President Trump addresses a joint session of Congress on Tuesday night and is expected to present further details on his infrastructure plan.

During the previous month, we have spoken to senior Republican and Democratic staffers on the House and Senate committees with jurisdiction over infrastructure and most indicated that the Administration, rather than Congressional leadership, will take the lead in advancing an infrastructure investment package.

As a reminder, the preliminary version of the Trump Infrastructure Plan proposed an 82% tax credit on the equity investment in an infrastructure project.  The plan assumed a 5:1 ratio of debt to equity, which implies an overall 14% tax credit on the project’s cost.  We summarized the plan and its prospects in Congress a few weeks ago.

If implemented as written, the Trump Plan would upend the landscape of infrastructure investing.  In this post, we discuss several of the more nuanced implications of the plan for infrastructure investors.  In summary:

• The Trump Plan would make equity cheaper than debt and theoretically incentivize all-equity financing.
• It is likely any implementation of the plan will limit the basis for the credit to prevent the possibility of all-equity financing as well as to prevent a massive hit to the federal budget.
• For investors without enough taxable income to use the credit, tax equity partners will be required. However, as written the plan may require tax equity to provide more than 81% of equity, something few tax equity investors are likely to be willing to do.

This is the second issue of a new Woodlawn series about infrastructure investment, combining our expertise in energy infrastructure, federal policy, and tax equity.

We will be providing regular updates on the various infrastructure investment proposals under consideration in Washington, DC, focusing on how they would work, where they stand in Congress and the Trump Administration, and what they would mean for private investors.

If you would like to continue receiving these updates, click here.

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During his campaign, Donald Trump promised $1 trillion in new infrastructure investment and proposed to finance it through public-private partnerships and a new federal tax credit.  Since taking office, President Trump has continued to support an infrastructure investment package.

Should legislation reach President Trump’s desk, the consequences for infrastructure investors will be significant.  What do we know so far?

• Democrats and Republicans agree on the need for significant new infrastructure investment, but disagree on how to finance that investment. Broadly, Republicans prefer public-private partnerships and tax credits; Democrats prefer direct expenditures.
• The Trump infrastructure plan provides for a new 82 percent tax credit on the equity investment in a project. Assuming, as the plan does, a 5:1 debt-to-equity ratio, the credit will be worth 14 percent of a project’s cost.
• Statements from President Trump as well as leaked documentation tied to the Administration suggest a focus on transportation infrastructure, with rail projects emerging as a surprising priority.
• Legislative action is not imminent. Congress may seek to attach an infrastructure bill to legislation concerning foreign earnings repatriation or tax reform.  Neither of those are easy lifts and will take time to work their way through Congress.
• If the Trump Plan is enacted into law, infrastructure investors should be prepared to monetize the new tax credit either through their own tax appetites or by securing tax equity.

This is the first issue of a new Woodlawn series about infrastructure investment, combining our expertise in tax equity, federal policy, and energy infrastructure.

We will be providing regular updates on the various infrastructure investment proposals under consideration in Washington, DC, focusing on how they would work, where they stand in Congress and the Trump Administration, and what they would mean for private investors.

If you would like to sign up to continue receiving these updates, click here.

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