Why you should care
Bankers have been waiting for municipalities to get serious about infrastructure for decades.
When fans of the Staten Island Yankees were invited to give the team a new name for Saturday fixtures this summer, a big faction went with the obvious: the Pizza Rats. What could better evoke the spirit of the minor league baseball franchise — scrappy, dogged and enterprising — than the rat that became an internet sensation a few years ago, dragging a thin-crust slice down a flight of subway stairs?
America has a vexed relationship with its crumbling transport system. Across the nation there is plenty of spending on energy and power assets such as pipelines and wind farms, much of it blending public money with private. But the roads? The bridges? The tunnels? The airports? Forget it. And why do the vermin-filled subways still look identical to the ones in 1970s movies like The Taking of Pelham 123? Don’t ask.
Nobody expects much traction on the infrastructure plan before the midterm elections in November, which is likely followed by a whole new set of battles with a changed Congress.
To bankers across Wall Street, that is maddening. Australia showed the way in the 1990s, when cash-strapped states used private money to upgrade all manner of transport assets. Many of the bankers and fund managers who put together those deals arrived in the U.S. in the 1990s and 2000s, building teams at investment banks and asset managers in New York, just waiting for one ambitious mayor to spark a wave of one-upmanship from coast to coast.
But they have waited. And waited. They complain that municipalities remain reluctant to blow out the budget for a multidecade project that could hurt their credit ratings. Courts too have made some unhelpful judgments, such as a ruling in April this year that froze roads projects in 24 states, forcing them to retest for ozone emissions standards set in 1997, rather than 2008.
And if the project goes wrong, there could be punishment at the ballot box. People still talk about a 20-year water deal between the city of Atlanta and a unit of Suez, the French utility, which was dissolved after four years in 2003 after a rash of complaints over patchy service and rusty-brown water.
“The dynamics are just different here,” sighs one New York-based fund manager. “I’d love the sector to have a different ramp, but if you’re in my shoes you’re not going to predicate your strategy on any real change.”
Then there is graft. Jamie Dimon, chairman and chief executive of JPMorgan Chase, the biggest bank in the country, nodded to it at Davos a few months ago, saying he could not believe it took several years to lift the roadbed on the Bayonne Bridge by 60 feet to allow bigger ships through the narrow strait between New York and New Jersey. “Shame on us,” he said, describing long delays in permits. “That’s called bureaucracy and corruption and sinecure.”
After Donald Trump won the 2016 presidential election, promising to unleash huge amounts of spending, things looked up for a bit. DJ Gribbin, a former managing director at Macquarie, Australia’s top investment bank, joined the White House as lead infrastructure adviser, and produced a blueprint in February this year — a “Legislative Outline for Rebuilding Infrastructure in America” — that seemed to point the way.
Under the plan, the federal government would provide $200 billion over 10 years, with the hope of spurring at least another $1.3 trillion of state, local, tribal and private money. To get things going, Gribbin produced a list of seven federally owned assets — among them Ronald Reagan Washington National Airport and the Baltimore-Washington Parkway — that he said would be better off in other hands.
But a month later, Gary Cohn left his post as the president’s chief economic adviser, depriving the administration of a key driver on infrastructure. Then Gribbin himself quit in April. And the plan appeared to die, as the Trump team got bogged down in other matters.
Meanwhile, the only real extra money came through the regular budget appropriations process in Congress: a $2 billion boost to highways and $800 million for transit. “That’s nowhere near $1.5 trillion, obviously, but will be put to work as soon as possible,” shrugs Joung Lee, policy director at the American Association of State Highway Transportation Officials in Washington.
Now, nobody expects much traction on the infrastructure plan before the midterm elections in November, which is likely followed by a whole new set of battles with a changed Congress.
By then the Staten Island Pizza Rats will have become the plain old Yankees again. And commuters across the country will still be gritting their teeth, girding themselves for a daily rush hour that is all too often a trip back in time.
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2018.