Charting a New Course? Infrastructure Investment Ahead. Bryan Grote

Transcription

1 Charting a New Course? Infrastructure Investment Ahead Bryan Grote January 11, 2017

2 What is the Infrastructure Plan? 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

3 Public Infrastructure Investment in Context Net non-defense public investment at 0.6% of GDP in 2015, down from 2.6% in 1970 Net Government Investment Spending Billions of 2014 Dollars State and Local Federal Non-Defense Federal Defense 2

4 US Infrastructure Spending Total Public and Private Spending Public Spending Only 3 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

5 Incremental Infrastructure Investment Scenarios Source: UBS Research, Q-Series: How could a new wave of infrastructure spending impact the construction sector? 4

6 Constraints on Infrastructure Investment Growth 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

7 Highway P3 Projects by Year ($ in Millions) $4,953 $4,415 Availability Payment Revenue Risk North Tarrant Express Lanes (1 and 2A) $2,047 $3,819 Goethals Bridge $1,459 I-95 Express Lanes $923 $3,450 $2,068 Port of Miami Tunnel $1,073 $2,619 Presidio Parkway $852 North Tarrant Express Lanes (3A-3B) $1,637 I-4 Ultimate Managed Lanes $2,878 $2,385 I-77 Mgnd Lanes $636 I-495 Express Lanes $2,068 $1,328 SH 130 Seg 5-6 $1,328 I-595 Mgnd Lanes $1,834 I-635 LBJ Mgnd Lanes $2,619 $0 Midtown Tunnel $2,045 I-69 Mgnd Lanes $364 East End Crossing $1,319 Veterans Mem Hwy (Portsmouth Bypass) $633 $1,017 SH 288 Toll Lanes US 36 Mgnd Lanes Penna Rapid $1,017 (Phase 2) Bridge Repl $209 $1,

8 Capital Structure by P3 Type Other 3% Private Equity 7% 9/9 transactions Debt (PABs or Bank Debt) 35% PABs - 5/9 trans Bank Debt - 4/9 trans Private Equity 23% 10/10 transactions Debt (PABs or Bank Debt) 27% PABs - 9/10 trans Bank Debt - 1/10 trans Other 3% 7 TIFIA Loan 25% 7/9 transactions TIFIA Loan 30% 10/10 transactions Federal or State Grants 30% Federal or State Grants 9/9 transactions 18% 8/10 transactions Availability AP Payment Revenue TOLL Risk

9 2014 Capital Outlays for Highways (Total = $107 Billion) State $ % State (Bonds) $ % Local $ % Local (Bonds) $4.1 4% TIFIA (Loans) $1.6 1% Federal $ % Private Equity $0.3 <1% 8 Sources: Highway Statistics, Table HF-10; Bond Buyer Annual Statistics; FY 2016 Budget, DOT Appendix

10 Evaluating Potential Federal Incentives 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 9

11 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 Investment Tax Credits (ITCs) Navarro-Ross Example 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

12 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 Tax Credit Bonds (TCBs) AFF bonds / TRIP bonds 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) 11

13 Quantification of Investment Initiatives ($ in Billions) Potential Incentive Potential Program Volume Estimated Budget Cost Net Investment Effect Performance (P3) Grants $ 20 $ 20 $ 90 Qualified Private Activity Bonds (QPIBs) Tax Credit Bonds (AFF Bonds / TRIP Bonds) Federal Infrastructure Service Contracts (FISC) National Infrastructure Fund or Lending Authority 100 (no formal cap) 5 70 (net) (net) 275 (net) Total

14 Bryan Grote mercatoradvisors.com