Trump’s infrastructure plan, such as it is, has been getting well-deserved, widespread negative reviews. It’s too small a program to make any difference, overwhelmingly places the funding burden on already budget-strained state and local governments, and still requires localities to charge various user fees, thus obviating any economic benefit. It also ignores the highest bang for the buck spending, namely unglamorous repairs and rural broadband, in favor of weird unspecified exercises in pork that are supposed to “lift the national spirit.” Is adding Trump’s mug to Mount Rushmore on the project list?
But even better, even private equity robber barons who run infrastructure funds, one of the big audiences this program was meant to woo, aren’t keen about it either. As the Wall Street Journal explains, they aren’t all that keen about building things. They’d much prefer to
loot purchase existing assets.
But enough of those too-innocously named privatization deals, like the sale of Chicago’s parking meters, have gotten the bad press they deserve so as to make not just local officials, but even more important, local businessmen leery of these initiatives. They understand that the price of getting a quick cash injection is being bled with user charges and what even amount to profit guarantees. For instance, in the case of the Chicago parking meter deal, the new owners would get paid fees by the city even if it took a lane of traffic with meters on it out of operation for emergencies or street repairs.
Fund managers say they are mainly looking for assets that are already privately owned—such as renewable energy, railroads, utilities and pipelines—and not the deteriorating government-owned infrastructure like roads and bridges that helped attract the capital in the first place. To the extent they are interested in public assets, the focus is more likely to be on privatizing existing infrastructure than on new development—the heart of Mr. Trump’s push.
Even though America is typically in the forefront of implementing bad neoliberal ideas, it has managed not to get on the privatization bandwagon to the same degree as much of the rest of the world, in particular the UK. Those of you who have been following the collapse of Carillion are likely gobsmacked at the critical functions that the Government saw fit to hand off to them, leaving itself at risk if the Carillions of the world made a mess of it, or as it did, stopped performing altogether. Even though it was mainly a construction firm, Carillion also had many facilities management and services contracts, such as managing prisons and 230 military facilities in the UK, and catering for the NHS.
But you see nary a mention of Carillion in this article. Instead the US is depicted as a laggard by not allowing private operators to take a skim out of providing public services:
U.S. infrastructure has been a tough nut for investors to crack. The U.S. market is the largest in the world for privately owned infrastructure, but it also is behind other countries when it comes to privatizing critical transportation assets such as roads and airports. Unlike other countries in which the federal government often has more control, decisions about how U.S. infrastructure projects are financed are often made at the state and local level…
Mr. Trump’s plan would streamline the permitting and approval process for new projects, but not do much to change the dynamics of leasing or selling existing assets.
Thank goodness that US municipalities have resisted pressure to sell their airports. Australia’s Macquarie Bank was the pioneer in the infrastructure game and is famed for figuring out ways to rip out as much profit from its deals as possible. It was also early to target airports. Macquarie owns the Sydney and Budapest airports, which under its stewardship, implemented the highest and second highest landing fees in the world. Sydney also has the worst traffic congestion of any major airport, again a result of Macquarie mismanagement.
There will be a few bones that Trump will try to toss to his Wall Street buddies. He wants to sell the Reagan National and Dulles airports, the Tennessee Valley Authority’s grid, plus some DC highways.
But otherwise, as we said of earlier versions of this plan, it’s all smoke and mirrors. Despite the Administration having no trouble pumping for tax cuts and more military spending, it goes into deficit fusspot mode with infrastructure spending, calling on Congress to make cuts elsewhere to pay for it. As we indicated, even if there were actual net spending involved, it’s chump change, a mere $10 billion a year. And as Los Angeles Time columnist Mike Hiltzik stresses, the main state and local incentives come in the form of weaker Federal reviews and easier access to Federal land:
The plan, which the White House bills as a $1.5-trillion program, only provides $100 billion in federal funds over 10 years for major federal-state projects — and those funds are mostly, at this moment, mythical. The plan bristles with incentives to allow private investors to profiteer, to expand tolls and other user fees on crucial roads and bridges, and to despoil public lands with pipelines. It aims to fast-track the most environmentally hazardous projects, the better to keep experts and local communities from weighing in.
The Wall Street Journal does point out that infrastructure funds have raised a ton of dough that they will find difficult to deploy, given the parameters they have set. Note that these investors prefer “private” infrastructure like railroads and pipeline to public assets:
Take Blackstone Group LP. The private-equity firm plans to raise as much as $40 billion for North American infrastructure, but may devote only 10% to public assets, according to a person familiar with the matter. Other prominent infrastructure investors such as Macquarie Group have similar targets—if they target public assets at all. Macquarie, Carlyle Group LP and KKR & Co. are among the firms that have been raising infrastructure funds.
Concentrating their firepower on private assets could mean more competition, higher prices and ultimately lower returns for infrastructure funds. That has some deal makers warning of another false start for the U.S. infrastructure market after poor performance in the wake of the financial crisis.
So we have yet another “too much money chasing too few deals” syndrome happening in another sector. It’s hard to see how the desired returns could be produced absent exceptional luck, or failing that, accounting and/or valuation fraud. Don’t say you weren’t warned.