Honest debate, realistic outlook: The latest on President Trump’s infrastructure plan

by AM admin on March 16, 2018

By Byron Carlock, US Real Estate Leader –

I’m a big believer in the power of an honest debate.

It’s not easy, and not always comfortable, but it helps illustrate the divide to potentially bridge the gap.

As my PwC CP&I colleagues noted[1], we need to have an honest debate about the costs of infrastructure, e.g. how to pay for upgrades and finance new projects. As Federal, state, and local governments spent $416B on it in 2014 (about 2.4% percent of GDP—which has been fairly stable for roughly 30 years)[2], there’s clearly room for improvement.

But I think it takes adding some color around the positives associated with infrastructure investment and real estate to enhance the discussion:

  • Our analysis of select private investment in public infrastructure saw, “… a notable improvement in performance across all major asset classes, which we consider is in no small part due to the focus and investment capital provided by specialist investors…[3] ”;
  • The multiplier effect suggests that $1 of government infrastructure spending may increase economic output by more than $1, particularly during economic downturns[4]—but some investments have yielded far more like the Boston Seaport post-Big Dig and New York City’s Hudson Yards after the subway extension;
  • Economic benefits are delivered to investors—communities and citizens alike, too, realize the project’s incremental economic benefits;
  • Infrastructure is the gateway to real estate development, as quality is often a top consideration when determining where real estate investments are made; and
  • Construction is crucial to improving our current infrastructure system and drives economic growth, having contributed over $800B to GDP in 2016[5].

The honest debate around infrastructure continued last week, as President Trump’s proposed infrastructure plan was back in the news last week when U.S. Secretary of Transportation testified before the Senate’s Environmental and Public Works Committee.

It was a fascinating exchange, as Secretary Chao stood behind the Administration’s proposed infrastructure plan, marking the first time an administration official involved in the infrastructure plan took questions from lawmakers since the White House released the proposal last month[6].

In my opinion, it was an emotionally charged discussion on both sides, as the Administration and lawmakers alike are passionate about the issue (as they should be). However, there’s still a bridge between the how, e.g. funding, permitting and building, and the what, e.g. where exactly to begin.

Getting there will be difficult, but I ultimately believe it will happen—but like these projects, it will take time.

I’ve included some highlights of her testimony below. As always, I look forward to hearing your reaction.

 

Highlights:

Fueling interest: Investment through transparency. The Administration’s infrastructure plan arguably hinges on driving investment through transparency, e.g. cutting costs and reducing uncertainty completion. Project delays increase the costs—the cost of capital and labor can both increase substantially over many years—and delays the potential ROI. The president’s plan, Chao said, “… is designed to change how infrastructure is designed, built, financed and maintained in communities across the country.[7]

Funding concerns: Turning $200B into $1.5T. Senators continued to question the Administration’s approach to infrastructure investment, but Chao remained resolute in the Administration’s approach. “By incentivizing new investment in infrastructure, eliminating overly burdensome regulations, providing support for rural America, and streamlining the permitting process, the Department is helping to improve our quality of life and build a brighter future for all Americans.[8]

Measure twice, cut once: Streamlining the permitting process. Secretary Chao heard Senators’ concerns about sacrificing environmental quality and concerns as part of an expected review / permitting process, and shared her view on the current process (redundant, competing, uncoordinated and siloed). The “One Federal Decision” proposed mandate combines effectiveness and efficiency by streaming the multi-agency approach to complete environmental reviews in two years while preserving environmental protections.

[1] “You get what you Pay for – It’s Time to Question the Culture of ‘Free Infrastructure,” PwC retrieved 3/8/2018
[2] “Spending on Infrastructure and Investment,” Congressional Budget Office 3/1/2017
[3] “Global Infrastructure Investment: The Role of Private Capital in the Delivery of Essential Assets and Services,” PwC 3/28/2017
[4] “Economic Impact of Infrastructure Investment,” Congressional Research Service 1/24/2018
[5] U.S Bureau of Economic Analysis, retrieved 3/2018
[6] “The Administration’s Framework for Rebuilding Infrastructure in America,” U.S. Senate Committee on Environment and Public Works 3/1/2018
[7] Ibid
[8] Ibid at 6
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