Rebuilding America

Markets & trends


The massive infrastructure package promised by President Trump was welcomed by the markets but has still to overcome several problems. First of all, that of fi nancing it.

The market is betting hard on one of Donald Trump’s biggest promises: revitalising US roads, bridges and airports. The president is committed to deliver a massive rebuilding package that is expected to create jobs in the millions, while capital expenditure could top one trillion dollars over a multi-year horizon. The programme, that sparkled enthusiasm in Wall Street in the fi rst few weeks of the new presidential tenure, is to be handled by Elaine Chao, a Taiwanese-American who was Trump’s pick to lead the Transportation Department. She is now working to establish an infrastructure ‘task force’ and is expected to present before Congress a to-do-list to be converted into legislation as soon as before the August recess.

Although the contours of the proposal have yet to emerge, President Trump has called for massive transportation investments, with proposals ranging from $500 billion to $1 trillion. Some legislators fear that the federal budget simply can’t aff ord such a huge amount of money, but the plan is to involve mainly private fi nancial resources that would be attracted, thanks to a tax-curbing scheme. Trump and his team have shown a strong preference for drawing-in money from the private sector to pay for infrastructure priorities with the idea to off er fi nancial incentives to private companies that want to back transportation projects.

Under that model, known as a ‘public-private partnership’, fi rms would bid on a project, build and maintain it for a set period of time and recover costs through tolls or set state payments. One proposal that Trump has fl oated would provide $137 billion in federal tax credits to companies that fi nance transportation projects, which he claims would unlock $1 trillion in investment over 10 years.

But Chao has not ruled out some direct federal spending on transportation. Still, even if the package requires the government to contribute some public funding for infrastructure, Trump is almost certain to rely heavily on private fi nancing — especially since that funding mechanism is far more likely to garner the support of Capitol Hill Republicans. Some legislators also pointed to regulatory reform as an important component of any infrastructure plan, saying there are “hundreds” of regulations that should be rolled back.

However, there is certainly a broad consensus that American infrastructure needs an upgrade. The American Society of Civil Engineers is already complaining that a 13-fi gure investment might fall short of the $3.6 trn required to bring roads, airports, pipelines and the like up to par. But the core of the issue is not the amount that will be spent; it is how that money will be allocated. The answer appears to be that it will be spent by private companies on projects where they can turn a profi t. Private investors fi x roads to get a return on their investment. That means the projects undertaken will be ones that make money through user fees—in most cases, tolls. But if there are tax incentives to investors, that could bode well for more investments in new toll facilities, according to the International Bridge, Tunnel and Turnpike Association. The plan might appear to save Americans money because it doesn’t require taxpayer funding, or at least not much of it, even if people would still have to pay later on, when they actually use the facilities.

Major listed projects
A document provided last month to US governors off ers an early glimpse of the wide array of projects that could be funded by a big infrastructure package. Projects listed include rehabilitation of some major airports and rail stations, such as Union Station in Washington, highway and bridge projects, such as an overhaul of the Arlington Memorial Bridge in Virginia, and mass-transit projects, such as the proposed Purple Line light-rail system in Maryland. There are also potential overhauls of the nation’s air traffi  c control system, hydroelectric plants and energy grid, as well as ports and waterways. The preliminary list also includes the overhaul and expansion of several airports, including in St. Louis, Kansas City, and Seattle. There are several potential repairs to major highways, including Interstate 95 in Pennsylvania, North Carolina and Florida.