The common refrain from the back seat of a car may certainly be applied in this case. Even though an agreement on a bipartisan plan was announced as done and the President approved, there have been some hitches along the way. I think the answer to the eternal question is a very qualified yes.
The President stated that he was positive on the proposal only if companion legislation for the social infrastructure component would be forthcoming. It now appears that this position is not quite as firm as it first appeared. However, the goal of pushing forth the companion social infrastructure legislation is still alive and well.
Republicans in the bipartisan group should be reassured by the President’s reversal of insisting on having the approved legislation for both purposes before he would sign the bipartisan legislation into law.
The proposed financing of $579 billion of so-called new infrastructure is quite long and all encompassing. The larger categories include $312 for Transportation Infrastructure and $266 billion for Other Infrastructure. Someone may have to explain to me what $1 billion for Reconnecting Communities is but for the most part all of us would agree that the elements included in the package are essential for progress.
If the total package including the baseline spending that is already up a fait accompli is included, the total package over eight years amounts to $1.2 trillion. If the program is compressed over five years, the amount of spending would be $973 billion.
Where I could see a lot more of debate and discussion is about the revenue side of the equation. I include the list from the Fact Sheet released by the administration because it is not easily summarized.
The list is comprised by the following funding sources:
Proposed Financing Sources for New Investment
· Reduce the IRS tax gap
· Unemployment insurance program integrity
· Redirect unused unemployment insurance relief funds
· Repurpose unused relief funds from 2020 emergency relief legislation
· State and local investment in broadband infrastructure
· Allow states to sell or purchase unused toll credits for infrastructure
· Extend expiring customs user fees
· Reinstate Superfund fees for chemicals
· 5G spectrum auction proceeds
· Extend mandatory sequester
· Strategic petroleum reserve sale
· Public-private partnerships, private activity bonds, direct pay bonds and asset recycling for infrastructure investment
· Macroeconomic impact of infrastructure investment
We have a concept in municipals that we prefer to match recurring expenditures with recurring revenues. This stated goal clearly does not apply to the federal level since borrowing is easily accomplished and money may be printed among other approaches.
I would consider reducing the IRS tax gap to be recurring. But the exact yield on the revenue side from greater enforcement is far from certain.
Redirecting unused unemployment insurance relief funds and repurposing unused 2020 emergency relief funds would be characterized as one time in nature.
Allowing states to avail themselves of unused toll credits could be categorized either way depending on the fine points.
Extending customs user fees and Superfund fees would be recurring.
5G spectrum auction proceeds and sales from the strategic petroleum reserve would be considered one-time actions.
The macro impact of the program would be recurring.
Extending the mandatory sequester may not go down well with select groups including States & Localities.
That leaves us with P3s, PABs, direct pay bonds and asset recycling. The municipal market is remarkably familiar with all these financing techniques and is quite accepting of same. The only reservations of the municipal market may remain with direct pay bonds. Clearly, some desirable municipal market supply will be created by authorizing and extending these various financing approaches. Municipal supply would be created to fulfill matching fund requirements or to complete a plan of finance where necessary.
In the end, the question from the back seat should be a yes but there are many bumps and potentially a few stops scheduled or not before we arrive with a completed and signed legislative package.
John Hallacy
John Hallacy Consulting LLC
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