May 2017 /
Coming out of this election cycle, we can seemingly make sense from the campaign rhetoric that the Trump administration intends to spur both GDP and job growth by investing in vital infrastructure projects in clean energy, information technology, high-speed rail, bridges and tunnels, even including drinking water, all to the tune of one trillion dollars. So far missing is more details about the proposed 2,000-mile wall along the Mexican border which carries a price tag of around $20 billion. But the wall could also be a virtual wall made up of sensors and motion detectors and not bricks and mortar. It was reported that New York developer Richard LeFrak was offered the job but he declined.
In January of this year LeFrak and Vornado Realty Trust founder and CEO, Steve Roth both agreed to become co-heads of a council of infrastructure experts to implement Trump’s bold vision of a complete countrywide makeover. The fact that both LeFrak and Roth are long-time personal friends of the President should bode well for New York’s chances of improved access to federal pump priming. While the form of the financing varies from debates about the efficiency of stand-alone investment partnerships compared to public/private partnerships, everyone is in agreement that the wish list should include an extension of the Second Avenue subway as well as improving Penn Station. The Penn Station redo would have to include the building of a new tunnel under the Hudson River to make it truly cost-effective. Given the daily news reports circulating about Penn Station’s crumbling underground infrastructure, Penn Station’s makeover may arguably be the most urgent infrastructure project in America today.
Needless to say, projects of this magnitude will carry inherent risks; for example, both Richard LeFrak and Steve Roth have holdings in Hudson Yards and in Newark, New Jersey, which would benefit from any upgrades to the Penn Station project. Should they pay fees for any perceived appreciation in the value of their properties or recuse themselves from any deliberations, which may impact the value of their real estate holdings?
Due to what may be an abundance of these insurmountable inherent conflicts, the Trump administration may have to borrow a page from the Democrats’ playbook and revisit the concept of a federal infrastructure bank. The idea first surfaced during Clinton’s first term when Clinton proposed a “Rebuild America Fund” whereby the Fund would invest $20 billion annually of new money for four years into infrastructure projects to sharpen America’s competitiveness. Some of the projects from that first wish list included water and sewage plants, airports, bridges, highways, a high-speed rail network and environmental technologies.
The Bill Clinton concept was to have leveraged the fund with investments from public and private pension funds and private investors-and with all projects being collateralized by user fees, for example, toll road charges from the completed project.
Given the daily news reports circulating about Penn Station’s crumbling underground infrastructure, Penn Station’s makeover may arguably be the most urgent infrastructure project in America today.
If we think back to the days of the Municipal Assistance Corporation in the nineteen-seventies, we can actually find a similar model for this new proposed Infrastructure Bank. The Infrastructure Bank would have the ability to, in effect, leverage private capital to supplement current levels of public spending. Mechanically, the Infrastructure Bank could fund in two cycles. The first cycle would have as its objectives the retention and creation of additional jobs by financing capital-intensive projects which could be immediately launched. The second cycle, for example, could issue “Build America Bonds,” with the proceeds being invested in massive long-term public works projects, with no shortage of takers for the proceeds.
Of course, if one wanted to one could also make the argument that it’s highly likely that the New York metro area contributes perhaps 12-13 percent of the country’s GDP so that a disruption to the Penn Station track system for an indeterminable period of time could negatively impact GDP by up to that same 12-13 percent amount. While Roth is probably more dependent on the revitalization of Penn Station to generate promised levels of returns to his investors than is LeFrak, both developers agree that the Penn Station redevelopment needs to move forward as quickly as possible. Operationally, the LeFrak team typically avoids debt, while Roth’s team at Vornado makes use of both tax credits and leverage.
While both LeFrak and Roth have day jobs to return to and both are aware that they are not line executives but only advisors to the President, Elaine Chao, the recently appointed transportation secretary, has emerged as a new eminence grise. Perhaps as an omen of how bumpy the infrastructure battle has already become, Chao recently convened a meeting of fellow Republican legislators, and when she asked them what infrastructure projects needed immediate attention, all named only projects in their respective districts.
No Democrats were invited to the meeting.
United Metro Energy Corporation