Posted by Ian Weise on 2/20/18 8:54 AM
In the first post of Summit’s blog series on the White House’s new infrastructure plan, Summit Senior Manager Ian Weise and Summit Senior Consultant Sam Seong preview the Infrastructure Investment Program.
On February 12, 2018, the White House released the highly anticipated Infrastructure Proposal. Infrastructure investment and improvement was a key focal point of the President’s campaign agenda and its release marks the Administration’s first step towards achieving this policy goal.
The high-level proposal presents a framework to accelerate investment in the nation’s rural, transportation, and water infrastructure to the tune of $1.5 trillion. Coupled with state, local, and private investment, the Federal Government would commit approximately $200 billion in the form of grants, credit subsidy budget authority, and direct appropriations to project sponsors, states, and localities. In addition, the proposal calls for the establishment of new federal financing programs and changes to existing programs at the United States Department of Agriculture (USDA), the United States Army Corps of Engineers (USACE), the Department of Commerce (DOC), the Department of Interior (DOI), the Department of Transportation (DOT), and the Environmental Protection Agency (EPA). The President’s proposal also calls for legislation that would expedite permitting processes and enhance workforce training and job creation.
Summit is producing a four-part blog series to discuss key proposals included in the infrastructure plan, listed below. The remainder of this blog post discusses the first of these: the Infrastructure Incentives Program.
- The Infrastructure Incentives Program
- The infrastructure plan and existing credit programs
- The Rural Infrastructure Program
- The Transformative Projects Program
The Infrastructure Incentives Program
The Infrastructure Incentives Program (Incentives Program) is a new $100 billion grant program designed to bolster infrastructure investment on a national scale. The proposal clearly describes the intent and benefits of the Incentives Program, but also leaves several questions to be addressed later, through legislation or regulation. This post summarizes the program as described in the Infrastructure Proposal, and identifies several areas for further exploration.
Under the Incentives Program, the Federal Government can make targeted investments into multiple asset classes including: surface transportation and airports, passenger railways, ports, drinking water, stormwater and wastewater facilities, hydropower facilities, waterways, and Brownfield and Superfund sites. The program is intended to attract state, local, and private investment into necessary projects by providing incentive grants to infrastructure projects that generate new revenue. Consequently, available funding is limited to 20% of the new revenue generated by the project. To encourage participation from applicants who have already taken steps towards eligible projects, the proposal allows for a look-back period of three years from the date of application for the purposes sizing the grant amount.
The Incentives Program is meant for projects that realize revenue gains in a timely fashion. Federal Agencies administering the program will evaluate the project’s ability to achieve revenue generation milestones during a two-year period. Specifically, the project sponsor and lead Agency enter into a contingency agreement in which the Agency will award grant funding in predetermined increments, so long as the recipient can demonstrate progress towards increased revenue milestones. Agreements with unmet milestones will be voided after two years, unless a one-year extension is approved by the lead Agency.
The proposal calls for regional diversity in the projects, as no single state may receive more than 10% of the total grant funds. The proposal itemizes specific evaluation criteria that produces a dollar-weighted average score for potential recipients. This lead agencies would score projects based on:
- The cost of the project(s) (10%);
- How the project will secure new, non-federal revenue sources to support long-term infrastructure investments (50%);
- How the project will secure new, non-federal revenues to support O&M and rehabilitation expenses (20%);
- How the project procurement process and project delivery method will improve the operation and construction of the project (10%)
- Plans to implement cutting-edge technology (5%); and
- Evidence to support increased economic activity as a result of the project (5%).
As a grant program, implementation of the Incentives Program will follow the uniform guidance described by the Office of Management and Budget (OMB). Grant authority will be divided among the DOT, EPA, and USACE. Other Federal Agencies may petition for access to the capital if projects under their authority meet program eligibility requirements. Thus, each Agency may publish its own implementation rule, and may interpret the legislation in their own way. This degree of flexibility gives way to uncertainty. For example, how will "new revenue" be calculated? Will project revenue include local taxes raised to fund the project, or is it limited the revenue generated directly by the project? Will the agencies allow these grant funds to be combined with existing credit programs, such as the TIFIA, WIFIA, and RUS programs?
It is also unclear how individual lead Agencies will select projects. The scoring methodology, and restrictions on funding levels and geographical distribution suggest the program is meant to finance projects that can demonstrate strong topline growth. However, depending on the legislation, Agencies may consider additional factors when selecting projects to fulfill their missions. As the program is intended to stimulate investment on a national scale, there may be an effort for intra-agency coordination to distribute projects geographically.
Projects with healthy revenue growth are those most likely to be able to obtain funding from existing sources, and will also be eligible to receive larger-sized grants. However, the success of the program in impacting the nation's infrastructure will depend on its ability to accelerate investment in essential projects that may otherwise not be immediately undertaken, and its net benefit to the public. The Congress and the implementing Agencies will need to consider these and many other factors when creating and implementing the Incentives Program for it to be an effective federal-level vehicle for spurring investment in the nation's infrastructure.
In our next post, Summit will review initiatives outlined in the White House Infrastructure plan that would have a direct impact on existing federal credit programs.