By Andrej Micovic and Eric Singer

Law360 (May 26, 2020, 4:56 PM EDT )

Andrej Micovic

Eric Singer

As the COVID-19 pandemic continues to disrupt everyday life, millions of Americans are filing for unemployment benefits every week.

Although the federal government is pouring trillions of dollars into the U.S. economy through stimulus checks and various small business lending programs, these solutions provide only short-term relief and do not provide any long-term benefits to the economy.

On the other hand, an infrastructure investment program would be a viable, long-term solution that would kick-start the economy for three reasons.

First, it would address the essential need for infrastructure development in the U.S. Second, infrastructure has a proven track record of significant job creation. Third, numerous experienced infrastructure investors and debt providers regularly take long positions on infrastructure projects and have the necessary funds to leverage the federal government's investment.

Unfunded infrastructure projects exist throughout the country, and are designed to provide critical repairs, replacements and upgrades related to infrastructure of all types, including transportation, schools, hospitals, courthouses, government offices, water and sewer, and energy.

The National School Board Association estimates that $550 billion in investment is needed to bring existing U.S. school buildings up to standard. The reality is that the U.S. has not made a significant infrastructure investment in many decades, and it shows.

Aside from the current COVID-19 health crisis, and any economic stimulus that an infrastructure funding bill would provide, a significant investment in public infrastructure is more than justified.

The American Society of Civil Engineers has calculated that the nation's infrastructure backlog exceeds $4.5 trillion in the next five years, and that amount is simply to meet short-term needs, not to adopt new technologies or adapt to meet future threats such as climate change.

In that context, even a $2 trillion bill is not itself enough to ensure the continuation of things we currently take for granted — e.g., that the bridge won't collapse and that homes are equipped with the proper drain pipes for waste. In other words, infrastructure spending is justified right now because it is needed right now.

At a more granular level, there are several major infrastructure projects that have been in development for years but have not been meaningfully advanced due to a lack of funding.

For example, the Gateway Program is a much-needed expansion of the Northeast Corridor line for Amtrak service, including a new Hudson River tunnel that would permit a doubling of capacity between New Jersey and New York.

The need for the program is well established (the current Hudson River tunnels opened for service in 1910), and although planning for the Gateway Program began in 2011, and received limited funding after Hurricane Sandy in 2013, the program remains unfunded at this time.

Another example of an unfunded project is Miami-Dade County's Strategic Miami Area Rapid Transit, or SMART, Plan. The SMART plan contemplates six new mass-transit corridors in southeast Florida — the first significant expansion of the Miami-area mass-transit system since the mid-1980's.

Although the need existed before the pandemic began, the current economic situation further justifies an infrastructure bill. The potential for job creation is one component of that justification. It is estimated that every $1 billion in federal highway and transit investment funded by the American Jobs Act of 2011 supported 13,000 jobs for one year.

There is also precedent for including infrastructure development as a significant component of economic-recovery efforts.

The New Deal, the federal government's response to the Great Depression, included funding for 35,000 public works projects throughout the country, including government buildings, airports, hospitals, schools, roads, bridges and dams.

Much of that infrastructure remains in use today, highlighting the long-term effects of infrastructure investment — as well as the age of our current infrastructure.

By comparison, the federal response to the Great Recession beginning in 2008 did not include any meaningful infrastructure investment, which was limited to approximately $75 billion in infrastructure spending under the 2009 American Recovery and Reinvestment Act.

At the time, the justification for such limited investment was a perceived lack of so-called shovel-ready projects that would generate short-term employment gains. Ultimately, that view was short-sighted — employment did not return to prerecession levels until 2014, so even new infrastructure projects would have made a meaningful impact.

Job creation is not the only reason to fund infrastructure at this time. In many cases, infrastructure can be constructed more efficiently when its usage is reduced. Reports indicate that some cities have experienced reduced traffic flow to the tune of 50% or more since the pandemic began affecting the U.S.[1]

If entire roads, transit systems or airport terminals can be shut down for a period of time, construction can be expedited and costs can be reduced by eliminating complicated schedules and work restrictions. While that is nearly impossible to accomplish when demand is high, it is feasible when much of the population is quarantined at home.

Many government agencies are already taking advantage of this reduction in demand to expedite infrastructure construction. Additional infrastructure funding — right now — would best take advantage of this opportunity.

In some cases, labor can also be obtained less expensively during a recession and this would further maximize the economic benefit of investing in infrastructure right now.

Although the federal government should play an important role in advancing infrastructure programs, it does not have to be the sole source of funds. The government has many methods of developing infrastructure, including inviting private investment.

Public-private partnership models have been utilized to deliver several major infrastructure projects in recent years. Currently, infrastructure developers in the U.S. market hold significant capital commitments from investors looking for long-term, safe holds.

Infrastructure investments can also be highly leveraged. In the last 20 years, the bond market for infrastructure projects has developed significantly, particularly with the implementation of Private Activity Bonds, or PABs, by the U.S. government.

More recently, the private placement market has also become active. Debt providers in these spaces are looking for long-term holds, and the market is ripe for new private infrastructure investment that can leverage federal funding.

With that background, a comprehensive federal infrastructure bill should include:

• Funding for shovel-ready projects, with a bulk of the investment directed towards projects that will facilitate long-term growth;

• Funding for longer-term projects that is conditioned in a manner that leverages private investment; and

• A significantly expanded definition of qualifying activities for PABs that includes a variety of asset classes, including social infrastructure, and inceased PAB allocation to align with the scale of the current need.

The size of the bill must also reflect the scale of the nation's current infrastructure needs. With $4.5 trillion in critical infrastructure needs identified over the next five years, the $2 trillion number currently being discussed should be viewed as a floor, not a ceiling.

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Andrej Micovic and Eric Singer are partners at Bilzin Sumberg Baena Price & Axelrod LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.nytimes.com/interactive/2020/03/22/climate/coronavirus-usa-traffic.html.

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