On February 15, President Trump signed H.J. Res. 31, the "Consolidated Appropriations Act, 2019," averting a new government shutdown and authorizing appropriations for the remaining unfunded federal agencies through September 30, 2019. Now that federal legislators have turned their full attention back to the term's normal session, they face significant challenges achieving progress on key issues; historically, opportunities under a divided Congress have been limited to minor or highly popular, bipartisan legislation.
Congressional leaders and Trump administration officials have, over the past several months, pointed to one historically popular and bipartisan area as a potential source of cooperation: federal infrastructure policy. While the passing of a major infrastructure bill in 2019 remains a possibility, a lack of consensus on both goals with respect to infrastructure policy and the means for achieving those goals will likely present challenges for the development of such a bill in committee and greater challenges to the passage of such a bill. In our view, legislative leaders will more likely build on progress within existing infrastructure programs and attempt smaller modifications under standalone bills or as a component to the reauthorization of highway and transit funding. Finally, a focus by certain congressional leaders and 2020 presidential candidates on climate change mitigation and other "green" investments will likely be key in determining the shape of any bipartisan legislation over the medium and long term and represents a shift from past policy practices.
Major Infrastructure Legislation
Trump Administration Plan
Our February 2018 client alert analyzed the Trump administration's infrastructure legislative outline, which called for the use of a limited pool of federal dollars to leverage further investment in projects by states, local governments and the private sector.1 This outline received no consideration in the Republican-led Congress over the course of 2018, and we do not anticipate it receiving attention in the new divided Congress. Nevertheless, it appears that the administration may be preparing for a legislative push in the infrastructure sector with a focus distinct from the broad strokes outlined in the 2018 Trump plan. Earlier this year, approximately 20 administration officials took part in a meeting with the President to discuss aspects of a potential infrastructure plan, including a 13-year spending program, funding for a next-generation wireless network and modernization of the nation's air traffic control system.2 Also, during his February 5 State of the Union address, President Trump emphasized his eagerness to work with Congress on passing infrastructure legislation. As of the date of this alert, however, the administration's short- and long-term plans with respect to infrastructure policy remain unclear.
On the congressional side, the House Transportation and Infrastructure Committee3 and the Senate Committee on Commerce, Science, and Technology4 held hearings on February 7 and February 13, respectively, to obtain information from stakeholders on current topics in infrastructure policy. The new chairman of the House T&I Committee, Rep. Peter DeFazio (D-OR), is reported to be drafting infrastructure policy legislation, including a nationwide vehicle-miles-traveled pilot program, climate-resiliency enhancements and the expansion of public and smart technology transportation programs, to be ready by summertime.5
The Senate Committee on Environment and Public Works6 and the House Ways and Means Committee7 each held a hearing on March 6, which respectively focused on the economic benefits of infrastructure investment and possible mechanisms for financing such investment (including options for increasing revenues into or otherwise supplementing the Highway Trust Fund). In advance of the Ways and Means hearing, Representative Earl Blumenauer (D-OR) announced that the House leadership had reserved floor time for an infrastructure bill with a target of late spring.8
In the meantime, other legislators have introduced piecemeal bills to bolster particular aspects of federal infrastructure policy, in particular related to the expansion of tax-exempt private activity bond (PABs) programs.9 On January 16, Senators John Hoeven (R-ND) and Ron Wyden (D-OR) reintroduced the Move America Act, a bill which would introduce a new type of PABs with a volume cap separate from the existing PABs program. These bonds would not be subject to the Alternative Minimum Tax, increasing their attractiveness to certain investors. States could also trade in a portion or all of their bond allocation in exchange for facility or qualified infrastructure fund federal tax credits at a rate of $4 in bond volume cap for every $1 in credit allocation. On March 5, Representatives Blumenauer and Jackie Walorski (R-IN) introduced a companion bill in the House.10 The previous version of this bill attracted a wide range of support from business, labor and infrastructure industry groups.11
On February 6, Senators John Cornyn (R-TX) and Mark Warner (D-VA) reintroduced the Building United States Infrastructure and Leveraging Development (BUILD) Act. 12 This bill would raise the statutory cap in the existing PABs program with respect to bonds issued by or on behalf of state and local governments for highway and freight improvements (which has been the principal use of PABs to date) from $15 billion to $20.8 billion. On February 14, Representatives Blumenauer and Mike Kelly (R-PA) reintroduced the Public Buildings Renewal Act, a piece of legislation which would permit up to an additional $5 billion in PABs to be used to finance qualified government buildings such as schools, courthouses and hospitals.13
Separately, Rep. John Yarmuth (D-KY) is planning to introduce legislation to create up to $300 billion in Rebuild America Bonds—taxable bonds that would be sold by the federal government to private and public pension plans.14 The revenue from the sale of these bonds, including an initial $75 billion issuance from the Treasury, would be used to finance a national infrastructure bank making direct loans for transportation, environmental, energy and telecommunications projects. The bonds, which would be required to be held for a minimum of ten years, would have a 40-year maturity and accrue interest at 200 basis points above the 30-year Treasury bill rate. The hope is that these bonds, like the Build America Bonds (BABs) which were issued widely by states between 2009 and 2010, would appeal equally to investors that do not have tax liability, including pension funds and other long-term institutional investors, and to traditional investors in tax-exempt bonds, including PABs.
In addition, budget authority for highway and transit programs authorized under the 2015 Fixing America's Surface Transportation Act (FAST Act, P.L. 114-94) will expire in September 2020. As part of their consideration of the reauthorization, congressional leaders will consider once again raising the gas tax or implementing a vehicle miles traveled fee in order to ensure long-term solvency of the Highway Trust Fund, as well as other changes to surface transportation programs. To the extent the smaller bills discussed above and others are not enacted on a standalone basis or through a separate infrastructure package, lawmakers may attempt to fold their provisions into the 2020 reauthorization law.
Credit Programs Update
TIFIA and RRIF
While the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation and Improvement Financing (RRIF) programs, which are administered by the U.S. Department of Transportation (USDOT), had a relatively quiet 2018, the end of the year saw several successfully completed financings. Two notable closings in December 2018 included a $657.9 million loan to the Central Puget Sound Regional Transit Authority (Sound Transit) for the Lynnwood Link Extension north of Seattle, Washington15 and a $908 million loan to the Dallas Area Rapid Transit System for the Cotton Belt Corridor Regional Rail Project.16 2019 is anticipated to be more active.
Two new bills with bipartisan support were introduced in Congress in November 2018 aiming to expand and encourage greater participation in the TIFIA program. The TIFIA for Airports Act, introduced by Senators Tammy Duckworth (D-IL) and David Perdue (R-GA) would expand TIFIA eligibility to state and local airport projects, including passenger terminals and runways, and authorize up to $10 million in credit subsidies for such projects.17 This concept was included in the Trump administration's 2018 infrastructure outline. Separately, the Revitalizing American Priorities for Infrastructure Development (RAPID) Act, introduced by Senators John Cornyn (R-TX) and Tim Kaine (D-VA), would raise the total debt threshold that triggers the requirement for borrowers to obtain multiple ratings on TIFIA loans from $75 million to $150 million.18 Such ratings would, however, be required to be investment-grade in all circumstances. The bill would also require USDOT to implement a streamlined application for public agency borrowers seeking secured loans rated at least "A" for projects reasonably expected to commence a contracting process within 90 days of entering into such loans, and publish regular status reports on submitted and approved applications for TIFIA credit assistance.
In 2018, the Water Infrastructure Finance and Innovation Act (WIFIA) program, which is administered by the U.S. Environmental Protection Agency (USEPA), closed the first seven loans in its existence totaling over $1.7 billion in credit assistance.19 Notable financings included a $699 million loan to the San Francisco Public Utilities Commission for the replacement of the city's oldest and largest solids treatment facility and a $614 million loan to the City of San Diego for the first phase in its Pure Water water recycling program.
This year, WIFIA has been substantially expanded, with more than triple the number of projects invited to apply relative to 2018 across 16 states.20 New legislative changes may also assist borrowers in taking advantage of the WIFIA program. In particular, the America's Water Infrastructure Act of 2018 (AWIA), signed into law on October 23, 2018, removed WIFIA's "pilot" designation and reauthorized the program at $50 million for each of fiscal years 2020 and 2021 (subject to annual appropriations).21 It also reauthorized the State Revolving Fund (SRF) program for drinking water treatment loans at an average of $1.475 billion per year between fiscal years 2019 and 2021.22
Another notable measure in AWIA facilitates the ability of state infrastructure financing authorities to utilize financing from the WIFIA program for the purpose of funding multiple projects in a single application process.23 The measure, based on a bill introduced by Senators Cory Booker (D-NJ) and John Boozman (R-AR),24 authorizes $10 million over two years to support such bundled projects and permits the state infrastructure financing authorities to use federal funds to cover up to 100 percent of the costs of the projects so long as they are solely responsible for immediate repayment of such costs in the case of a default on the WIFIA loan. States may use WIFIA loan proceeds to support disbursements of loans through their respective SRF loan programs. In this way, the measure may further support the SRF programs by increasing the funds they are able to provide across projects in a given state.
In the background of the new legislative session is be the beginning of the 2020 presidential election season, with an increasingly expansive Democratic primary field. Most, if not all, of the Democratic candidates' primary platforms will likely include environmental policies aimed at reducing the use of carbon in order to protect against climate change. Congressional leaders have taken note. On December 18, Senate Minority Leader Chuck Schumer wrote an Op-Ed in the Washington Post in which he suggested that any infrastructure bill expected to earn Democratic support would need to include clean energy and climate change mitigation components.25 Given the attention on the 2020 race and the position taken by some members of the congressional leadership, it seems likely that any significant bipartisan proposals for comprehensive infrastructure legislation this term will include some "green" elements and, unlike previous bills, include initiatives that explore the intersection between infrastructure and environmental policy. We will continue to monitor congressional negotiations on these subjects and provide updates to industry stakeholders over the coming months concerning significant advances in legislation and other material developments.
1 Paul Epstein, Jackson Murley and David Ullman, Trump Infrastructure Plan Proposes Expansion of Federal Credit Programs, February 20, 2018, https://www.shearman.com/perspectives/2018/02/trump-infrastructure-plan
2 David Shepardson and Alexandra Alper, Exclusive: Trump Meets with Cabinet Officials to Revive Infrastructure Push – Sources, Reuters, January 18, 2019, https://www.reuters.com/article/us-trump-infrastructure-exclusive/exclusive-trump-meets-with-cabinet-officials-to-revive-infrastructure-push-sources-idUSKCN1PC1A5
3 U.S. House Transportation and Infrastructure Committee, The Cost of Doing Nothing: Why Investing in Our Nation's Infrastructure Cannot Wait, February 7, 2019, https://transportation.house.gov/committee-activity/hearings/the-cost-of-doing-nothing-why-investing-in-our-nations-infrastructure-cannot-wait
4 U.S. Senate Committee on Commerce, Science, and Technology, America's Infrastructure Needs: Keeping Pace with a Growing Economy, February 13, 2019, https://www.ttnews.com/articles/trump-congress-eye-possibility-infrastructure-bill-2019
5 Eugene Mulero, Trump, Congress Eye Possibility of Infrastructure Bill in 2019, Transport Topics, January 3, 2019, https://www.ttnews.com/articles/trump-congress-eye-possibility-infrastructure-bill-2019
6 U.S. Senate Committee on Environment and Public Works, Hearing on the Economic Benefits of Highway Infrastructure Investment and Accelerated Project Delivery, March 6, 2019, https://www.epw.senate.gov/public/index.cfm/hearings?ID=76CB6FB0-8D2C-40B7-ABDB-4848727AB892
7 U.S. House Ways and Means Committee, Our Nation's Crumbling Infrastructure and the Need for Immediate Action, March 6, 2019, https://waysandmeans.house.gov/legislation/hearings/our-nation-s-crumbling-infrastructure-and-need-immediate-action
8 Tanya Snyder, Blumenauer: Leaders Have Reserved Floor Time for Infrastructure, Politico Pro, March 5, 2019, https://subscriber.politicopro.com/transportation/whiteboard/2019/03/blumenauer-leaders-have-reserved-floor-time-for-infrastructure-2800916
9 Move America Act of 2019, S. 146, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/senate-bill/146
10 Move America Act of 2019, H.R. 1508, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/house-bill/1508/
11 Press Release: Hoeven, Wyden Reintroduce Move America Act, May 25, 2017, https://www.hoeven.senate.gov/news/news-releases/hoeven-wyden-reintroduce-move-america-act
12 Building United States Infrastructure and Leveraging Development Act, S. 352, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/senate-bill/352
13 Public Buildings Renewal Act of 2019, H.R. 1251, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/house-bill/1251
14 Brian Croce, Congressman Floats Bill to Sell Bonds to Pension Funds and Capitalize Infrastructure Bank, Pensions & Investments, December 13, 2018, https://www.pionline.com/article/20181213/ONLINE/181219834/congressman-floats-bill-to-sell-bonds-to-pension-funds-and-capitalize-infrastructure-bank
15 Lynnwood Link Extension, United States Department Of Transportation, https://www.transportation.gov/tifia/financed-projects/lynnwood-link-extension
16 Press Release: U.S. Department of Transportation Announces $908 Million Loan to Finance the Cotton Belt Corridor Regional Rail Project, December 21, 2018, https://www.transportation.gov/briefing-room/us-department-transportation-announces-908-million-loan-finance-cotton-belt-corridor
17 TIFIA for Airports Act, S. 3647, 115th Cong. (2018), https://www.congress.gov/bill/115th-congress/senate-bill/3647/
18 Revitalizing American Priorities for Infrastructure Development Act, S. 3631, 115th Cong. (2018), https://www.congress.gov/bill/115th-congress/senate-bill/3631
19 FY 2017 Selected Projects, United States Environmental Protection Agency, https://www.epa.gov/wifia/wifia-selected-projects
20 FY 2018 Selected Projects, United States Environmental Protection Agency, https://www.epa.gov/wifia/wifia-selected-projects
21 America's Water Infrastructure Act of 2018, Pub. L. No. 115-270, § 4021(a), https://www.congress.gov/bill/115th-congress/senate-bill/3021
22 Id., §2023.
23 Id., §4021(b).
24 See Press Release: Senate Passes Comprehensive Water Infrastructure Bill with Key Booker-Led Provisions, October 10, 2018, https://www.booker.senate.gov/?p=press_release&id=858
25 Chuck Schumer, No Deal on Infrastructure without Addressing Climate Change, Washington Post, December 6, 2018, https://www.washingtonpost.com/opinions/chuck-schumer-mr-president-lets-make-a-deal/2018/12/06/aeae0188-f99e-11e8-8c9a-860ce2a8148f_story.html
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