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.
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