IFM Investors welcomes 'novel approach' of Trump's US infrastructure plan

Global fund manager IFM Investors has welcomed the “novel approach” laid out in US President Donald Trump’s infrastructure plan.

Despite attracting criticism from some quarters, the US administration’s long-awaited proposal to increase investment in the country’s ailing infrastructure could prove to be “a positive catalyst”, according to IFM Investors, which manages some US$34bn in infrastructure assets.

“We’re encouraged by the administration’s focus on infrastructure investment and believe it creates an important opportunity for bipartisan action to address critical needs,” said Tom Osborne, executive director for infrastructure at IFM Investors.

The Trump administration wants to stimulate infrastructure finance through a programme of incentive grants to attract incremental investment from state and local governments and the private sector.

In a 55-page Legislative Outline for Rebuilding Infrastructure in America, the White House finally released details of its proposals, which would use $200bn in federal funds to stimulate “at least $1.5trn in new investment over the next 10 years” – while shortening the approval process and allocating $50bn to “address unmet rural infrastructure needs”.

Assets eligible for financing under the programme would include surface transportation and airports, passenger rail, ports and waterways, flood control, water supply, hydropower, water resources, drinking water facilities, wastewater and stormwater facilities.

The incentives programme would be funded with $100bn, to be disbursed by several US agencies – principally, the Department of Transportation, Army Corps of Engineers and Environmental Protection Agency.

“The administration’s plan proposes the creation of a merit-based allocation of federal funds based in large part on the initiative of state and local governments to identify and implement new revenue sources,” said Osborne.

“These could include new user fees, taxes or recycling of existing operational infrastructure through long-term leases whose proceeds would be invested in new infrastructure.  

“This is a novel approach versus traditional ‘direct spend’ grants from the federal government, and will be a positive catalyst for bringing both sides of the aisle together to develop a workable plan for closing the infrastructure investment gap.”

IFM Investors recently raised US$1.7bn for its global infrastructure fund. US assets owned include the Indiana Toll Road.

Other infrastructure investments managers contacted by IPE Real Assets declined to comment.

The plan drew criticism from Democrat-aligned think tanks and policy groups. The Center for American Progress said it was part of a “scam” in which each $1 of proposed federal infrastructure spending was offset in the 2018 budget by $1.69 in cuts to other federal infrastructure programmes such as the Highway Trust Fund, supported by gas taxes.

The Union of Concerned Scientists issued a press release branding the plan a “pretext for regulatory rollbacks”, an attack on the administration’s desire to speed up issuance of federal environmental permits for projects.

But Robert W Poole Jr, director of transportation policy at the Reason Foundation, suggested such critiques were wide of the mark. The White House’s “more nuanced approach is not intended as a massive ‘stimulus’ program, which is not what America needs,” he said. “What we do need is much better targeting of investment to infrastructure projects that deliver better value for money.”

Capital from the programme would provide funding “in addition” to existing federal sources, Poole said. It is “intended to draw on innovative financing in an effort to leverage the federal dollars”.

To do so, the White House calls for additional budget authority for federal credit enhancement and subsidy programmes that allow states and cities to borrow more for water, rail, and transport assets, and expansion of federal credit assistance from traditional surface transportation assets to port and airport projects that are not eligible for such support under current regulations.

White House infrastructure czar DJ Gribbin told a recent Hudson Institute seminar the administration wants to encourage states and cities to identify new revenue streams, while also making it easier to apply for federal funds. At the same time, the administration is maintaining the long-standing 80/20 split between local and federal funding for transportation projects, despite Democratic portrayals that the new incentives programme would limit federal funding to 20% of a project’s cost.

A key policy change the White House proposes would make it easier for projects to be financed as revenue-risk assets, Poole noted. This would remove the “outdated” US federal ban on using tolls to finance reconstruction of ageing US Interstate highways, and potentially allow revenue-based projects to replace aging locks and dams on the US Inland Waterway System.

The major aim, Poole said, is to attract institutional investors to US infrastructure. The incentive programme “is aimed at expanding the use of long-term public-private partnerships [P3], for which hundreds of billions in private equity capital is interested and available”.

He added: “This money resides in for-profit infrastructure investment funds and in non-profit public employee pension funds,” which are already investing in P3 infrastructure in Europe, Latin America, and the Asia/Pacific region, “but very little here in the land of free enterprise”.

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