecks by February. The Democrats, concluding that opposition to the tax package essentially means they now have to hope that people don’t see their wages grow, or see companies invest more in the United States, might want to show their home districts that they accomplished something for the nation.

“The White House is working to release a roughly 70-page infrastructure proposal sometime in January for members of Congress to use as a cornerstone for drafting the legislation in 2018,” the Washington Examiner reports of the infrastructure proposal.

In December, President Trump met with senior administration officials and House Transportation and Infrastructure Committee Chairman Bill Shuster, R-Pa., to discuss the proposal.

“The meeting with the president was encouraging and very productive,” Shuster said in a statement. “He’s a builder — he gets the importance of infrastructure and why it matters for jobs and the economy. Addressing our nation’s infrastructure in a bipartisan manner is going to take strong presidential leadership, and I believe we have a president who can provide the necessary leadership and who wants to rebuild our infrastructure to strengthen our economy.”

Infrastructure is a catch-all word that covers a $6-trillion construction market in the United States. And much of it in the U.S. needs an upgrade.

“The United States no longer has the best infrastructure in the world,” a White House document on infrastructure planning says. “For example, according to the World Economic Forum, the United States’ overall infrastructure places 12th, with countries like Japan, Germany, the Netherlands, and France ranking above us. This underperformance is evident in many areas, from our congested highways, which costs the country $160 billion annually in lost productivity, to our deteriorating water systems, which experience 240,000 water main breaks annually.”

The key will be alternative funding approaches, as the White House document telegraphs.

“Approximately one – fifth of infrastructure spending is Federal while the other four – fifths are roughly equally divided between State and local governments on one hand and the private sector on the other.

“Given these challenges, the Administration’s goal is to seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained. Providing more Federal funding, on its own, is not the solution to our infrastructure challenges. Rather, we will work to fix underlying incentives, procedures, and policies to spur better infrastructure decisions and outcomes, across a range of sectors.”

Legislative Director Marc Short, speaking on Fox News Sunday, said he is very confident about the prospects for bi-partisan agreement. “We’ve had conversations with Democrats. I think there’s a willingness on the policy to get there. The question remains will politics prevent it.”

The Wall Street Journal (behind the WSJ paywall) and other outlets are reporting that the president has invited Senate Majority Leader Mitch McConnell (R., Ky.) and House Speaker Paul Ryan (R., Wis.) to Camp David, a presidential retreat in Maryland, the first weekend in January “to make sure we’re all on the same page about where our priorities are for 2018.”

Speaking on the same show as Short, Sen. Ben Cardin (D., Md.) indicated his party was willing to negotiate on infrastructure, though he said the prospect was complicated by $1.5 trillion in tax cuts, which will add to deficit pressures.”

“Absolutely we want to get an infrastructure bill done,” Mr. Cardin said. “It’s more challenging because of the tax bill and the revenues that have been taken off the table, but we can work together and get something done on that.”

The Senate will have an even-slimmer 51-49 majority after Senator-elect Doug Jones (D-Ala.) takes office. Sen. McConnell will have to get some Democrats on board to pass something on infrastructure.

Bi-Partisan comments are popping up everywhere. Democratic Rep. Debbie Dingell (Mich.) on Tuesday said she is willing to work with President Trump to tackle the nation’s infrastructure problems if he is willing to reach across the aisle and work with the Democrats, TheHill.com reports.

“I will work with Donald Trump on anything that helps the working men and women of my district. So yes, I will work with him on infrastructure if he’ll work with us,” Dingell said on CNN’s “New Day,”

“We’ve needed to do something about infrastructure for decades. We’ve got an aging infrastructure with potholes and highways that aren’t working and bridges that are in trouble. We need to do something together to fix our infrastructure if we’re going to stay competitive as a nation,” she added.

She’s from a state that Trump won.

Here’s another moderate Democrat, Rep. Josh Gottheimer (D-N.J.), telling TheHill.com he’s willing to work across the aisle.

I’ve been over to the White House talking to [President Trump] about infrastructure,” said in an interview with The Hill. 

“As co-chair of the Problem Solvers Caucus we’re taking on infrastructure. It’s very important. Of course, like anything, the details are what matters,” he said. 

Gottheimer, one of 12 House Democrats elected in a district that Trump won in 2016, noted that health care and a deal affecting immigrants under the Deferred Action for Childhood Arrivals program may be other areas where bipartisanship may prevail in 2018.

The $200-billion initial investment that the administration is calling for could prime the pump on some “marquee” projects. We might even see pilot projects that highlight a streamlined approval process, or a unique approach to public-private partnerships (p3s).

A blog post on the “Knowledge at Wharton,” the business school of University of Pennsylvania, notes a few examples of using P3s for upgrading municipal water systems.

“Already struggling before Hurricane Sandy hit, the city of Bayonne [New Jersey] entered a joint venture partnership with Kohlberg Kravis Roberts and United Water soon after the storm. While the city maintains ownership and the control of user rates, the agreement eliminates existing municipal debt and improves both the water authority’s finances and Bayonne’s credit rating.

If and when an infrastructure bill gets across the finish line when Congress reconvenes, they will be looking at a fairly solid outlook for new construction starts, according to industry data provider Dodge Data and Analytics (which this observer once worked alongside on the editorial side of McGraw Hill Construction).

In its annual forecast for 2018, DD&A is calling for a 3% growth in new construction starts in 2018 to $765 billion. So this suggests that the recovery from the Great Recession of 2008, which effectively began in 2012 after a couple of flat years from 2010 on, still has legs.

“Institutional building will advance 3%, maintaining its upward track after this year’s 14% jump,” says Robert Murray, chief economist for Dodge Data.

“Public works construction will improve 3%, slightly more than the 1% growth in 2017. Highways and bridges should be helped as federal funding rises to the levels called for by the FAST Act, while the environmental categories will partly reflect reconstruction efforts related to Hurricanes Harvey and Irma. Additional benefit may come from the infrastructure program proposed by the Trump Administration, should it achieve passage in some form.”

But breaking out the numbers should give some private equity infrastructure funds that are primed for energy plant construction a bit of a pause. Murray expects new construction starts for electric utilities and gas plants to drop 13%, “falling for the third year in a row after the exceptional amount reported in 2015. Power plant construction starts will ease back as new generating capacity comes on line.”

Plenty of public works around the nation need the help. New Jersey residents might recognize the Pulaski Skyway in Jersey City from the lead image on this post, which has been undergoing a major upgrade since 2014 because chunks of the 1930’s-era Skyway were literally falling from the undergirding.

It was no longer safe to travel over. It was supposed to take a year to fix. The more contractors fix it, the more problems they find. The Skyway is now expected to reopen in Spring of 2018, as NJ.com reported last summer:

“This makes the third time reopening the Skyway has been pushed back. In April 2015, officials blamed the harsh winter and the discovery of rusted floor beams which pushed the completion to late 2016. Last June, officials said the Skyway wouldn’t reopen to traffic until sometime in Summer 2017. A specific date was to be decided this spring.”

Like many major bridges from the 1930’s, the Pulaski Skyway, a steel deck truss cantilevered bridge, is considered functionally obsolete because it doesn’t meet current highway bridge standards. This has complicated the rehabilitation work on the bridge, which is one of eight New Jersey bridges with a similar design.

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