An Infrastructure Rebuttal

Subsequent to the US election, many have pondered the impact to the economy at-large or at a micro level.  Consider Cramer’s Trump stocks or the Trigger app as examples.  I too have not been immune as I bought into Europe, Canada, Mexico and Australia as presidential comments resulted in temporary pricing weakness.  The question remains what – if anything – can be accomplished on his agenda. With healthcare and tax reform fraught with partisan politics, it appears the best option of the remaining campaign promises is infrastructure as on the surface there still is the hope of bi-partisanship.  Yet aside from a vague “public-private” partnership, details have been lacking probably due to resources allocated to the aforementioned agenda items.

Last week, Brad Thomas penned a piece that sought to answer some of the nagging questions on investors minds.  Based on research performed largely by Cohen & Steers, it none-the-less provides one template on which infrastructure could be addressed.  Initially my thoughts were favorable.  But the more I dug into the concept, the clearer it became that it is not likely to become reality.  Starting with the notion headlined in his piece, airports.  While true that other countries have ‘privatized’ operations – at least in part, the current US system is reliant on taxes and user fees.  Are current taxes collected to be relinquished to private industry?  Or are the taxes rescinded resulting in greater deficits?  Or are the taxes retained resulting in a higher fares (a new use tax).  What will the status be of existing municipal bonds in place that are guaranteed by said fees?  If any approach fails in being revenue neutral, I’m sure Grover Norquist and his cronies will have plenty to politicize.  Similar arguments could be made on the Toll Roads (Gas Tax) and Marine Ports.   Should railroads (absent Amtrack) be eligible for any new government funding as private sector companies?

Moving on to Energy, outside the renewable segment, these are all managed in the private sector today via companies such as TransCanada, Kinder Morgan, Enbridge and others.  State, Local and Provincial laws tend to be the inhibitors of progress for a variety of reasons.  As the Trump administration has failed to embrace alternatives to fossil, the renewable segment is a likely non-starter (although an arguable candidate).  Any partnership with these entities would beg the question of government intrusion into the current free market approach.

Utilities are a different animal in that some are private sector and some are government owned and managed and many face state rate regulation.  Some government owned utilities are well managed throwing off profits to the benefit of the community (lower taxes).  Other government owned ones (like Flint’s water) are mismanaged.  Does anyone really think a public/private structure would offload the EPA’s responsibility (rebuild Flint) to the private sector without raising water rates?  Private enterprise does exist to generate profits.

The final category is currently a hybrid as well.  NASA has been migrating Satellite Services to a public/private model prior to the election due to the Space Shuttle fleet retirement.  This is evidenced by the rise of SpaceX (pre-IPO), Orbital ATK (OA), Blue Origin (Jeff Bezos), Bigelow Aerospace (private – using Boeing (BA) technology), SpaceDev (private – uses ULA technology (BA/LMT partnership), Virgin Galactic (Richard Branson – uses design by Scaled Composites (owned by NOC)).  The other segment,Wireless Towers, has local zoning laws as its primary headwind.  Unless States’ Rights are preempted by the Federal government I foresee no change in this arena.

Indeed, a thought provoking article and implementation could be accomplished through minimal tweaks in current law.  Yet the polarized state of affairs in Washington will likely prevent any movement on this agenda item as it would require compromise on a variety of issues.  Perhaps a minor solution could be a one-time repatriation tax of say 10%, with half the proceeds being seed money for funding a few projects and the remainder being used to pay down debt with a portion on shoring up healthcare. Such a common sense approach has no hope either as it would allow all sides to claim a minor victory.  My prognosis?  More inaction and finger pointing.  At least the economy keeps lumbering along without any intervention.

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