Friday, February 23, 2018

Last week, President Donald Trump released his long-awaited infrastructure plan, entitled a “Legislative Outline for Rebuilding Infrastructure in America.” Clocking-in at 53 pages, this plan is designed to “stimulate at least $1.5 trillion in new investment over the next 10 years” through $200 billion of federal funding. The infrastructure plan is intended to provide a “roadmap for the Congress to draft and pass the most comprehensive infrastructure bill in our Nation’s history.” Our high-level key takeaways from that plan are discussed below.

Incentives For State, Local, And Private Financing

The primary thrust of the infrastructure plan is to cast the federal government as the enabler of “increased State, local, and private investment in infrastructure.” (Emphasis added). This is to be accomplished primarily through an “Infrastructure Incentives Program,” which sets aside $100 billion in incentives for new development projects. Under that program, federal agencies—including the Department of Transportation, the Army Corps of Engineers, and the EPA—would collect applications to receive federal funding for new projects from state and local governments.

These applications would be evaluated under a formula that is heavily weighted towards projects that are most likely to receive non-federal funding for development (weighted at 50 percent) and for operations, maintenance and rehabilitation (weighted at 20 percent). In short, 70 percent of the evaluation formula for choosing new projects will turn on the applicant’s ability to attract non-federal funds.

As a result, state and local governments would presumably want to look to the private sector as a potential source of additional financing when applying for federal funds under the infrastructure incentives program. This could greatly increase the opportunity for public-private partnerships or privatizations.

It’s More Than Just “Traditional Infrastructure”

Importantly, the Administration’s infrastructure plan isn’t focused only on “traditional infrastructure” needs “like roads, bridges, and airports.” The plan also seeks to address “other needs like drinking and wastewater systems, waterways, water resources, energy, rural infrastructure, public lands, veterans’ hospitals, and Brownfield and Superfund sites.”

For example, one proposal would allow the Department of Veterans Affairs (“VA”) to exchange the land underneath existing VA facilities in exchange for a lease on a new private facility to be built on the former VA land. These leaseback arrangements would last for a term of seven years, and would be structured to give the VA the exclusive right, but not the obligation, to renew at the end of the lease. Another proposal involves a number of reforms to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), which would allow Superfund sites on the National Priorities List to become eligible for grants under the EPA’s Brownfield program.

Addressing Rural Infrastructure Needs

The infrastructure plan also seeks to “address unmet rural infrastructure needs” by allocating $50 billion for a “Rural Infrastructure Program.” Under this program, the federal government would provide grants to the states to begin infrastructure projects in rural areas with populations of less than 50,000 and “[s]tates would be incentivized to partner with local and private investments for completion and operation of rural infrastructure projects.” The federal government would also set aside funds for “Rural Performance Grants,” which would be paid out in accordance with the evaluation criteria put forward in the main infrastructure incentives program.

A Streamlined Permitting Process

Our colleagues at Inside Energy & Environment have discussed another major component of the plan—reforms intended to increase the speed and efficiency of the permitting process so that federal agencies approve projects in two years or less. The guiding principle underlying these reforms is eliminating overlapping agency authority, so that different forms of review are aligned with each agency’s special expertise—with the Army Corps of Engineers, for example, gaining exclusive authority to issue dredge and fill permits.

A “Capital Budget” And A Revolving Fund For Federal Infrastructure

We previously discussed whether President Trump’s infrastructure plan would address one of the features unique to federal infrastructure development—the budgetary scoring process, which typically requires agencies to cover the total cost of a long term project upfront.

In the plan, the White House acknowledges that the current appropriations process is “problematic for large-dollar, irregular acquisitions,” and “[t]oo often, tight spending limits mean that [real estate] purchases are not funded, and agencies must resort to signing long-term leases,” i.e., a series of real property leases over the long term. The White House also sees this system as flawed in comparison to the “capital budgets” that private firms and state and local governments use to separate property purchase funds from operating funds.

To remedy this issue, the White House proposes a “funding mechanism that is similar to a capital budget but operates within the traditional rules used for the federal budget.” This would take a form of a “mandatory revolving fund,” which would receive $10 billion out of the total $200 billion appropriation proposed. Agencies would then essentially “borrow” from the fund to cover the cost of a project, and would then repay the fund in fixed increments over a 15-year period. As a result, agencies would “pay for real property over time as . . . utilized,” instead of obligating all the necessary funds upfront. If implemented, this would be a significant and welcome development.

No Mention of “Buy American”

Given President Trump’s “Buy American” focus, it may be surprising to some readers that the Administration’s blueprint for a major Federal procurement and financial assistance initiative makes no mention of “Buy American” (or “Buy America”) requirements, e.g., “Buy American” requirements similar to those found in the American Recovery and Reinvestment Act of 2009 and as implemented in FAR subpart 25.6.

It would seem that stronger “Buy American” requirements could find its way into any infrastructure legislation as several House Democrats on the Committee on Transportation and Infrastructure previously sent Commerce Secretary Wilbur Ross and OMB Director Mick Mulvaney a letter “welcom[ing] the opportunity to explore provisions to strengthen Buy America and Buy American laws” as “Congress prepares to work with the Administration on an infrastructure package.” More recently, a group of bipartisan senators proposed general legislation to “strengthen Buy American requirements.”

The bottom line: “Buy American” action is on the minds of many in Washington, DC, so contractors should not be surprised if any resulting infrastructure legislation includes beefed-up “Buy American” requirements and contractors must be ready to fully comply with any such requirements.

What’s Next?

With the release of President Trump’s infrastructure plan, Congress must now draft an infrastructure bill to address our country’s infrastructure needs (and decide which parts of the infrastructure plan should be retained, tweaked or rejected). State and local governments, private equity firms and contractors should closely monitor any developments and be ready for potential opportunities.