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Donald Trump's plans for upgrading the US's infrastructure show a departure form the country's traditional federal works initiatives, writes Erika Morphy.

US president Donald Trump laid out his vision for repairing the US's ageing infrastructure with a plan that would leverage $200bn in federal funds to yield $1500bn in investment. The plan calls for state and local governments, as well as private sources, to kick in about 80% of a project’s cost with the federal government contributing the remaining 20%. The proposal is a departure from the US’s traditional federal works initiatives, although it does model a few programmes in the federal government that provides matching funds.

Not all of the $200bn is to be provided as incentives to local government entities: the proposal divvies up this pot in several ways. About $100bn has been earmarked for incentives; another $20bn would be devoted to 'projects of national significance'. Some $50bn would be applied as rural block grants and the remainder would support existing infrastructure-related projects.

The plan also calls for reduced permitting times and less red tape in general for infrastructure projects. Finally, the proposal would also sell off several infrastructure assets now managed by the federal government, including the Ronald Reagan and Dulles International Airports in Washington, DC, the Tennessee Valley Authority and Bonneville Power Authority’s transmission assets and the Washington, DC Aqueduct.

With the 53-page blueprint now formally released, the next step is to have Congress take up the plan. This will be an uphill climb for several reasons. Partisan rancour will possibly stymie progress, and the plans look set to heighten the debate over their contribution to the ballooning federal deficit. Indeed, on the same day that the White House unveiled its infrastructure plan, it also released a $44,000bn budget for 2019 that will increase the deficit by $7000bn.

It is widely expected that deficit hawks in Congress are unlikely to be happy about any additional spending – an issue that has been highlighted by the recent volatility in the stock market. Inflation spurred on by a strong economy, the tax reform measures and federal spending has suddenly become a driving fear, causing valuations to plummet. There is also the question of how cash-strapped states and local entities will be able to come up with their share of a project’s costs. Then there is actual investment amount itself. There has been debate in both political parties about the $1500bn number – is it enough or is it too much?

This leaves the proposal facing an uphill climb but it does appear to have some elements on its side. For one, there is hearty demand for infrastructure investment among global private capital sources, which are accustomed to the public-private partnerships for infrastructure common throughout the world, particularly in Asia. Global infrastructure spending will grow from $4000bn a year in 2012 to more than $9000bn per year by 2025, according to Oxford Economics. Overall, close to $78,000bn is expected to be spent globally between 2014 and 2025.

“This capital is looking for new projects and has been waiting for the US giant to awaken to this model,” said Kevin Wayer, international director and co-president of JLL’s Public Institutions Group.

Congress does appear to be in agreement that something needs to be done about the US’s infrastructure. The American Society of Civil Engineers has not been shy about its assessment of the country's highways and bridges and roads, giving it a national grade of 'D+' in a recent report.

“For too long, lawmakers have invested in infrastructure inefficiently, ignored critical needs, and allowed it to deteriorate,” said Mr Trump when launching his proposal. “As a result, the US has fallen further and further behind other countries.”

This article is sourced from fDi Magazine
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