By Jonathan P. Leleu, shareholder, and Kerrie Kramer, assistant director, of Greenberg Traurig, LLP
Bingo! This is what we’ve been waiting for, and what we spent 4 months pushing in Carson City! We’ve all heard the reports. The President said in the State of the Union his infrastructure ask is going to be “YUGE.” Some speculate $1.5 trillion, which would catapult Nevada and our country into the stratosphere! Did we get the “I love you” return???
The President’s “Outline” does indeed contemplate $1.5 trillion in infrastructure upgrades, which is the largest suggested infrastructure investment in several generations. Accordingly, the Outline certainly looks YUGE on the surface. However, the Outline is a framework of an incentives program which is broken out as follows: $1.3 trillion in funding from state and local governments, which, following approval of an application by the US Department of Transportation, US Army Corps of Engineers, or the Environmental Protection Agency, may trigger an award of a federal incentive from a pool of $100 billion, less administrative expenses. (The remaining $100 billion is divided between a Rural Infrastructure Program ($50 billion, styled as grants), transformative infrastructure projects ($20 billion styled as grants), $20 billion to increase capacity of existing credit programs to fund infrastructure investments, and other programs.)
Incentive awards would be based on:
• The dollar value of the project (weighted at 10%);
• Evidence supporting how new, non-federal revenue creating long-term funding for infrastructure investments will be secured (50%);
• Evidence supporting how new, non-federal revenue for operations, maintenance, and rehabilitation will be secured (20%);
• Updates on procurement policies to improve efficiency in project delivery and operations (10%);
• Plans to incorporate new and evolving technologies (5%); and
• Evidence supporting how the project will sport economic and social returns on investment (5%).
Incentives would be limited as follows:
• The incentive grant could not exceed 20% of the project;
• No state could receive more than 10% of the total amount available ($10 billion);
• Grant recipients would agree to achieving certain milestones before the grant would be released; and
• Any milestones not reached would result in reallocation of the grant.
The upshot? The $1.5 trillion infrastructure Outline actually contains substantially less than $10 billion in incentivized infrastructure grants, per state. The remaining value of the plan comes from initial investment from the states, local municipalities, and private sources. Indeed, the Outline is an overt message to the states to fund infrastructure locally.
As for infrastructure banks themselves, the Outline simply states the following – and only the following:
State infrastructure banks (SIBs) currently are underutilized.
This underutilization can inhibit State and local governments from best directing Federal funds to infrastructure projects.
Providing incentives to use SIBs, such as reducing federalization requirement on funds lent to SIBs that are deployed locally, could encourage the use of SIBs.
Expanding the legal capabilities of SIBs, in addition to direct appropriations, would allow SIBs to take responsibility for infrastructure funding in an effective manner that may not be possible for the Federal Government, particularly for rural projects or projects of smaller total cost.
In summary; states should use infrastructure banks, and in a more effective manner, whenever federal funds are appropriated. The Outline does not dedicate funds to seed the banks.
After all this, you are certainly asking, “where does this leave Nevada?” The answer is, quite simply, “on the outside, looking in.” The Outline suggests a funding paradigm which either a) does not help some states, or b) hurts others. It would appear Nevada falls into the latter category. Through no fault of the federal government or this (or any other) Administration, Nevada is not in the same position as larger states, which may more freely reallocate or raise revenue to reach the available incentives (if they chose to do so – in the scheme of things, the application process and resulting oversight may outweigh the meager incentive award). By way of contrast, Nevada’s entire economy is dependent on a fragile general fund. Nevada real property taxes are capped, it has no income taxes, and state lotteries, taxes on mining, and toll roads are all unconstitutional (amendments take over 5 years, and a vote of the people to pass). These are just a few of the hurdles which must be overcome to raise revenue substantial enough to fund large-scale infrastructure projects, and all of them are self-inflicted. Given the difficulty Nevada has in raising revenue, qualifying for an infrastructure incentive seems like a pipe dream, and places Nevada at a competitive disadvantage with other states, as the Outline would be applied. Should Congress implement the Outline as-is, Nevada would be on its own.
Here I go, again on my own
Goin’ down the only the road I’ve ever known
Like a drifter, I was born to walk alone
Kerrie limited Jon to one song in this edition.
Odds & Ends
In 1855, Secretary of War Jefferson Davis became convinced camels could supplement horses in the transport of military equipment in the harsh deserts of the western United States. Unfortunately, the camels’ hooves split on the rocks, and they kicked, spit, bit, had terrible tempers, threw off their packs, and disturbed nearby livestock by screaming – generally, what you observe when visiting Jon in Carson City. Ultimately, in 1875, the Nevada Legislature passed a bill banning the use of camels on state roadways, which stayed in place until around 1900, when camels were generally outmoded to make room for horses. Preserving and enhancing our infrastructure to allow for advances in transportation and technology has always been of fundamental importance to Nevada.
ABOUT NAIOP SOUTHERN NEVADA
NAIOP Southern Nevada is a chapter of NAIOP, the Commercial Real Estate Development Association, and it comprises more than 400 members serving the Southern Nevada market. NAIOP is the leading organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate, with 18,000 members in North America. NAIOP advances responsible commercial real estate development and advocates for effective public policy. For more information, visit www.naiopnv.org. For more information on NAIOP corporate, visit www.naiop.org.