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

WASHINGTON/BALTIMORE (BBN) –  (Update on October 26, 2017 to add comments from Temasek Holdings CEO Ho Ching) — 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 and the 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.

[U.S. Transportation Secretary Elaine Chao and Maryland Governor Larry Hogan speaks to Capitol Intelligence/BBN using CI Glass on using historic Purple Line light rail P3 as model for Trump’s USD 1trln US Infrastructure Fund/Bank. August 28, 2017]

United States Transportation Secretary Elaine Chao and Maryland Governor Larry Hogan said that USD 5.6bn, 16-mile suburban Purple Line light railway connecting Montgomery County and Prince George’s County is a model that can be used for public-private partnerships across the nation.

Secretary Chao noted that while P3 Purple Line projects are the norm around the world, public-private financing of public infrastructure in the United States are even banned in some US States.

Governor Hogan said he personally told President Trump that  his administration needs to use the successful public-private Purple Line P3 project as an example of best practices for the administration’s proposed USD 1tln infrastructure bank/authority.

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 Purple Line, Meridiam founding partner and CEO Thierry Deau told Capitol Intelligence/BBN in an interview during the IMF World Bank annual meetings.

[Meridiam Chairman and CEO Thierry Deau speaks to Capitol Intelligence/BBN using CI Glass on winning major US P3 projects such as Maryland Purple Line and NYC’s La Guardia airport renovation during World Bank IMF Annual meetings in Washington, DC. October 7, 2016]

Meridiam is already the first mover in President Trump’s plans to invest USD 1trln in US infrastructure via public-private partnerships with Purple Line P3 and La Guardia airport.

Meridiam’s Thierry Deau status as the foremost foreign investor in US public-private infrastructure investment will soon change as sovereign wealth funds such as Singapore’s Temasek Holdings; Australia’s MacquarieAbu Dhabi Investment Authority (ADIA); Norway’s Norfund and Canada’s Ontario Teachers Pension Plan and Caisse de Depots et Placement du Quebec all position themselves in what is shaping up to become the largest, and probably the most lucrative, infrastructure finance market in the world.

Public-private partnerships in United States airports and ports are low hanging fruit for global SWFs as US States and local governments increasingly turn to private financing as a way to offset growing deficits caused by growing state sector pension liabilities.

Singapore’s Temasek is likely to become a leader in US transport P3s both for its direct ownership of Singapore’s global port operator PSA International Ltd. and its majority stakes in Singapore Airlines and interest in Basel, Switzerland-based listed airport duty free giant, Dufry AG (VTX:DUFN).

In a brief statement to Capitol Intelligence during her husband’s — Singapore Prime Minister Lee Hsien Loong recent state visit with US President Donald Trump — Temasek CEO Ho Ching said the fund “may look” at co-investing in President’s Trump planned USD 1trln infrastructure fund.

[Temasek Holdings CEO Ho Ching speaks to Capitol Intelligence using CI Glass on investing in US infrastructure fund during Singapore Prime Minister Lee Hsien Loong state visit with President Donald Trump in Washington, DC. October 25, 2017]

Singapore Prime Minister Lee Hsien Loong’s Oval office meeting with President Trump on October 23, 2017 was highlighted with the announcement that Singapore Airlines would purchase from Chicago-based Boeing Co (NYSE: BA) some 20 777-9s and 19 787-10s aircraft for a total deal value of USD 13.8 bn.

Prime Minister Lee Hsien Loong, in a move stressing Singapore’s close ties with US business leaders, participated in an interview by The Carlyle Group Co-Founder and Co-CEO David Rubenstein at a Economic Club of Washington DC event just ahead of his meeting with President Trump.

Temasek’s Ho Ching and other global SWFs are looking at the The Port of Baltimore and Puerto Rico’s Luis Muñoz Marín International Airport as models for private-public partnerships in the United States.

The Port of Baltimore partnership with Oaktree Capital Management unit Highstar Capital 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.

The privatization of San Juan’s airport to Canada’s Public Sector Pension Investment Board (PSP Investments) and Mexico’s Grupo Aeroportuario del Sureste SAB de CV allowed Puerto Rico to have a functioning transport hub while almost all of its major critical utilities and transport hubs were wiped out by Hurricane Maria.

Baltimore, with its deep sea (Panamex) port, has become the most efficient transport hub on the United States’ East Coast.

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.

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.

[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]

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.

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.

[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]

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.

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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