President Obama says he wants to fix highways and bridges, railroads and docks, airports and communications systems, putting Americans back to work and sending them around the country faster.
How's he going to pay for this? On Monday, Valentine's Day, he's supposed to lay out a new federal budget that will detail multi-billions in "infrastructure" projects.
Construction contractors and financiers know the government is strapped for cash. They're eager to see what role the federal government will invite business to play in the "public-private partnerships" both Democrats and Republicans have been touting as an alternative to direct government spending.
Will Obama copy former PA Gov. Ed Rendell in trying to lease turnpikes and other public facilities directly to private operators, in exchange for ready cash, and the right to collect tolls from the public? Or will he stick to tax breaks, bond sales and other traditional, means of letting the private sector profit from public works funding?
Investor Alan Frankel remembers the 1990s, when the Federal Transit Administration encouraged municipal governments and public-transit agencies (including both Septa and NJ Transit) to sell billions of dollars of railcars and other public property to private investors, then lease them back. The investors were promised federal tax deductions. But a lot of those ended badly, with investors losing their tax benefits, he warned.
"The devil's in the details," says Dave Fenig, top lobbyist for the Equipment Leasing Finance Association in Washington DC.
What happened last time? After more than $20 billion in subway cars and other property was sold to investors and leased back by municipal agencies, "the federal government changed their view," Fenig said. As leaseback tax breaks became politically popular. President Bush in 2004 curtailed their use - retroactively. The government won most of the ensuing protest cases filed by big investors, and forced them to pay.
Have we learned anything? "There's a growing consensus that public-private partnerships, if properly structured, could be one solution to the acute financial problems that municipalities and states have," Fenig said. "This US Congress is not going to appropriate the funds necessary to implement highway improvements, et cetera. Private parties are skilled in financing projects. There was legislation in the last two Congresses that would create a 25 percent tax credit" for railroad investing. ELFA wants more.
But don't investors risk getting burned again? "The big question is, will Treasury change the rules? This Congress can't bind another Congress," Fenig said.
And tax credits aren't free, warns EFLA chief operating officer Ralph Petta. "By providing incentives under the tax code, they may be denying the Treasury a bunch of revenue," he said. "It will be interesting to see how they balance that tension."