Jim Colby, Portfolio Manager and Strategist, Municipal Bonds
February 01, 2018
$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)
Waterways & Ports
Hazardous & Solid Waste
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.
6Barclays: Municipal & Public Policy Research, Infrastructure Plan – a Long Road with Some Potholes
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Portfolio Manager and Strategist, Municipal Bonds
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