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The debate over how to fund infrastructure improvement and expansion projects featured prominently in the news over the past week. President-elect Donald Trump is floating several ideas, one of which he already proposed and another that he initially rejected but is beginning to re-examine. However, a P3-advocacy group has pointed out that federal programs already in place could, with continued or added support, help the new administration achieve its infrastructure goals. Meanwhile, across our northern border, Prime Minister Justin Trudeau’s government is aggressively pursuing private domestic and international investment in his ambitious infrastructure program and Infrastructure Ontario issued an update on its current and projected alternative financing and procurement pipeline.
All roads lead to … a lack of consensus. President-elect Trump is sounding out members of Congress about the feasibility of taxing repatriated overseas investments. During a meeting of legislators organized by House Majority Whip Steve Scalise (R-La.), Trump economic advisor Stephen Moore predicted that a one-time, 10 percent tax on the up to $2 trillion that could be repatriated would raise as much as $150 billion for such projects. Reactions range from “yeah!” to “meh.” Senate Commerce Committee Chairman John Thune (R-S.D.) said tax reforms combined with such an infrastructure funding approach might be “doable.” House Minority Leader Nancy Pelosi (D-Calif.) said her party could support a transportation infrastructure funding program that creates jobs and Sen. Chuck Schumer (D-N.Y), whom Senate Democrats recently picked to succeed Harry Reid (D-Nev.) as minority leader, expressed interest in taxing offshore profits. Rep. Kevin McCarthy (R-Calif.), who will stay on as House Majority Leader, is in favor of finding sources for a transportation revitalization program, provided it doesn’t add to the budget deficit and Rep. Mario Diaz-Balart, (R-Fla.), who leads the House Appropriations Transportation-HUD Subcommittee, feels the same way (paywall). But significant opposition could come from influential players within the GOP. Senate Majority Leader Mitch McConnell (R-Ky.) who also will retain his post in the next Congress, has indicated that transportation funding is not a high priority and House Speaker Paul Ryan (R-Wis.) doesn’t seem inclined to re-address the issue after the December 2015 passage of the FAST Act.
Re-think on I-banks? Although Trump and his advisors previously dismissed Hillary Clinton’s proposal to start a national infrastructure bank, and President Obama failed several times to push one through, the president-elect is beginning to seriously consider the idea, said Stephen Mnuchin, who is said to be in the running for Treasury secretary. Growing interest in the idea is coming from both sides of the aisle. Sen. Deb Fischer (R-Neb.) has expressed interest in the idea. (paywall) Rep. Peter DeFazio (D-Ore.), the ranking member of the House Transportation and Infrastructure Committee, said that an infrastructure bank, tax credits and P3s will “help with individual sorts of big projects, but it’s not any kind of cure-all and it certainly isn’t going to get the big bang that Trump has talked about in infrastructure.” He prefers to index the gas tax or introduce a wholesale barrel tax. But Rep. John Delaney (D-Md.), who introduced infrastructure bank legislation, released a statement calling Trump transition team’s interest in this funding approach “encouraging.” One of his bills calls for bond sales to the private sector to start up a bank. Companies that buy the bonds would be allowed to repatriate their overseas income one time without any taxes. Another bill would create a bank and shore up the Highway Trust Fund with a one-time 8.75 percent tax on overseas income. But those critical of the proposal, including some of Trump’s economic advisors, derided the idea as too risky, citing the collapse of California-based Solyndra, the solar manufacturer that went bankrupt not long after receiving a $535 million loan guarantee from the Energy Department. Economists have said, however, that a largely independent infrastructure bank could direct spending toward high priority projects and away from politically motivated ones (paywall).
Trump hears from P3 constituents. NCPPP and nine other concerned groups — as part of the P3 Coalition for Innovative Infrastructure Finance — signed a letter to the incoming Trump administration, urging it to support the increased use of private activity bonds to lower the capital cost of P3 projects and the Water Infrastructure Finance and Innovation Act loan program to support water and wastewater projects. While acknowledging that creation of an infrastructure bank could help coordinate federal infrastructure funding and financing programs, the coalition pointed out that it will take time to set one up and suggested that, in the meantime, the TIFIA and WIFIA loan programs could be expanded through USDOT’s Build America Bureau and EPA’s Water Infrastructure and Resiliency Finance Center. The coalition also called for an infrastructure package that would include funding to keep the Highway Trust Fund solvent.
Payments from airport P3 could benefit an entire community. Oaktree Capital Management, L.P. plans to enter into a 40-year revenue-sharing lease to improve and run the airport in Westchester County, N.Y., an arrangement that is made possible by a Federal Aviation Administration program that permits small to mid-sized airports to be run as P3s. The county will continue to own the airport, which already is privately managed, but structuring the new lease under the FAA program’s terms will, for the first time, allow Oaktree’s payments to be spent not only on the airport but on all county programs. Through the agreement, the county is expected to enjoy net payments and savings of more than $140 million.
Another VDM study in the works. Colorado’s Department of Transportation (CDOT) will launch a four-month study in December to examine whether to replace the state’s 22-cent-per-gallon gas tax with a vehicle-miles-driven fee to pay for transportation projects. Colorado’s population is expected to nearly double to 7.8 million by 2040, which will increase wear and tear on the state’s roadways, CDOT pointed out. California is conducting a similar study and other states have expressed interest in doing so as well.
Land around Philly station getting set for major facelift. Amtrak plans to issue an RFP for the development and long-term lease of property adjacent to Philadelphia’s 30th Street Station, the railroad’s third busiest station. The property covers about 32,500 square feet and associated air rights, is zoned for institutional, commercial, office and residential use, and is part of a larger plan for the area surrounding the station that could result in 40 new acres of open space and 18 million square feet of new development near the Schuylkill River.
NEWS FROM CANADA
Our northern neighbor is — at least —one step ahead on I-banks. Canada’s government hopes to attract investments from sovereign wealth funds, global private equity firms and domestic pension funds, hoping to attract funding for its new infrastructure bank through which it hopes to provide to C$35 billion for major projects. Finance Minister Bill Morneau’s fall fiscal update outlined a plan to spend more than C$186 billion on infrastructure over 12 years. Prime Minister Justin Trudeau and Morneau attended an event in Toronto on Oct. 14, one of several scheduled before the bank opens next year, which are designed to attract private investment. U.S. investment management firm Blackrock reportedly helped set up the meeting. Canadian officials hope to incite interest from the likes of the Government Pension Fund of Norway, one of the world’s largest sovereign wealth funds, and are wooing domestic players such as the Canada Pension Plan Investment Board, the Caisse de depot du Quebec and the Ontario Teachers’ Pension Plan.
Movin’ on: Bert Clark, who served as the head of Infrastructure Ontario for more than four years, stepped down from his position in mid-October to run the new Investment Management Corporation of Ontario, a nongovernmental, member-funded, nonprofit corporation that will pool and manage public-sector pension funds. The corporation’s founding members are the Ontario Pension Board, which administers pensions for provincial government employees and those at agencies, boards and commissions, and the Workplace Safety and Insurance Board. Toni Rossi, divisional president for real estate and lending, is serving as acting president and CEO while an executive search is conducted for Clark’s successor.
IO announces P3 plans. Infrastructure Ontario released its annual market update, which confirms the provinical government’s plan to invest in alternative financing and procurement infrastructure projects, including P3s, and other real estate projects. “The AFP project pipeline includes projects with a total capital value estimated at $11.8 billion,” wrote Divisional President Toni Rossi. The list of 42 projects, which encompasses social infrastructure and transportation projects, includes those for which RFIs, RFQs or RFPs have been issued and others that are in more preliminary stages of procurement. The types of procurement models represented range from transit-oriented development and build-finance to DBFOM.
Gordie Howe Bridge project moving along. The Windsor-Detroit Bridge Authority began an 18-month RFP process to select developers to design, build, finance and operate the Gordie Howe International Bridge by inviting three shortlisted teams, Bridging North America, CanAm Gateway Partners and Legacy Link Partners, to compete. The bridge crosses the Detroit River and links Detroit and Windsor, Ontario. Canada plans to cover the cost of building the $2.1 billion bridge and a $250 million customs plaza on the U.S. side. Toll revenues collected by the U.S. side will go toward repayment for that share of the project.
P-what-now? Only 20 percent of Ontarians say they know what P3s are, reported research firm Ipsos, based on a poll it conducted in early November. Seventy-one percent of those surveyed did not know which of the province’s infrastructure projects are conducted through P3s. The firm said the poll also revealed that 70 percent of Ontarians approved of the use of P3s until they heard the Ontario Auditor General’s finding that the government could have built P3 projects more cheaply, resulting in a 50 percent drop in this approval rating.
Makeover for Toronto rail station. Infrastructure Ontario and provincial transportation agency Metrolinx have launched a “market sounding process” to gauge potential construction timelines for a proposed design-build-finance project to redevelop Union Station in Toronto. The project involves upgrading the station in anticipation of accommodating Regional Express Rail service.
Three in for Toronto hospital. Three developers have been shortlisted to design, build and finance a new patient care tower project at the Michael Garron hospital in Toronto. They are EllisDon Infrastructure Healthcare, PCL Partnership and Walsh Toronto East Health Partners. The selected developer will build an eight-story patient care tower and separate three-story building, demolish some existing space and renovate the existing hospital. Approximately 550,000 square feet of the hospital will be redeveloped
WHAT’S NEW AT P3 INGENIUM
Here are the latest P3 projects that P3 INGENIUM began following over the past month:
Chesapeake Bay Bridge Crossing, Chesapeake Crossing, Maryland
Delaware State University residential and charter school facilities, Dover, Delaware
Mississippi River Port, Wickliffe, Kentucky.
St. Paul’s College Student Residence Facilities, Manitoba, Canada
Surrey Schools, Surrey, British Columbia, Canada
Texas Woman’s University Student Housing, Denton, Texas
Waterloo LRT Stage 2, Waterloo, Ontario, Canada
WHAT’S GOING ON AT NCPPP?
Here’s a quick peek at the upcoming NCPPP calendar.
- DoD/Federal Energy & Water Forum — Dec. 2 — Washington, D.C.
- P3 Bootcamp — Dec. 13-14 — Chicago
- Emerging Markets Forum — TBA — Miami
- P3Bootcamp — TBA — Miami
For more information about event programs, registration and sponsorship, please visit NCPPP’s website.
The P3 Digest staff will take a brief holiday break. The next issue will hit your mailbox Tuesday, Dec. 6. We hope you have a safe and enjoyable Thanksgiving.