December 8, 2016
Infrastructure investment has continued to be center stage in the Trump-Pence transition, following a common thread from both the Trump and Clinton camps during the campaign. Now that President-elect Trump has begun his transition to stand-up a government on January 20, 2017, we look at some of his pronouncements on an infrastructure plan and what it could mean for the US as well as individual states, cities, businesses and labor.
Elaine Chao, Donald Trump’s pick for transportation secretary, has a big job in front of her if confirmed by the Senate, as President-elect Trump has repeatedly called for robust investments in infrastructure via his “America’s Infrastructure First” plan, which outlines the need for a cost-effective system of roads, bridges, tunnels, airports, railroads, ports and waterways, and pipelines while also providing states maximum flexibility.
The Trump-Pence plan has at times seemed to support the introduction of new revenues through “repatriation” – a transition tax on multinational corporations’ offshore profits – in addition to new forms of tax credits for infrastructure investment. Also, some in the Trump camp have advocated for a greater reliance not only on private investment in infrastructure, but also private design, build and operation of these public use facilities.
While these Public-Private Partnerships (PPPs) have been debated in the U.S. for some time, their use has been somewhat limited due to the perception that only revenue-generating assets can be financed. In recent years, most public-private ventures in transportation, including the long-term lease concession model, have been focused almost exclusively on toll roads where the positive net revenue stream made financing much easier. More recent public transit projects in Denver, Colorado and in suburban Washington, DC have shown new ways to attract private investment to projects that have negative revenue streams through the use of availability payments.
Availability payments first emerged in Florida for the Interstate 595 Express Corridor Project and the Port of Miami Tunnel Project. Within the past several years, the Regional Transportation District in Denver used the availability payment structure for its Eagle P3 commuter rail project and in California, the City of Long Beach constructed a new courthouse and the state constructed the Presidio Parkway in San Francisco utilizing availability payments.
One of the main obstacles to the wider use of private investment and whole or partial ownership of transportation facilities has been a lack of experience in the PPP market, access to the municipal debt market, disincentives under current law (i.e. Dodd-Frank), prohibitions or other barriers in federal grant programs and a heavily-subsidized public funding stream that cities and states rely upon vis-à-vis federal highway trust fund dollars. A shift in focus by the Trump-Pence Administration toward tax credits and private investment and financing could change the status quo investment mechanism. However, without additional federal revenue, it is unclear what the appetite will be for cash-strapped states and municipalities to use private financing that not only requires repayments, but is also arguably more expensive over the long run than public financing mechanisms.
Given the deteriorated state of roads, highways, high speed rail, transit systems, and other modes, elected officials have been required to pay significant attention to the needs of surface transportation in the U.S. The federal government’s primary concern has centered around the solvency – and potential insolvency – of the Highway Trust Fund, which is how the vast majority of funding to states and cities are programmed to improve roads, interstates, and transit systems.
The U.S. Congress passed, and President Obama signed into law, the “Fixing America’s Surface Transportation” act on December 4, 2015 which provided $305 billion for all modes of transportation through the year 2020. However, the perennial issue of Highway Trust Fund solvency was not addressed since no new sustainable revenues were included in the law. The federal motor fuel excise tax on gasoline of 18.4 cents per-gallon has not been increased since 1993, requiring repeated bailouts of the Highway Trust Fund from the General Revenue Fund. According to the Congressional Budget Office, Congress has transferred about $143 billion from other sources into the Highway Trust Fund since 2008.
Beyond attracting new forms of investment from the private sector, regulatory reform is a key component to the Trump-Pence plan in the infrastructure investment arena. The Trump-Pence plan looks to link increases in spending with reforms that streamline permitting and approvals; improve project delivery; and cut wasteful spending on boondoggles with a desire to employ incentive-based contracting to ensure projects are on time and on budget. Some of these reforms have been discussed and included in previous legislation such as the FAST Act and before that, the MAP-21 Act, as it pertains to the major environmental regulation such as the National Environmental Protection Act (NEPA).
It is unclear whether specific regulations would be proposed for modification or even elimination. Additionally, Republicans in Congress have been very critical of the Obama Administration’s process for project selections in several discretionary grant programs (i.e. TIGER Grant Program) and they will likely seek modifications or even elimination of these programs. Other U.S. Department of Transportation (DOT) programs such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program may also be reviewed for its method of selecting projects. The TIFIA program has become a popular source of alternative financing for numerous projects over the past ten years and it could see an increase in use under a Trump-Pence Administration, depending on what programs would remain available to states.
The Trump-Pence plan states their intention to pass legislation to modernize US airports and air traffic control systems, end long wait times, and reform the Federal Aviation Administration (FAA) and Transportation Security Administration (TSA). Congress has been working on the FAA reauthorization and reached an agreement to extend the authorization until September 30, 2017 which means there is opportunity to pass comprehensive reform once the new Administration takes office.
Currently the Trump-Pence transportation transition team has not expressed a policy position regarding the proposed privatization of Air Traffic Control. During the 114th Congress, House Committee on Transportation and Infrastructure Chairman, Bill Shuster (R-PA) pushed through his Committee a proposal to detach Air Traffic Control from direct management by the FAA. The proposal stalled in the House and received very little support in the Senate. The Trump-Pence policy position on this proposal could determine whether it goes forward or not.
Upgrading of airport facilities, a priority of the Trump-Pence Infrastructure plan, is a more complicated matter. Currently, the FAA grant programs are focused on air side improvements, while terminal and other customer functions at airports are the responsibility of local authorities. While airlines have often been the major investors in new terminals and other improvements in airports, the Trump-Pence transition team has expressed concerns about limitations on new competition in the aviation marketplace that are complicated by these investments and the restrictions on competition that often accompany the investment.
Finally, the most significant regulatory action pending before the FAA is the agency approach to the use of Unmanned Aerial Vehicles, otherwise known as drones. While the FAA’s historic role has not been one of controlling airspace (except around airports), but rather managing it, the introduction of drones is raising the question of the FAA’s role in governance over the use of this new airborne technology. The FAA has so far limited the use of drones in controlled airspace over commercial and general aviation airports and over people, but now they will shortly issue regulations governing the use of drones over unsheltered people. The Trump-Pence Administration will be immediately confronted by this issue and the proposed direction the FAA is contemplating. How they may respond is unknown at this time.
The Trump-Pence plan seeks to make clean water a high priority by including a long-term water infrastructure plan with city, state and federal leaders to upgrade aging water systems by tripling funding for state-revolving loan fund programs. States and municipalities rely upon the Clean Water State Revolving Fund to provide long-term, low-interest loans to fund projects such as constructing municipal wastewater facilities, controlling nonpoint sources of pollution, building decentralized wastewater treatment systems, creating green infrastructure projects, protecting estuaries, and funding other water quality projects.
The current program, which will likely be reauthorized this year prior to the Trump inauguration, provides grants to states that are then lent out to local entities. The state is required to match the federal grant with a 20% match. Some states have structured their existing portfolio of loans into a leveraged package freeing up financing for more loans. Each state runs their own Clean Water State Revolving Fund and those entities seeking a loan must ensure they have an ability to pay back the loan. Once loans are paid back, each state can then revolve that money and issue new loans.
It is unclear at this point if the Trump-Pence Administration will pursue significant new funding sources for water infrastructure, or if any new funds that are contemplated in an infrastructure bill early on in the new Administration will be directed to water systems. Unlike surface transportation and aviation, there already exists significant private sector investment in water systems, including investor-owned facilities.
The Trump-Pence plan states it will prioritize modernizing and securing pipelines, which are regulated primarily through state regulatory oversight and inspections and by the DOT’s modal agency – the Pipeline and Hazardous Materials Safety Administration (PHMSA). The Trump-Pence plan appears to be focused on a review of recent efforts by the Obama Administration to expand PHMSA jurisdiction into areas where previously there had been no federal oversight. In addition, regulations for movement of hazardous materials (i.e. Crude by Rail Tank Car Regulation) will also be under review to determine if they are viewed as overly-restrictive or lacking federal jurisdictional authority.
The Obama Administration had expanded efforts toward greater pipeline safety through the rulemaking on Integrity Management Program for Gas Distribution Pipelines (PHMSA–RSPA–2004–19854)— a rulemaking that was initiated under the Bush Administration. This rule, applicable to distribution pipelines, adds a requirement that operators install excess flow valves on all new and replaced residential service lines serving single residences.
In addition, the Obama Administration proposed changes to the integrity management requirements by modifying the regulation of onshore gas gathering lines. Further, PHMSA proposed to require periodic inline integrity assessments of hazardous liquid pipelines that are located outside of high consequence areas and further require the use of leak detection systems on hazardous liquid pipelines in all locations.
More recently, the Obama Administration began the development of new regulations on Underground Gas Storage Facilities, and publication of an Interim Final Rule is projected for December 30, 2016. The question of PHMSA jurisdiction on underground storage will be one of the questions the new Administration will undertake.
The larger pipeline policy issues, such as the Keystone Pipeline, will be driven mainly from the White House and other agencies such as the US Departments of State, Energy and the Environmental Protection Agency. The DOT’s role will be limited to the safety of operations and maintenance issues and thus will not be significant in the decision whether to permit the construction of the line(s).
The direction of pipeline authorizations will likely take a dramatic turn from where they have been under the Obama Administration. The Army Corps of Engineers has just ruled they will deny a permit needed to complete the final segment of an oil pipeline across North Dakota. Almost certainly President-Elect Trump will overturn this decision and authorize the permits to allow for the final leg of the 1,200-mile “Dakota Access” pipeline. The $3.8 billion project is nearly complete but for the 1,100-foot crossing of the Missouri River reservoir. Trump has stated he supports the pipeline as well as the development of other pipelines that will improve energy despite growing public pressure to stop the construction of pipelines intended for natural gas or crude pathways to oil refineries.
Equal to the enthusiasm that Trump supporters have to the stated infrastructure plans are those who express doubt of the prudence and realism of such investments given most projects aren’t “shovel-ready,” the current low level of U.S. unemployment doesn’t seem to call for this kind of job creation investment (and even those who need jobs may not have the required skills for such technical and large-scale projects), and rising interest rates that will make funding more expensive.
Despite such pushback from certain groups, this is undoubtedly a cornerstone area for Trump, in which he’ll likely seek to make his mark.
Given this period of significant change, it is worth noting that FTI’s Transportation and Public Affairs experts are uniquely qualified to advocate on behalf of its clients, using our industry-specific expertise to provide intelligence, spot fresh opportunities and anticipate hurdles throughout both the transition phase and the new administration. We will continue to produce briefings as the policy picture for infrastructure comes more into focus.
 Congressional Budget Office Report, “Approaches to Making Federal Highway Spending More Productive” dated February, 2016, available at: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50150-Federal_Highway_Spending.pdf