CI VIEW: President Trump’s USD 1 trln infrastructure fund triggers National bank vs bond agency debate

WASHINGTON/BALTIMORE (BBN) – President Donald Trump plan to spend up to USD 1 trillion upgrading US infrastructure has triggered the first serious bipartisan debate in Congress whether the United States should establish a National Infrastructure Bank and/or national bond authority.

[President Donald Trump speaks with Capitol Intelligence/BBN using CI Glass at Economic Club of Washington DC event prior to entering race for Presidency. Marriott Marquis Hotel and opening of Trump International Hotel in Washington, DC. December 15, 2014]

US House Transportation and Infrastructure Chairman Rep. Bill Shuster (R-PA) says he opposes the establishment of a National Infrastructure Bank while US Senator Mark Warner (D-VA) is pressing for an independent National Infrastructure Bank or financing authority.

President Trump’s proposed US infrastructure fund is the brainchild of former Virginia governor and private equity principal Senator Mark Warner who quietly proposed a USD 1trln fund to be managed by a public-private National Infrastructure Bank in February 2010.   Senator Warner proposed banks putting in between USD 100bn to USD 200bn into the fund and the US government financing the rest through leverage.

[US House Transportation and Infrastructure Committee Chairman Rep Bill Shuster (R-PA) filmed by Capitol Intelligence/BBN using CI Glass at hearing with FedEx Corp Chairman and CEO Frederick W. Smith and Cargill Inc CEO David W. MacLennan. Washington, DC. February 1, 2017]

Warner’s proposal, while supported by President Barack Obama and US Treasury Secretary Timothy Geithner, faced insurmountable opposition from liberal Democrats against private sector infrastructure funding and  neoconservatives/Tea Party opposition to government sponsored corporate welfare.

Donald Trump’s rival Hillary Clinton lifted much, if not all, of Senator Warner’s proposed NIB in her campaign for the Presidency and the USD 1 trln figure was quietly re-appropriated by President Trump and highlighted during his first State of the Union address to Congress.

“I will be asking the Congress to approve legislation that produces a USD 1 trln investment in the infrastructure of the United States,” President Trump during the State of the Union Address on Feb. 28, 2017.

To avoid a protracted battle with members of the Freedom Caucus and neo-Cons/Tea Party members, Transportation Committee Chairman Shuster is pushing for infrastructure project financing through the domestic bond market.

[Securities Industry and Financial Markets Association (SIFMA) Managing Director Michael Decker filmed by Capitol Intelligence/BBN on divergence between National Infrastructure Bank and bond only approach at Bipartisan Policy Center forum in Washington, DC. February 13, 2017]

One solution aimed at winning support from Chairman Shuster is to bring back and expand the scope of Build America Bonds. Originally enacted by President Obama as part of the American Recovery and Reinvestment Act of 2009 (ARRA), the taxable municipal bonds that carry special tax credits and federal subsidies expired December 31, 2010.

The leading lobbyist for the US bond market, Securities Industry and Financial Markets Association (SIFMA) Managing Director Michael Decker raised the reissue of Build America Bonds at the Bipartisan Policy Center think tank in Washington, DC.

However, Decker noted that Build America Bonds are only interesting to US investors seeking tax credits and not to sovereign wealth funds and major foreign infrastructure funds looking to invest in US infrastructure projects as equity investors.

Senator Chris Van Hollen (D-MD), like Warner, says he strongly supports the creation of a National Infrastructure Bank and points to the Port of Baltimore as an example of a successful public-private financing of a strategic US infrastructure project.

[US Senator Chris Van Hollen speaks to Capitol Intelligence/BBN using CI Glass on President Donald Trump proposed USD 1 trln infrastructure fund at Port of Baltimore news conference in Baltimore. Maryland. February 21, 2017]

The Port of Baltimore is viewed as a model for private-public partnership as it partnership with Oaktree Capital Management unit Highstar Capital that allowed the State of Maryland to reap USD 1.8bn in economic benefits and create 5,700 jobs without spending a cent in tax payer money. Baltimore, with its deep sea (Panamex) port has become the most efficient port on the United States’ East Coast.

The Paris-based Meridiam leveraged its vast experience of major infrastructure projects in Africa and Europe to take over the project financing and financial control of the USD 5.6 bn P3 project, Meridiam founding partner and CEO Thierry Deau told Capitol Intelligence/BBN in an interview during the IMF World Bank annual meetings.

Meridiam is uniquely positioned to benefit from President Trump’s plans to invest USD 1trln in US infrastructure via public-private partnerships along with other infrastructure funds such as Australia’s Macquarie, Abu Dhabi Investment Authority (ADIA) and Singapore’s Temasek Holdings.

The lead poisoning water scandal in Flint, Michigan and panic over the possible collapse of California’s giant Oroville dam and hydro-power station highlights the danger of mismanagement by local and state officials when they have direct control of critical infrastructure.

[Meridiam Chairman and CEO Thierry Deau speaks to Capitol Intelligence/BBN using CI Glass on winning major US PPP projects such as Maryland Purple Line and La Guardia airport renovation during World Bank IMF Annual meetings in Washington, DC. October 7, 2016]

While the privatization of public utilities has been the norm for decades in Europe and much of Asia, it remains a highly controversial subject in the United States where only a handful of elected officials have the temerity to even raise the subject in public.

A notable exception is Baltimore’s newly elected mayor, Catherine E. Pugh, who does not rule out an eventual privatization of the city’s utility if it would bring the best cost-benefit solution to her citizens.

Baltimore, Washington DC and countless US cities face the real dilemma of how to finance billions on billions of dollars in urgently needed water infrastructure upgrades without eventually privatizing their utilities under a long-term concession to a private sector operator such as New Jersey-based American Water; French water giants Veolia and Suez de Environment or Germany’s RWE.

[Baltimore Mayor Catherine L. Pugh speaks to Capitol Intelligence/BBN using CI Glass on potential public-private partnership for Baltimore of Water & Wastewater at news in Baltimore, Maryland. January 6, 2017]

While the United States is the world’s largest and most vibrant economy, the state of its general infrastructure is either poor or substandard due to inefficient and opaque financing mechanisms.

Much of the blame lies in Congress which continues to approve funding by making annual appropriations to fund infrastructure, putting every long-term investment project at risk from partisan and pork-barrel politics.

President Donald Trump’s pragmatic “Art of the Deal” approach to politics and policy will in all likelihood bring about structural reforms for private sector financing of infrastructure projects throughout the United States.

Senator Warner, one of the most effective cross-aisle deal maker in Congress, has in his own way found a compromise solution to the equity or debt solution for the President’s USD 1 trln infrastructure fund by simply renaming his proposed National Infrastructure Bank as the National Infrastructure Financing Authority.

[US Senator Mark Warner (D-VA) discusses proposed United States National Infrastructure Financing Authority with Capitol Intelligence/BBN using CI Glass at National Press Club. Sept. 15, 2015]

Warner told Capitol Intelligence in an interview that the proposed National Infrastructure Financing Authority would provide a one-stop shop to finance public-private infrastructure projects for domestic and foreign investors and at the same time create an agency representing key stakeholders: United States Treasury Department, US States and territories, and local government and authorities.

Observers said that a majority in Congress exists between fiscally conservative and moderate Republicans and conservative and/or pro-business Democrats to push through a major infrastructure reform bill and package through Congress.

One member of Congress that can bridge the current divide between a National Infrastructure Bank pushed by Senator Warner and Van Hollen and the bond market approach favored by Republican Bill Shuster is West Virginia senior Senator and former West Virginia Governor Joe Manchin (D-WV).

[US Senator Joe Manchin (D-WV) speaks to Capitol Intelligence/BBN using CI Glass on debate over National Infrastructure Bank vs Bond market for President Donald Trump proposed USD 1trln Infrastructure Fund at the Atlantic The Renewal Summit in Washington, DC.]

While a Democrat, Senator Manchin has crossed the aisle numerous times in support of President Trump and is the US Senator least concerned about party or partisan politics.

By PK Semler in Washington, DC and Baltimore, Maryland. For more information please call +1-202-549-3399 or email: pks@capitolintelgroup.com

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