US airports: 2020 election clouds new USD2 trillion financing plan
There has been little love losT between the Republican and Democrat political parties in the U.S., especially since the election of President Trump in Nov-2016.
But now, and in the wake of the failure of a Presidential ‘Infrastructure Plan’ that was proposed at the beginning of 2018, it looks as if those two parties and others may work together to implement a new, and bigger one. U.S. President Donald Trump and top Democrats are pushing for a USD2 trillion infrastructure plan.
This would have clear implications for airport infrastructure financing, but it is not yet evident whether the government would prefer investment in existing facilities, or in new ones.
- Political parties (surprisingly) agree on transport infrastructure investment.
- The Trump 2018 Infrastructure Plan did not pass Congress.
- Parts of that infrastructure plan are now history as big public spending becomes the order of the day in the run-up to the 2020 Presidential election.
A USD2 trillion infrastructure plan to drive America's federal budget deficit to unprecedented levels
In a move representative of greater cooperation since the Nov-2018 mid-term elections, U.S. President Donald Trump and top Democrats – including House of Representatives Speaker Nancy Pelosi – are pushing for a “big and bold” USD2 trillion infrastructure plan that would drive America's federal budget deficit to unprecedented levels.
It would almost certainly have implications for airport financing as representative groups continue to clamour for greater investment into airport infrastructure.
(*Subscriber report only).
Setting aside the partisan warfare that has gripped Washington since those November 2018 elections, both sides have issued positive remarks about the national need for new investment in roads, highways, bridges, tunnels, air travel and broadband.
Mr Trump's spokeswoman has said, "The United States has not come even close to properly investing in infrastructure for many years, foolishly prioritising the interests of other countries over our own. We have to invest in this country's future and bring our infrastructure to a level better than it has ever been before".
Senate minority leader Chuck Schumer has said, "We agreed on a number, which was very, very, good, USD2 trillion for infrastructure, which even the President was eager to push it up to”.
An hour-long meeting in the White House between Mr Trump, Ms Pelosi, Mr Schumer and others will be followed by another meeting in three weeks to determine how Mr Trump intends to pay for the plan. The meeting will discuss "specific proposals and financing methods".
In Washington there are few such examples of positive bipartisanship these days, but there is a deepening understanding that the window of opportunity for a new deal on infrastructure will close in the coming months as the two key political parties shift their focus to the 2020 presidential election.
The infrastructure shortfall is obvious to anyone using an airport
America's infrastructure shortfall is obvious to any visitor who uses its roads, airports or railways.
Apart from North America’s now habitual annual demand for USD100 billion in additional airport infrastructure spending, the American Society of Civil Engineers (ACI) estimates the country needs to spend close to USD5 trillion by 2025 merely to cover the basic needs across transportation modes.
There is still lingering resistance
But while the need is clear, the method isn't. Although America's political economy has shifted in recent years from the politics of austerity to a cross-spectrum disregard for debt and deficits fired by the sustained economic growth of over 3%, there is still likely to be resistance.
Republicans in Congress have expressed scepticism, saying that agreement on a big figure means little unless the funding is clearly resolved. Democrats have called for last year's corporate tax cuts to be reversed as one way of funding the plan, but that did not go down well with Republicans.
The political perspective is sensitive to both sides. Democrats need to show voters in 2020 that their control of the House of Representatives, which was won in last year's mid-terms, has produced concrete results for voters.
Similarly, Mr Trump, now evolving into a two-term career builder, needs forthcoming “for the public good” projects he can point to in 2020.
This is not the first such proposal...
But haven’t we been here before?
Indeed, a major infrastructure plan announced by the President at the beginning of 2018.
(*Free to access report).
That plan sought to leverage USD200 billion in direct federal financing into a USD1.5 trillion spend. President Trump is reported to "hate" significant parts of this previous, and now abandoned, plan.
Asset recycling is passé
That major infrastructure plan which failed in Congress last year, included the use of so-called "asset recycling" schemes promoted by the Australian Ambassador, and former Treasurer, Joe Hockey, who had seen it first-hand on his travels.
Asset recycling is the opportunity to use the asset value of (for example) the airport to invest in much-needed infrastructure, either there or elsewhere in a city, or to fill up holes in employee pension schemes.
Whether or not it is an ethically acceptable practice, it is certainly not a new one, either in the U.S. or abroad. The first IPO on Aéroports de Paris in 2006 was arranged partly because of French government pension deficits, and almost two decades ago more than one major U.S. city was considering leasing its airports to pay for a new sewage system.
Democrats in Congress are largely opposed to such funding mechanisms – whose proponents say can unlock capital from unloved public assets and also free resources for new projects.
There is history, though with the Republicans. Indiana, home to Vice President Mike Pence, used the concept to sell a highway to Australia's IFM Investors (which is a major airport investor too, and was the driving force behind MAG’s bid to lease Chicago Midway Airport, which indirectly led on to MAG setting up its U.S. division).
Democrats, apparently this time with the support of the President, want "real" money, presumably meaning that gained from taxation. But a spending spree would test America's fiscal resilience and the ability of Congress to reassure its creditors that they can manage the books.
The government reached its USD22 trillion debt ceiling in Mar-2019, meaning it cannot issue new bonds to borrow money, and it could run out of it by September, raising the spectre of yet another government shutdown unless Congress agrees to lift the ceiling.
Targeting the cash
And if funding can be found, what would be the focal point?
Big old airports serving the main cities, some of which were dismissed by the President as “Third World” in his election campaign (and at which CAPA data suggests some big bucks are actually being spent already)?
Collectively, the three New York airports, the two at Chicago and Los Angeles, Atlanta and Dallas-Fort Worth are committed to expenditure of USD55.75 billion on infrastructure, some of which is under way and some of which will follow.
Commitment to infrastructure capital expenditure: major US airports
New York JFK
New York LaGuardia
Or would the focus be on new airports, in fact? There still hasn’t been a major new US airport in 24 years. There is much more meat to be put around the bare bones of this announcement before excitement levels rise among airport users.