The Wall Street veterans who are starting to set policy at the Trump White House hope to change how America finances roads, rails and bridges, ports and airports, pipelines and cables, schools and clinics, and other costly projects we all rely on.
They’re looking at giving Washington more power to build bigger stuff, instead of state and local elected officials — and at steps that would likely both speed construction times and boost finance rates.
One thing you can bet won't change is who, in the end, pays for public projects: That would be us. The American public. Who else?
President Trump "wants wins now,” and “infrastructure” sounds like a winner, writes Thomas G. Doe, boss at Municipal Market Advisers, a Connecticut-based bond firm, in a note to clients last week after Trump’s top policy guys aired their priorities — not in congressional hearings, but at bond-industry gatherings.
The Trump administration’s preference for private finance, Doe writes, “can be attributed to a key player in the restructuring of the municipal industry: D.J. Gribbin, special assistant to the president for infrastructure policy."
Gribbin's experience is with really big builders: Australia-based Macquarie Capital, which invests around the world in infrastructure projects (and owns Philadelphia’s Delaware Investments); Koch Industries, whose owners are leading Republican donors; and HDR, the big engineering and construction company with offices in Philadelphia and dozens of other cities.
Gribbin works closely, Doe notes, with Gary Cohn, the former Goldman Sachs president who now heads Trump’s National Economic Council. A New York Democrat, he's a natural candidate to build political bridges to liberal and labor Congress members.
Cohn, Gribbin, Treasury Secretary (and Goldman Sachs veteran) Steve Mnuchin, and Commerce Secretary Wibur Ross, the buyout king, are the “Four Horsemen” who could restructure infrastructure finance to better serve corporate America “under the guise of efficiency, savings, and jobs for the middle class,” according to Doe.
One Cohn target: muni bonds' long-standing exemption from federal income taxes, which has survived a century of attacks by laissez-faire Republicans and socialist-leaning Democrats. Canceling it could help raise cash to fund the tax cuts the party has promised corporations and wealthy taxpayers.
Even if Congress won't kill "The Exemption" outright, the promised high-end tax cuts would make muni bonds less attractive to investors — especially in low-credit states such as New Jersey and Pennsylvania, whose borrowing is extra expensive. (These are also among states that could lose billions to another Republican proposal: to cut federal tax breaks for state and local taxes.)
"A reduced tax rate and streamlined tax laws would severely crimp demand" for muni bonds as we know them, utilities analyst Ryan Connors, managing director at investment bank Boenning & Scattergood in West Conshohocken, told me.
Trump's Wall Street allies don't all "openly" articulate their preference for private finance instead of tax-free local bonds — but have made it "evident in the policies put forth for consideration," writes Municipal Market Advisers' Doe.
Projects could instead be fronted by private, taxable, higher-rate bonds, which advocates hope will finance more "public-private partnership" (P3) arrangements that would build projects free of state and local restrictions, faster than traditional muni financing.
Trump's early economic adviser, maverick economist Peter Navarro, failed to win quick support for direct tax credits to draw private money to public infrastructure projects, notes George Friedlander, managing partner at New York-based Court Street Group, which advocates state or regional "infrastructure banks" instead of a big, national effort.
Maybe Infrastructure Investment Trusts, similar to real estate investment trusts, could attract profit-hunting private investors to finance transport and energy projects, suggests Scott Crowe, chief investment officer at BNY Mellon's $10 billion-asset CenterSquare Investment Management real estate unit in Plymouth Meeting.
For all their possible management advantages, privately financed infrastructure will still require fat and repeated public funding subsidies to pay investors back — whether from tolls, bond sales, or federal “seed” money, Doe reminds us.
For an extreme example of what can go wrong when public projects rely on private financing, Doe suggests socialist Venezuela, "where a default on the state-owned oil company’s debt could place the country’s assets in the hands of a foreign government."
The rapid inflation of U.S. college and medical costs also shows what can go wrong when massive public financing is applied to privately run industries.
Doe worries that centralizing infrastructure can lead to reckless spending: The “idiosyncratic” system of local funding has at least given taxpayers “a defense against corporate abuse, disruptive lobbying, egregious borrowing, and loss of local control."
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