New York, March 29, 2018 -- Moody's Investors Service has issued a pair of reports examining
the potential impact of the Trump administration's infrastructure
plan on a range of sectors related to public and project finance.
While the limited new federal funding, increased availability of
low-cost financing sources and supportive regulatory changes would
provide much-needed capital for addressing the infrastructure gap,
the ultimate impact on debt issuance for actual projects remains unclear.
The Legislative Outline for Rebuilding Infrastructure in America involves
$100 billion in new federal infrastructure grants to states and
local governments for projects that are least 80% funded by non-federal
sources. An additional $50 billion would be distributed
to states as block grants for rural communities. The proposal also
expands eligibility and increases funding for low-cost financing
sources with TIFIA, WIFIA and private activity bonds (PABs),
and aims to streamline permitting and environmental review processes.
"An injection of $200 billion into the municipal sector would
be a noticeable and much-needed increase in federal infrastructure
spending over the next decade," says Marcia Van Wagner,
a vice president at Moody's. "However, the plan
relies on the ability of participants to increase leverage and attract
private sector partners, which may be unattractive or unattainable
in light of state and local funding constraints and competing budget demands."
State governments are central to the administration's approach to
infrastructure stimulus given their broad legal powers to implement taxes
and fees. Compared to local governments, states also have
more flexibility and greater institutional capacity to line up funding
sources, including from private sector partners. These qualities
make state governments the best positioned entities for the new funding
approach at the federal level.
However, absent new recurring revenue sources or meaningful revenue
growth, states will face constraints on spending priorities in the
coming years due to rising pension and Medicaid costs. State governments
would likely find it difficult to fund additional debt to meet requirements
for federal grants, which many states will find unappealing or unrealistic.
For large local governments, the plan's emphasis on competitive
grants and matching funds presents opportunities given their capacity
to raise revenue and engage in large-scale capital planning.
Large local entities are also often better able to manage more complex
alternative procurement options like PPPs.
Much like state governments, however, competing spending priorities
would limit local governments' capacity for capital investment given
the steep cost of attracting federal dollars under the plan. Most
local governments have annual operating revenues of less than $100
million, and the costs required to receive significant federal funding
would preclude their ability to take advantage of the administration's
funding approach.
The administration's plan would make it easier for transit systems
to manage their capital projects with their own resources, but would
not provide additional federal funding support. Additionally,
it would make the use of incremental tax growth around transit hubs --
known as value capture -- a prerequisite for Section 5309 Capital
Investment Grants. Given the difficulties that many systems would
have in implementing significant value capture, the federal infrastructure
plan could actually decrease the availability of the 5309 program,
which is administered by the Federal Transit Administration in the form
of grants for transit, light rail, commuter rail, bus
rapid transit and other fixed guideway systems.
"While budget constraints and political concerns may limit state
and local governments' ability to deliver new revenue sources,
certain infrastructure sectors have the capacity to generate the revenues
required to leverage the new federal funding," says Moses
Kopmar, an analyst at Moody's.
According to Moody's, among infrastructure sectors,
toll roads are the best positioned to identify new revenue sources to
attract federal funding. The infrastructure plan provides federal
authorization for states to toll interstate systems, and local momentum
appears to be building in several locations throughout the country.
The magnitude of these potential new revenue sources would advance surface
transportation investments more quickly than existing tax-supported
federal grant funding would allow.
The proposed expansion of TIFIA eligibility to airports will provide an
option for lower-cost debt issuance with a wider investor base.
The proposed elimination of the alternative minimum tax on PABs would
also reduce borrowing costs on terminal development projects. However,
Moody's expects project necessity and airline support to remain
the key determinants of new capital investment in airports.
Similarly, the proposal would expand TIFIA eligibility to seaports
and remove the volume cap on transportation PABs, both of which
would support increased access to capital for the sector. Ports
and inland waterways would also be considered eligible asset classes under
the rural infrastructure program, and would benefit from the proposed
streamlining of the environmental review apparatus.
The plan also proposes to extend and expand the WIFIA program, which
could subsidize the capital costs of water and wastewater infrastructure
investments. Additionally, it would expand PAB eligibility
to flood control and storm water facilities and eliminate the current
state volume caps for PABs based on population for clean water and drinking
water projects.
For the power sector, the plan's streamlined permitting process
would reduce project lead time, administrative inefficiencies and
regulatory costs -- each of which would promote sponsor investment.
The plan would also broaden PAB eligibility to hydroelectric generating
facilities and make a new source of federal funding to power generation,
transmission and distribution projects in rural areas.
"States, local governments, transit authorities --
US: State, local infrastructure borrowing boom unlikely without
greater federal funding," is available to Moody's subscribers
at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1112626.
"Infrastructure & Project Finance -- US: White House
plan supports investment to varying degrees across sectors,"
is available to Moody's subscribers at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1116366.
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Moses Kopmar
Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
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Marcia Van Wagner
VP - Senior Credit Officer
Public Finance Group
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