Extracted from Law360
Since the election of President Donald Trump, America has been anxiously awaiting details of the new administration’s program to rebuild America’s deteriorating roads, bridges, tunnels, airports, dams and water systems. Candidate Trump’s election platform called for the investment of $1 trillion in infrastructure over 10 years, which was roughly twice the investment proposed by Hillary Clinton.
Contrary to the Clinton proposal, which would have been financed largely through government funding, Trump’s plan has been advertised as “revenue neutral,” with the most significant investment coming from the private sector, encouraged by $137 billion in tax credits.
The Trump platform also called for streamlining the inefficient and time-consuming permit process, and promised that the work would be accomplished by American companies, utilizing American workers and American products.
Following President Trump’s election, more excitement was generated when the president-elect’s transition team requested the nation’s governors to each come up with five critical projects per state to be included on a list of priority projects that would become a focus of the new infrastructure program.
The governors, seizing the opportunity, came up with a list of 428 proposed critical projects, with California leading the pack with 41 nominations. The administration has also solicited and recently received a list of 25 priority projects from American labor unions that are expected to cost $80 billion, half of which would be paid for by private investment.
President Trump confirmed his commitment to his $1 trillion plan during his first address before Congress. A suggestion of bipartisan support was even presented by Senate Minority Leader Chuck Schumer, who announced that he was very interested in President Trump’s plan after Trump indicated that he would consider setting up an infrastructure bank (a nod to candidate Clinton’s proposed infrastructure program) in support of the program.
After his address to Congress, Trump signaled that significant infrastructure monies will be made available to the states, but in order to be considered for federal assistance, states must promise that a project will be permitted and begun within 90 days.
He announced his pick of two well-heeled New York developers to lead his Infrastructure Council, which would develop innovative ideas about how to fix America’s infrastructure. Recently he has appointed his son-in-law Jared Kushner to head the Office of American Innovation to “replicate private-sector efficiency” in the government and to play a role in promoting infrastructure investment and development, with a focus on modernizing technology and data infrastructure and developing “transformative” projects.
However, questions have been raised about whether the administration is truly committed to infrastructure development when the president’s recently released budget proposal actually cuts government spending on transportation and water infrastructure. Perhaps these proposed cuts are consistent with Trump’s emphasis on private investment to fix our infrastructure woes.
Just days ago, the Department of Commerce awarded the $46 billion FirstNet Nationwide Public Safety Broadband Network project to AT&T. On this project, which is the biggest public-private partnership (P3) deal signed by the U.S. government to date, AT&T will invest $40 billion and be responsible for designing, building and maintaining for 25 years the first national broadband network dedicated to police, firefighters and emergency medical services.
While the timing of this award is largely coincidental, the proposed cuts in pledged government spending appear to be a step backwards.
Notwithstanding this activity, other than broad concepts, few details have been provided about the Trump infrastructure plan, and of course, the devil is in the details. The reality is that the administration has been focused on other issues, and it is likely that we will not see any details of the president’s infrastructure plan until sometime this summer at the earliest.
Although it has been suggested that infrastructure investment is a bipartisan issue, there are significant questions about whether the source of funding will be primarily private investment or government funding, whether Democrats will be willing to agree to cut red tape and expedite permitting and whether the other disputes between Republicans and Democrats will spill over to prevent compromise.
Although short on details, the limited information presented in President Trump’s plan is already under attack from a variety of corners — including his own party — and serious questions are being raised about the feasibility of a plan that would be dominated by private investment, about whether the plan will address all of the needs or just fee-generating projects, and about whether the costs of such a program would far exceed the benefits that would be conferred.
Notwithstanding the attractiveness of many of the concepts announced by the president supporting his plan, the realities that any plan faces will dictate what can be accomplished. At the end of the day, there will most likely need to be a bigger contribution of government funding in combination with private investment to achieve passage of an infrastructure bill.
However, in order to maximize the private investment, a number of things need to happen before P3s can assume a leading role in fixing America’s infrastructure. First, there needs to be a coherent federal program that supports infrastructure development, fairly prioritizes critical projects throughout the country and creates predictability to encourage private investment.
A critical element of this will be the coordination of environmental review and permitting and establishing reasonable deadlines for that process. Coordination could be facilitated by creating an “infrastructure coordination” entity that will coordinate and manage the various public agencies that are involved in the project review process.
Second, states and local governments will be the recipients of federal funding and will be looking for funding sources to build their own P3 projects. However, currently 13 states do not have statutory authorization to utilize the P3 procurement process.
Of the 37 states and the District of Columbia that do permit some form of P3 procurement, many of those states limit P3 procurement to limited categories of projects. Without broadening existing laws, a significant amount of deteriorating infrastructure will not be eligible for private investment.
Third, although things are starting to change, most states and local agencies do not yet have mature offices or departments that are dedicated to supporting P3 projects. It is not a matter of just flipping the switch from a design/bid/build delivery system to a P3 delivery system. Public entities need to develop the sophistication about how these P3 projects work in order to ensure that the projects have the most chance to succeed.
Sponsoring public agencies will have to be open to innovation — that is one of the benefits of P3 projects — and while the P3 entity will assume many project-related risks, there has to be a team approach between the public and private parties, since the public entity has a continuing stake in ensuring that the project is ultimately successful.
But the opportunities presented by expansion of private investment in public infrastructure development will not be realized unless there is compromise among the Trump administration, Republicans and Democrats on a final infrastructure plan. Reliance on one method of financing infrastructure projects is not practical; there must be a combination of public and private funding mechanisms.
Likewise, the plan needs to include elements that will introduce some level of predictability into P3 projects in the form of permitting and oversight. This does not mean that careful public review should be eliminated, but that the review must be coordinated and completed within a reasonable time frame so that private investors can gauge their risk.
Additionally, “Buy American” and similar restrictive mandates, which may appear to be job creators, actually increase project costs and should be moderated.
There is no debate that America’s infrastructure is in dire need of repair. The cost of correcting this problem escalates with each passing day. Ultimately, all Americans, regardless of party affiliation or socioeconomic status, will benefit from an ambitious infrastructure program. Now is the time for all stakeholders to come together and get this show on the road.