“I don’t know how we could have explained to the public that we didn’t go to the limit of what we can do. History will judge how well we did.” Jerome Powell, October 6, 2020
Decisions have been taken and, as it happens, the right decisions were taken, big enough, bold enough, well-targeted; now we need to focus on execution. The original CARES Act – its timeliness, design and size – is something we all should be proud of. It saved households and it saved businesses, and of course it saved markets. What people don’t recognize, in Congress and in the White House, is that execution is on-going, and unfortunately not optimized – there is still $1.8 trillion or more in original CARES Act authorizations that are available to assist the Main Street economy. The Fed – never designed to interact with Main Street – has raised the alarm, and now should focus on targeted action. The place for them to direct their attention first is infrastructure, including states and municipalities, companies and especially great projects.
For our purposes the injection of a significant portion of these funds into infrastructure projects and networks – say $500 billion over the next three years – would be enormously valuable, reviving the infrastructure market, setting us on a smart path to the future, and providing Main Street with a good, long, runway into that future.
This investment in states and municipalities, and into the companies that design, build and maintain waterworks, highways, transit systems and airports, would be an instant jolt of electricity to our economy. It would also create long-term physical assets that would make our lives better. Public works are different from travel and hospitality – in infrastructure the bleeding is only now starting. The CEO of one of the largest transit authorities in the U.S. messaged me last night saying that he is about to lay off 7.5% of his workforce; an engineering firm in the Midwest recently put all of its employees on a thirty hour per week schedule; and another CEO told me, bleakly, “I am fine for 2020, but very worried about 2021-2023” as awards are just starting to be delayed and cancelled. On average state budgets this year will decline 6.6%, with outliers declining as much as 15%. Next year the rubber hits the road, and the average decline is nearly 11%, with some states looking at budget gaps of over 20%. This is the tragic outcome that Chairman Powell is trying to avoid, and we need to help him.
The Fed Funds & Infrastructure. The CARES Act created three facilities that – right now, today – can make the kind of robust and strategic investments in infrastructure that will revitalize the economy, and drive an outsized increase in productivity. The first of these, the Municipal Liquidity Facility, has $500 billion in authorized funding, all of which could be utilized for funding infrastructure projects, from transit to broadband, to water and wastewater. Second, the Primary Market Corporate Credit Facility, focused on employers, has between $350 billion and $500 billion still available to provide credit to companies – for new investment, and to see them through the crisis.
We need vision here: once projects are funded, then healthy, innovative, high margin companies will borrow, innovate and grow by creating these projects – and operating and maintaining them over the next 30-40 years. Many of these projects can go forward through private investment, or private/public investment, multiplying the public sector’s throw weight by at least five times. This is especially true of renewable energy and other technology heavy investments.
Finally, the Main Street Loan Facility could inject up to $600 billion in small and mid-sized companies – critical job creators, and dynamic innovators, so necessary for the creation of a modern digitized infrastructure economy. This includes design, architectural, engineering, data analysis and construction firms, all at real risk if we do nothing. And, as one state transportation secretary told me, “these jobs don’t come back.”
Outside of these three facilities, still more funds are available, including remaining allocations from the Coronavirus Relief Fund ($150 billion, deposited in state bank accounts – “they just wired it in,” marveled one state governor’s chief of staff), and the Paycheck Protection Program ($130 billion available for small and medium-sized businesses).
This is a brilliant design – even if of the “blind hog finds an acorn” variety – not just for injecting funds into a critical sector of our economy, at just the right time, but also for launching an infrastructure revolution. All the ingredients are there, including: a crisis; plenty of funding; and the authority to move money into the right entities, take risks, and target the right projects – public and private, large and small.
What is holding the Fed back? The problem is that execution requires action, and the Fed and Treasury have no-one to lead the charge. The only thing missing is the leadership to light the fuse – as the White House point person on infrastructure told me, “we can’t find anyone at the Fed who is in charge of infrastructure.”
The 500 Project Pipeline. The U.S. has a broad and deep pipeline of important projects that are ready to go – shovel worthy in every sense. My firm – CG/LA Infrastructure – is working with the states, including their key infrastructure agencies, and infrastructure banks, to plot these projects, and the jobs they create (by Congressional district) on a map. Investing in these projects would light up every single Congressional district with jobs for the next 30-40 years.
By filling this yawning gap between Main Street and the Fed – allowing states and municipalities to not only bid projects according to schedule, and making credit available to companies to bid on and execute these projects – we would move ourselves toward the country that we want our children to live in. Some of these projects are visionary, like the Theia Satellite Network, and some would revitalize our existing infrastructure, like the BQE Cantilevered Expressway in Brooklyn, or the Army Corps reservoirs throughout the country. All would be instantly visible commitments to our future.
What is to be Done? The immediate objective is to move already authorized funds into projects, and also including major Main Street business and commercial developments, thereby creating (and saving) jobs, while strengthening long-suffering sectors of the economy.
Aside from the appointment of an official to oversee the process of moving funds into states, municipalities, companies and projects, three actions will increase the velocity and effectiveness of investment: (1) unclear guidance has created significant problems because people simply don’t know if they are authorized to use funds, or if they will be pilloried by the federal government for the use of funds – and this is a special class of pillorying that everyone wants to avoid; (2) many of the eligibility requirements, like an investment grade credit rating, are artificial barriers to businesses that have not been in the market, and the same holds for the most needy municipalities; and (3) the sunset provisions – ten year payback, and the idea that the process needs to be started thirty days prior to December 31, 2020, may have made sense in March, but no longer make sense in light of the length of the crisis. Rapid adoption of the approach embodied in Section 801 of the recently adopted H.R. 6800 would be critically helpful.
Getting the channels right is also critical. These channels must be capable enough, and disciplined enough, to handle a torrent of funding, very quickly. State infrastructure banks are one vehicle, a crucially underutilized asset, that can absorb and distribute funds to the transport, water, power and broadband sectors. Well-run banks in New Jersey, California and Ohio, as examples, could easily triple their investments. Another important fix, although requiring legislation, would be raising the ceiling on Private Activity Bonds from the current $15 billion cap to well over $60 billion, making it clear that projects that achieve public purposes are eligible to utilize PAB’s – and that the Municipal Liquidity Facility should purchase those bonds on a priority basis. The advantage of Private Activity Bonds is that they do not create state or municipal indebtedness, and thus would avoid the practical impediments created by state and municipal debt limits.
This is an immediate opportunity to both inject funds into the economy at a crucial point, and launch the infrastructure business on a robust, innovative and visionary arc – straight into the future. Maybe the last word, as so often, can be left to Churchill who, on the eve of World War II, and from what he liked to call the ‘wilderness,’ said: “I like things to happen and if they don’t happen I like to make them happen.” We need to make this happen, even though it involves some risk – or perhaps especially because it involves some risk – and we need to do it right now.