America faces an infrastructure crisis. It is not simply about commuter times. We cannot grow a manufacturing sector or advanced economy without modernizing our infrastructure. Inexpensive plentiful power and water and also state-of-the-art logistics are a precondition to growing our economy.
In the State of the Union Address, President Donald Trump rolled out the fundamentals of his infrastructure plan. The plan has two key aspects. First, it will streamline the regulatory review process. Second, the federal government will bring together $1.5 trillion dollars, but not foot that entire bill. Instead it will partner with cities, states, and the private sector.
So, how does the math work? We may be forgiven for not having the faintest idea. Nobody is born knowing anything about infrastructure finance.
However, without an understanding of this partnership approach, we will have no meaningful civic engagement. And, without civic engagement, we will not have an infrastructure plan which advances the public interest.
What is this approach? How can we make it work? What is Mr. Trump doing to make it successful? How did this bipartisan approach become so politicized?
First, it is essential to dispel a prevalent misconception about private partners within infrastructure projects. Private investors are not all the same. They have differing preferences, investment horizons, and expected rates of return. Some are heavily engaged within the communities they serve, while others simply write checks.
A properly structured project can protect against bad outcomes.
Many investors do not get paid through user fees. Moreover, many projects do not even deploy a user fee model. For instance, bridges and courthouses typically do not have tolls. For this reason, the government often pays the private investor a rent payment if the project meets certain performance benchmarks.
We no longer live in President Dwight Eisenhower’s world where the federal government directed and underwrote the entire national highway system. We do not even have earmarks anymore. So, members of Congress do not steer federal aid toward specific infrastructure projects.
Instead, mayors, governors and county executives have become the drivers of infrastructure investment decisions. When they need money or subsidies, they go to Washington. So, at times, the federal government is returning tax dollars to local communities. At other times, they serve as a lending institution.
We have been shifting toward this partnership approach for the last twenty years. Any thoughts then of going back to the 1950s approach are simply wishful thinking. From President Ronald Reagan’s time to present, the federal capability to play such a role has been progressively dismantled.
Mr. Trump is fundamentally right. Between the federal, state and local governments and also the private sector, we can pay our way out of the infrastructure crisis we face several times over.
The real challenge then is how to make this approach work so that it advances the public interest.
President Barack Obama’s American Recovery and Reinvestment Act offers important lessons regarding what works, and what does not. The Recovery Act had fifty-two partnership programs. It achieved, by some estimates, a partnership ratio in which for every federal dollar spent, three outside dollars came in. That’s an achievement we should learn from. The partnership programs were the successful part of the Act, not those that put the federal government in the driver’s seat.
Perhaps the biggest challenge faced by the federal government right now is to put a plan in place that benefits all American communities.
For instance, we basically have a dozen states that will use transportation partnership money, thirty energy, and twelve water. How do we create programs which can be easily tailored to our diverse communities, be they rural, medium sized cities, or big cities? Wyoming has different needs than Maine or New York City.
States themselves are often a cohesive patchwork of communities with vastly different economic profiles and infrastructure needs. Take California which is both urban and rural.
Every document on infrastructure that has come out of the Whitehouse to-date has been thoughtful and attempted to address what are complex challenges. They have thought through how to bucket funds for rural, local, and nationally significant projects. The Administration has also thought through how different sectors have different financing needs. Importantly, we see a very grounded sophisticated understanding of the capabilities and challenges tied to a diverse investor community.
What is most exciting about the Mr. Trump’s approach is that it will bring money into areas that the greatest leverage can be achieved, the most bang for the federal buck, rural communities and also small and medium sized cities. These are areas of the country whose growth has been suppressed by decades of underinvestment. We will ultimately judge Mr. Trump’s infrastructure plan by how it delivers economic opportunity to those communities which have been excluded the most.
Of course, projects such as Gateway must be funded because it is critical national infrastructure. Areas of New York City hardest hit by Hurricane Sandy and those communities in California devastated by forest fires must be rebuilt. Moreover, communities in places such as New York City again as well as San Francisco must have a federal partner to ensure a more inclusive community.
At the same time, none of this will work without an informed engaged public. Civic engagement is not only necessary for shaping legislation, but ultimately making it work in its practical application in the real-world.
If you would like additional information or if I can be of assistance thinking through how these changes impact upon your own institutional plans, please do per usual be in touch.
Michael
Michael Likosky, DPhil (Oxford Law)
Infrastructure Head, 32 Advisors
212-607-2450 (w)
646-685-1792 (c)
mlikosky@32advisors.com
www.32advisors.
https://www.linkedin.com/in/michael-likosky-0aab2a5
BIO
Michael Likosky is a head of Infrastructure at 32 Advisors. He holds a JD and DPhil (Oxford Law).
Michael is an expert on infrastructure, oil and gas, mining, free zones, human rights, foreign investment, and high technology growth strategies.
He has published five books in these areas including three with Cambridge University Press. His most recent book, Obama's Bank: Financing a Durable New Deal, looks at the Obama Administration's approach to public-private partnerships. His other books are: Law, Infrastructure and Human Rights; Privatizing Development; Transnational Legal Processes; and The Silicon Empire.
Michael is an Expert to the Clinton Global Initiative, the OECD, and the United Nations Conference on Trade and Development.
Michael co-chaired California Governor Edmund Brown Jr's Task Force to Modernize the CA Infrastructure and Economic Development Bank, the country's oldest infrastructure bank with over thirty-two billion dollars lent out to-date. Likosky is a regular contributor to the World Investment Reports, Oxford Amnesty Lectures, and Trade and Development Report.
Michael's work has been supported by Ford Foundation, Rockefeller Foundation, Arts and Humanities Research Board, Surdna Foundation, Markle Foundation, Chatham House, and others.
Michael advises public officials, private investors, pension plans, and inter-governmental organizations. Likosky has advised US Treasury; US Senators John Kerry (then), Charles Schumer, Kirsten Gillibrand, Cory Booker and Bill Nelson; US Representative Rosa De Lauro; California Governor Edmund Brown Jr.; New York State Empire State Development Corporation; New Jersey Governor Christie; CA Business Transportation and Housing Agency; CA State Infrastructure and Economic Development Bank; the cities of Chicago and Newark; D. E. Shaw; Deutsche Bank; Credit Suisse, McKinsey; Goldman Sachs; Standard and Poor's; broadcasters (ABC, CBS, NBC, ESPN), International Development Law Organization; the capital stewardship programs of SEIU, AFT, UFCW, and LiUNA, and others.
Michael has published opinion pieces and appeared in outlets such as New York Times, New York Times Deal Book, Wall Street Journal, CNN Money, Bloomberg, Associated Press, Reuters, Bond Buyer, American Banker,
Michael founded and directed NYU's Center on Law and Public Finance and was a Senior Fellow at the Institute for Public Knowledge, was Professor of International Economic Law at the School of Oriental and African Studies, University of London, and has held fellowships and visiting posts at Oxford Law, NYU Law, Fordham Law, Wisconsin Law, and the University of Bonn.
Since 2008, Michael has convened the Reinvesting in America Series often in partnership with OECD, Partnership for NYC, Clinton Global Initiative, Citizens Budget Commission, Debevoise & Plimpton, Shearman Sterling, British Telecom, and Hogan Lovells. It features members of Congress; public officials from US Treasury, Defense, Transportation and Commerce; as well as state officials. The series includes small off-the-record discussions and large public events. It alternates between New York and Washington DC
Michael Likosky
32 Advisors
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