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Steve Sorett Authors 'The Trump Infrastructure Plan And Its Legal Implications'

Publications - Article | December 2, 2016

Steve Sorett authored an article titled "The Trump Infrastructure Plan And Its Legal Implications" which appeared in the December 2, 2016 edition of Law360 online magazine.

The article appears below it its entirety:

Trump Infrastructure Plan and Its Legal Implications

By now, most of us have heard and read about the 10-year, $1 trillion infrastructure plan being discussed by the incoming Trump administration. While details are somewhat sparse, we know that the president-elect’s team is looking to promote investments in transportation, water, the electrical grid, telecommunications, security infrastructure, railroads, ports, pipelines, airports and the like. In the process, they envision creating new jobs in construction, steel manufacturing and other sectors, while leveraging private financing to cover the bulk of the costs. To accomplish this, the Trump administration is advancing the concept of creating infrastructure tax credits which will bring the necessary private sector financing to the table to meet the $1 trillion dollar goal. While the scope and details of the tax credit concept still need to be hammered out by the Congress, the notion evokes memories of the Build America Bond program that the Congress and the Obama administration created through the stimulus legislation enacted in 2009 (the American Recovery and Reinvestment Act of 2009, or ARRA). In contrast, the Clinton campaign had advanced the concept of creating a national infrastructure bank, along the lines of what several of the states already have in place, and placed less emphasis on a tax advantaged financing scheme. This notion is one that has been discussed for many years and has been supported by former Pennsylvania Governor Rendell and others. Critics of the tax credit system argue that it places too much reliance on businesses, whereas critics of an infrastructure bank approach say it relies too much on public finance. But all agree that the scale and scope of the nation’s infrastructure needs require significant private investment and immediate and thoughtful attention. In the midst of this public discussion, those of us involved in public contracting should keep an eye on several critical issues. First, will this infrastructure initiative be one run from the federal level, will it be delegated to the states, or will it be a combination of the two structures? Second and equally importantly, what entities will decide the timing and which projects will be selected? Will there be a national priority list, or a state priority list, or will the private sector simply vote with their cash on what projects get funded and their timelines?

Will there be an attempt to dovetail these projects with publicly appropriated funds from the federal, state and local levels? In the 1930s, these decisions were mostly made at the federal level. Under ARRA, it was mostly left to the states to select “shovel ready” projects. Even though these are primarily political decisions, as the discussion evolves over this, it is likely that lawyers will become drawn into the process to help structure the priority regimes. A second set of issues concerns the procurement process. Regardless of the source of funds — federal, state, local or private — ultimately the process of selecting and administering these projects will receive close scrutiny. It is, therefore, likely that the selection and award of contractors will involve some combination of federal, state and local law. Lawyers will likely see an increase in bid protest activity followed by claims that arise during the administration of these contracts. What laws apply? For purely federally funded contracts administered at the federal level, federal law, including the Federal Acquisition Regulations, will apply. But at the state and local level, it is likely that there will be a blend of federal principles comparable to what has been past practice with federal grants that meld with state or local law. In this regard, the American Bar Association’s Public Contract Law Section led an effort to create not only the Model Procurement Code for State and Local Governments, going back to the 1970s, but also more recently issued a Model Procurement Code for Infrastructure Projects. This latter effort addressed the full range of infrastructure financing, including project finance non-recourse financing, and looked at the full sweep of design-build-operate-maintain-transfer and finance options that could be employed on any given project. A third set of issues involves the structure of the public-private financing. To attract private financing, there must be a revenue stream that can be used to pay back the lenders and allow them a reasonable return. In a pure project finance non-recourse situation, the lenders look only to the revenues generated from the project — so a bridge that is privately financed must generate revenues through tolls that are sufficient to cover these costs. There may be other available sources of revenue, but ultimately, lenders will be attracted to those projects that appear to offer the greatest chance of generating revenues that allow for a reasonable return on their investment. Aside from these three sets of issues, keep an eye of what types of tax credits are being proposed in the legislation. Will there be credit enhancements offered, along the lines of the TIFIA program, now limited just to transportation projects? Will there be an attempt to dovetail these projects with federal grants? How will state infrastructure bank funding be handled? Will there be an attempt to bring in local or municipal funding and related support (so-called public-public-private partnerships or P4) to advance projects? In order to put together a sensible financing package for each project, lawyers will need to understand the complexities and history of these financing alternatives to move projects forward efficiently. Finally, when considered in the context of Trump’s plan for tax reform which, in addition to lowering tax rates, may include eliminating or reducing the tax exemption for the interest on municipal bonds (thereby making the traditional method of financing public improvements a less attractive investment), the Trump infrastructure plan may reflect a truly new approach.

Steve M. Sorett is of counsel in the Washington, D.C., office of Kutak Rock. He previously served as the head of the legal department of AAI Corporation and as the vice president of contracts for ICF Kaiser International Inc. He was also the curriculum director for George Washington University Law School's government contracts program and the director of the government contracts practice at Grant Thornton LLP.

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