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  • Muni Nation

    Infrastructure – A New Beginning?

    Jim Colby, Portfolio Manager and Strategist, Municipal Bonds
    February 01, 2018

    The Problem

    $4.59 trillion!1 According to the American Society of Civil Engineers, this is the need for infrastructure spending in the U.S. over the next 10 years.2 Of this, President Trump, in his State of The Union speech, called for authorization of only $1.5 trillion3 to be currently funded, leaving us shy by some $3 trillion to meet the estimated needs.

    Infrastructure Needs ($ Billion)

    Infrastructure Total Need
    Surface Transportation 2,042
    Water/Wastewater 150
    Electricity 934
    Airports 157
    Waterways & Ports 37
    Dams 45
    Hazardous & Solid Waste 7
    Levees 80
    Parks 114
    Rail 154
    Schools 870

    Source: Barclays, American Society of Civil Engineers - 2017 Infrastructure Report Card. For illustrative purposes only.

    From Where is the Money Going to Come?

    While infrastructure overhaul was a campaign pillar for President Trump, we are one year in and have yet to receive details (officially) of any plans to address this from the White House. In particular, how do they expect to fund such a program? Likely, municipal bonds will play a role in any financing. But should plans materialize, it seems highly unlikely that, in the current political environment and in an election year, taxpayers are going to be asked to ante up.

    Were munis to play a future financing role, then Private Activity Bonds4 (PABs) would appear to be eminently suitable. They have already proved both their worth and effectiveness in this context. However, while PABs may have survived the chop in last year's Tax Cuts and Jobs Act, the rules around them and specifically those governing what they can be used to finance were not changed either. Among other things, the definitions of public-purpose infrastructure categories remain narrow, state and transportation volume caps remain in place – as does Alternative Minimum Tax (AMT), and advance refundings are still prohibited.

    "The Times They Are a-Changin'" – Possibly

    Perhaps the recently leaked document "purported to be the outline of the administration's long-awaited infrastructure proposal"5 does address these issues (and others), however it would be less than wise to lose sight of the enormity of the current numbers. Annual PAB supply over the past few years has been less than $20 billion,6 a level well under current caps. Based on the figures reported above, the unmet needs for infrastructure investment still remain in the trillions of U.S. dollars: mouse and elephant!

    As for the real size of the elephant, who knows whether $4.59 trillion is truly enough? I'm minded that it may not be. So once again, we shall just have to wait and see.

    Post Disclosure  

    1Reuters: U.S. infrastructure gets D-plus grade in civil engineers' report card, again,

    2Barclays: Municipal & Public Policy Research, Infrastructure Plan – a Long Road with Some Potholes

    3Reuters: Trump urges Congress to help stimulate $1.5 trillion in infrastructure spending,

    4Investopedia – Private Activity Bonds (PABs): "Tax-exempt bonds issued by or on behalf of local or state government for the purpose of providing special financing benefits for qualified projects. The financing is most often for projects of a private user, and the government generally does not pledge its credit."

    5Competitive Enterprise Institute: #SOTU2018: All Eyes on Infrastructure, (Accessed January 26, 2018)

    6Barclays: Municipal & Public Policy Research, Infrastructure Plan – a Long Road with Some Potholes


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