How Trump's 2018 budget could help — and harm — the construction industry
The Trump administration released its 2018 budget proposal earlier this month, finally revealing a few long-awaited details about the $1 trillion infrastructure plan the president pushed in the run-up to the November election.
As with any spending policy, there are winners and losers in the budget request. President Donald Trump and his staff are looking to slash funding for an earthquake early warning system for the West Coast, student loans, welfare programs like food stamps, Medicaid and the Children's Health Insurance Program, farm subsidies and federal employee retirement benefits.
On the flip side, defense spending would see a major boost under the proposal, as would a program for parental paid leave and medical care for veterans.
For the construction industry, however, President Donald Trump's plan delivered both good and bad news.
One thing experts are quick to point out is that the budget request is primarily a starting point for negotiations with Congress, giving the president a chance to flex his deal-making muscles and perhaps give Congress the opportunity to add items back into the budget.
"Presidents' budgets are generally aspirational documents rather than blueprints for Congress," said Ken Simonson, chief economist for the Associated General Contractors of America. "We are still optimistic that Congress will pay attention to the pleas of our industry and others."
A focus on infrastructure and private investment
On the plus side, Trump earmarked $200 billion for direct federal spending on infrastructure. This is the seed money that is supposed to spark at least $1 trillion of total investment, which is a solid start but falls short of the $4.6 trillion that the American Society of Civil Engineers said it will take to fix the country's highways, bridges and other public assets.
The budget offered no specific plan for how or where the government would spend the $200 billion, but public-private partnerships (P3s) will likely be a key mechanism that the administration leverages to achieve its infrastructure goals.
"The devil's in the details," attorney Thomas Rosenberg, partner at Roetzel & Andress, said, "but the concept is something everyone should get behind."
He cited, for example, the deal that Long Beach, CA, officials made for a new civic $513 million center complex last year as testament to how far P3s can stretch public dollars. The Plenary Group–led consortium financed the lion's share of the project, which allowed the city to use precious funds elsewhere.
But there's also a snag in that plan, according to Lawrence Prosen, partner at Kilpatrick Townsend. "One of the big issues that the government has to get its arms around is that they don't [always] allow P3s," he said.
The Federal Highway Administration keep tracks of P3 laws in the U.S., and, according to the agency's database, there are currently 35 states that allow P3s to be used on transportation projects — albeit in varying capacities.
While the Trump budget makes no direct pitch for P3s, it does extol the benefits of private investment and references other methods of alternative financing, like the use of private activity bonds. These allow private entities to borrow at the same rate as public agencies. The current cap is $15 billion, but the new budget request recommends removing that cap to encourage private investment.
The Trump proposal also floats ideas for:
- Grants for agencies that take on local traffic congestion
- Water Infrastructure Finance and Innovation Act loans, up to 49% of project cost, to private interests that want to invest in large-scale water initiatives
- Allowing states to increase tolling on their highway and bridge systems
- Increases in Transportation Infrastructure Finance and Innovation Act subsidies, which help finance transportation projects through direct loans, loan guarantees and lines of credit
A shift to the states and reduced regulation
These overtures to the private sector go hand-in-hand with the declaration that too much direct federal spending has created an unhealthy dynamic and that local and regional agencies should start becoming more self-sufficient when it comes to funding projects that don't have national impact.
This could be the driving force behind the suggested elimination of spending programs like the Transportation Investment Generating Economic Recovery (TIGER) grants and the Federal Transit Administration's Capital Investment program — a not-so-subtle push for states to come up with their own funding schemes.
This effort to shift responsibility to state and local governments, according to Brian Landes, director of location intelligence at Transwestern, is something that states are getting used to as they've had to deal with anemic federal funding levels.
So far, Landes said, paying for their own infrastructure through gas-tax increases and other state-imposed user fees has been generally considered by taxpayers as a necessary price to pay for the ultimate health of roads and bridges.
"Most citizens want this," he said. "People are willing to open their pockets as long as [lawmakers] are honest about how the money will be spent."
Another good-news aspect of the proposed budget is a call for reduced regulation, which includes tweaks to certain environmental requirements, holding agencies accountable for a smooth and correctly executed permitting process, a single point of contact for federal permits, passing off the regulatory process to local and state governments when necessary and an attempt to curb litigation.
"The contractor community is challenged by all the competing regulatory agencies that are out there," Rosenberg said, "and while there may be other issues of primary concern … right behind that is the massive regulatory process. It makes it hard for a small, family-owned business to participate because of paper work requirements and other conditions that come into play."
Concerns regarding worker training programs
One factor that was not addressed in the budget request, however, was the issue of skilled labor and how construction companies, who are already strapped for qualified help, are supposed to find enough workers to meet the demands of what could turn out to be a colossal building program.
"The major roadblock from coast to coast is a shortage of skilled construction workers, a problem that goes back to the 2008 recession when there was an exodus of workers because of the slowdown in construction and [the retirement of] many baby boomers," said Robert Bartels Jr., business agent at large for Steamfitters Local 638 in Long Island City, NY.
In fact, Trump's budget would make cuts to some of the programs that are helping to grow the skilled labor force. According to an AGC analysis of the budget request, the Department of Labor’s budget would see a 20% cut, a reduction that includes job training funding. Money for state grants for the Workforce Innovation and Opportunity Act (WIOA) would see a 40 reduction, and funding for apprenticeship grants would be knocked back 5%.
In addition, the budget suggested a 15% cut for career and technical education programs under the Department of Education.
Increased training is a must, Prosen said, because construction jobs constantly require more technical expertise.
Another issue to consider, Prosen added, is that if the infrastructure program really kicks off, it could negatively impact areas of the country that are seeing hot commercial construction markets by siphoning off crucial workers away from those projects.
What's next in the federal infrastructure conversation
The administration's infrastructure plans will likely become clearer in the coming weeks and months, when it is expected to present a full bill with more details and specifics about the plan.
Overall, though, most construction experts are optimistic about the focus on infrastructure.
"It's very good for the construction industry," Rosenberg said. "Setting aside politics, it's a commitment by the administration to address [continuing] infrastructure needs."
"What we don't know," he added, "is how projects will be identified and how they will be specifically funded or how they will be administered."
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