Among his many campaign promises, Donald Trump pledged to fix America’s crumbling roads and bridges with $1 trillion in infrastructure spending. Almost seven months into office, though, and two months removed from his vaunted “infrastructure week,” the president has revealed few details for how to pay for it. As his advisers look for ideas, a group of Australian politicians and executives has been lobbying for the administration to adopt a controversial policy of selling or leasing airports, toll roads, and other public facilities to raise money for infrastructure projects.
The method, known as asset recycling, was used in Australia as a way to finance new construction without incurring new debt. In 2014 the Australian government budgeted A$5 billion ($3.9 billion) over five years to provide incentives to state governments to sell or lease public assets and invest the proceeds in infrastructure projects. The plan generated more than A$15 billion from the sale of assets, including a portion of the country’s power grid, after debt was paid off. The revenue helped fund the Sydney Metro and other projects.
The brains behind the idea is Joe Hockey, Australia’s ambassador to the U.S. Hockey put the asset recycling program in place when he was Australia’s treasurer and is now trying to persuade the Trump administration to do something similar. Over the past few months Hockey, along with executives from IFM Investors, an A$82 billion Australian investment consortium, and such companies as Macquarie Group, have met with administration officials, including Vice President Mike Pence, Commerce Secretary Wilbur Ross, and DJ Gribbin, Trump’s special assistant for infrastructure policy. They’ve also reached out to dozens of members of Congress.
They appear to be getting some traction. The White House says it’s considering including incentives for asset recycling as part of the $200 billion in federal money it wants to use to spur states, localities, and the private sector to spend as much as $800 billion on infrastructure. While some state officials say they’re open to the idea, many are skeptical, given how badly similar deals have turned out. The most infamous example is Chicago’s 2008 decision to lease its parking meters for 75 years. The move led not only to higher parking fees but also cost the city $974 million it would have received had it kept the system, an inspector general’s report found.
Oregon Representative Peter DeFazio, the top Democrat on the House Transportation and Infrastructure Committee, has discussed asset recycling with Hockey and didn’t come away impressed. “They see dollar signs, and they see an administration that is naive at best, or oriented toward privatizing the infrastructure,” says DeFazio.
The Australians view the U.S. as a ripe market for investment and are keen to bid on any potential assets that would be up for sale or lease. IFM has a history of investing in privatized public assets, including in the U.S. In 2015 it bought the lease for the Indiana Toll Road out of bankruptcy for $5.7 billion, a deal that was supported by Pence, Indiana’s governor at the time. During his trip to Australia in April, Pence discussed asset recycling with several business leaders.
Delegations representing Australian investment firms have also made trips to the U.S. to sell the concept. In June a group of executives from Australian retirement funds and IFM visited with Pence’s staff, as well as Ross, Gribbin, and Richard LeFrak, a New York developer Trump tapped to help lead an infrastructure advisory council.
Even if the Trump administration and federal lawmakers fully buy in to the plan, any deal would need the support of the governors and mayors who control most of the public assets. The Australians say they’ve met with numerous state and local officials or their staffs, including New York Lieutenant Governor Kathy Hochul and Idaho Lieutenant Governor Brad Little. Virginia Governor Terry McAuliffe came away from his July 10 meeting saying he wouldn’t commit to selling assets today but wouldn’t rule out supporting a plan in the future.
Hockey is adamant that asset recycling is a good fit for the U.S., particularly given the lack of appetite among Republicans in Congress for big spending measures. “There are always going to be reasons not to do this,” he says. “But the fundamental problem is the U.S. doesn’t have the money to build the infrastructure.” The U.S. faces a $2 trillion funding shortfall for needed infrastructure work by 2025, according to the American Society of Civil Engineers.
Australia’s program had its limits, with critics, including John Quiggin, an economist at the University of Queensland, arguing that it sold off revenue-generating public assets for a one-time gain. Hockey was removed as treasurer in 2015 when Malcolm Turnbull became prime minister. Only A$2.3 billion in incentives ended up being spent. For his part, Hockey says the program “was meant to be an incentive program to get things going, and it certainly did.”
Australia gave states and territories 15 percent of the sale or lease price of an asset if all of the money was reinvested in new infrastructure, meaning if a state sold an asset for $100 million, it would get $15 million from the commonwealth and have $115 million to invest. Hockey says he’s suggested that the White House pay a 20 percent bonus, because without it, states and cities likely won’t take the risk.
And there certainly is a risk. Kevin DeGood, director of infrastructure policy at the Center for American Progress, a progressive think tank in Washington, says asset recycling essentially amounts to gambling, because there’s no way to predict how future events will affect a deal. The federal government should be helping states and communities that lack funding, says DeGood, not persuading them to sell off what they do have. “This is a bit like telling somebody, ‘Hey, you’ve got a broken ankle, you can’t afford the medical bill. Well, why don’t you go down and sell some plasma?’ ” —