charting a new course? - transportation research...
TRANSCRIPT
Charting a New Course? Infrastructure Investment Ahead…
Bryan Grote
January 11, 2017
Potential Federal Incentives
• Investment Tax Credits? Wilbur Ross (Commerce), Peter Navarro (NTC)
• National Infrastructure Bank? Steven Mnuchin (Treasury)
• Other Proposals?
Performance Grants, Private Activity Bonds, Tax Credit Bonds, Regulatory Reforms, etc.
What is being incentivized?
• State/ local and private investment in the “right” projects
Revenue generating projects, especially P3s
• What about other projects (state of good repair)?
Many public infrastructure projects cannot be readily monetized
1
What is the “Infrastructure Plan?”
• Net non-defense public investment at 0.6% of GDP in 2015, down from 2.6% in 1970
2
Public Infrastructure Investment in Context
Net Government Investment Spending Billions of 2014 Dollars
Federal Defense
Federal Non-Defense
State and Local
3
US Infrastructure Spending Total Public and Private
Spending Public Spending Only
• Total physical infrastructure investment about $265 billion in 2015
• Public physical infrastructure investment about $168 billion in 2015
Source: UBS Research, Q-Series: How could a new wave of infrastructure spending impact the construction sector?
3
4
Incremental Infrastructure Investment Scenarios
Source: UBS Research, Q-Series: How could a new wave of infrastructure spending impact the construction sector?
• Planning & Permitting (Governance Challenge) How many projects can be teed up for funding /
financing? • Willingness to pay/raise direct user fees and taxes
• Federal fiscal trend is dire (financing over funding)
Relatively few projects can generate adequate returns for private financing (P3 = project pipeline problem)
Sourcing of capital (debt or equity) is NOT a significant constraint
5
Constraints on Infrastructure Investment Growth
I-495 Express Lanes $2,068
SH 130 Seg 5-6 $1,328
I-595 Mgnd Lanes $1,834
Port of Miami Tunnel $1,073
North Tarrant Express Lanes (1 and 2A)
$2,047
I-635 LBJ Mgnd Lanes $2,619
Midtown Tunnel $2,045
Presidio Parkway $852
I-95 Express Lanes $923
East End Crossing $1,319
North Tarrant Express Lanes (3A-3B)
$1,637
Goethals Bridge $1,459
US 36 Mgnd Lanes (Phase 2)
$209
I-69 Mgnd Lanes $364
I-4 Ultimate Managed Lanes
$2,878
Penna Rapid Bridge Repl
$1,116
Veterans Mem Hwy (Portsmouth Bypass)
$633
I-77 Mgnd Lanes $636
SH 288 Toll Lanes $1,017
$2,068
$1,328
$4,953
$2,619
$0
$3,819
$4,415
$3,450
$2,385
$1,017
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 6
Highway P3 Projects by Year ($ in Millions)
Availability Payment Revenue Risk
Federal or State Grants
30% Federal or State Grants
18%
TIFIA Loan 25%
TIFIA Loan 30%
Debt (PABs or Bank Debt)
35% Debt (PABs or
Bank Debt) 27%
Private Equity 7% Private Equity
23%
Other 3%
Other 3%
AP TOLL
10/10 transactions
9/9 transactions
8/10 transactions
10/10 transactions
9/9 transactions
7/9 transactions
PABs - 5/9 trans Bank Debt - 4/9 trans
PABs - 9/10 trans Bank Debt - 1/10 trans
Availability Payment Revenue Risk 7
Capital Structure by P3 Type
8
2014 Capital Outlays for Highways (Total = $107 Billion)
Federal $44.8 42%
State $25.0 23%
State (Bonds) $12.8 12%
Local $18.8 18% Local (Bonds)
$4.1 4%
TIFIA (Loans) $1.6 1%
Private Equity $0.3 <1%
Sources: Highway Statistics, Table HF-10; Bond Buyer Annual Statistics; FY 2016 Budget, DOT Appendix
Mechanics
• Type of incentive Grant program, tax incentive, credit assistance, regulatory relief
• Targeted projects Infrastructure sector, eligibility of projects (including P3 vs. public)
• Level of subsidy (financial benefit)
Budget Impact
• Cost of subsidy (budget score)
Considerations
• Technical feasibility
• Political feasibility
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Evaluating Potential Federal Incentives
Mechanics
• Equity-based credits set at percentage of private equity
• Paid out to investors at project delivery or over a few years
Budget Impact
• Tax expenditures (foregone receipts) over 10 years
• Relatively high for ITCs (without reliance on dynamic scoring)
Considerations
• Do federal tax credits displace or supplement private financial equity?
Bottom Line: Potentially meaningful financial subsidy (15 to 20% NPV) for small sliver of public infrastructure (P3 projects with private equity)
10
Investment Tax Credits (ITCs) Navarro-Ross Example
Mechanics
• Debt-based credits attached to bonds to reduce or eliminate interest expense
• Paid out to investors over term of bonds (up to 35 years)
Budget Impact
• Tax expenditures (foregone receipts) over 10 years
• Relatively low for TCBs, approximately 20%-30% of authorized volume
Considerations
• Are federal tax credits liquid / marketable over long term?
Bottom Line: Potentially very large financial subsidy (50-60% NPV) for broad segment of public infrastructure (both P3 and governmental projects)
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Tax Credit Bonds (TCBs) AFF bonds / TRIP bonds
Potential Incentive Potential Program Volume
Estimated Budget Cost
Net Investment
Effect
“Performance” (P3) Grants $ 20 $ 20 $ 90
Qualified Private Activity Bonds (QPIBs)
100 (no formal cap) 5 70
(net) Tax Credit Bonds (AFF Bonds / TRIP Bonds) 100 20 100
Federal Infrastructure Service Contracts (FISC) 60 0 40
(net) National Infrastructure Fund or Lending Authority 100 10 275
(net)
Total 380 55 575
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Quantification of Investment Initiatives ($ in Billions)
