- The rollout of IIJA
- How easy/difficult has it been to receive the money from the government - any administrative challenges?
- Interplay with the states and monies going to local governments
- What new programs/updates to existing projects are issuers pursuing?
- Impact of inflation: How are issuers, policy makers, and capital facilities thinking about their expenditure plans in light of labor and material costs?
- How to finance large projects and plan a 30-year bond under current circumstances?
Mark Capel (
Okay welcome everybody. Good morning. My name is Mark Capel. I work with bam. I cover the Western region for Build America Mutual out of our San Francisco office. with of course the majority of my focus here in the state of California. We're here today to talk about the infrastructure investment and jobs act. And it's something that's gonna be increasingly relevant to all of us over the next five to10 year period. I've got an amazing set of panelists here to cover the topic. And so we'll kind of go through a little little bit of scripted Q and A and then we'll open up for questions at the end. So beginning to my left is Emily Brock. Emily is the Director of the GFA's Federal Liaison Center and Emily leads the coalition for advocacy efforts for public finance network in Washington DC. Her advocacy includes anticipating and responding to federal legislative and regulatory activities including infrastructure and grant implementation efforts tax reform muni securities disclosure and pension and OPEB issues. Next to her left is Frank Doyle. Frank works for Sumitomo. He's a Director there and a principal public finance credit analyst as well as a portfolio manager with about 7.8 billion under management. Frank's responsibilities include the full spectrum of analytics from everything from state cities counties non-for-profit healthcare and the full suite of utility credits. To Frank's left is Sarah Hollenbeck. Sarah is a Managing Director at PFM. She leads the San Francisco office for PFM. She's been a municipal advisor for many many municipalities throughout the state of California and elsewhere and has covered the full suite of transaction types lease revenue bonds go's tax increment transactions toll revenue bonds et cetera. And prior to joining PFM in 2001 Sarah worked for the city of San Francisco managing their lease NGO bond debt portfolio. And lastly, Alex Zaman. Alex is a director with city group here in the state of California. He's got over a decade of experience in the market. He's the co-head and city's municipal transportation banking group Co-head and leads a variety of other sort of real estate based activities and initiatives throughout the firm and he's worked again on the full spectrum of of transaction types leases toll roads you name it obviously with the focus on transportation. So it's the right group of people to to begin the conversation. So again here we're talking about the infrastructure investment in jobs act just a quick reminder this act was passed in August of 2021 by the Senate the house passed the bill in November of 2021. And in mid-November president Biden signed it into law. There was no appropriation bill however until March of 2022 now that appropriation bill has been passed it totals 1.2 billion including 550 billion in new spending. And that's what we're all here to to talk about today. Some of the key detail as it relates to our market and municipal bond issuance you can see on the above slide I know some of the numbers are small. If you want some more detail on that we're happy to provide that later but that gives you just a little bit of the scope of the numbers we're talking about. And obviously California is gonna be a big player in those numbers as they roll out. There's also a recent study on the next slide by the national league of cities. And that shows that roughly half of US cities are talking about using (3:50) funds to make make up their matching funds. Matching fund requirements are gonna be anywhere between 10 and 80% depending on the program. but obviously there's a significant amount of matching funds that are going to be required. And as those APA funds run out I think we'll see increased municipal bond issuance to provide those those matching funds. So that's what we're trying to show there. Let's go ahead and get started. since the passage of this bill the government has been a little bit slow depending on who you talk to about rolling out funds or at least the funds are starting to roll out but they haven't necessarily been allocated to specific projects. And so there's a number of reasons why these the for the slow rollout everything from having trouble with getting employees back to in person federal employees back to in person work to having trouble with finding labor to actually begin these projects and the department of transportation for example is has had trouble hiring new employees to figure out the grants and and and what the grant distribution systems need to look like. Again this is a this is a heavy lift. And so it's not surprising it's taking a little bit of time to get there. So I'm gonna start with Emily, Emily what are the major steps forward at least to date toward the actual distribution of funds and what are the significant or if any programs and initiatives that we were still seeking clarity on.
Emily Brock (
Thank you so much. So obviously this has been one of the major major things coming out of Washington DC that that local governments are watching and of course state governments are watching. and indeed Marcus you outlined so clearly there has been a lot of deliberate attention put by the administration to make sure the way that they put out these potential grants that is the competitive or non-discretionary grants make sense that they are not unduly burdensome in compliance and reporting efforts and that they at they attend to the goals of the IIJA which can be sort of broadly stated as goals that may achieve sustainability metrics or environmental metrics and also equity equity defined in many different ways metrics. So what we're waiting for right now actually we're not waiting for all the money to come out. We're waiting for a part of the money to come out because there have been discretionary grants already assigned and distributed to the states. And now what we're looking at is one of my favorite acronyms in Washington is called a NOFO NOFO is short for notice of funding opportunity. But if you say it too fast or to un indoctrinated person it sounds like you're not gonna get nothing but you are you are the NOFO itself is put out there. and it outlines what who are who can they the applicants be? What are the criteria that they hope that you'll meet in each one of these different assigned programs that are outlined under IIJA and what are the compliance and reporting requirements? so at GF a as you can imagine there is a relentless amount of information coming to our members that are not NOFO that are actual work. And so there is there was a great demand among our membership to try to get a better understanding of when are the NOFO coming out how relevant are they to me and can I get them in one simple place? So GFA has created a NOFO tracker for our members to better understand whether they're eligible and how they might be able to apply as quickly and efficiently as possible as the administration is deliberate in its IIJA rollout.
Mark Capel (
Thank you. So Alex when when we were talking before you mentioned some programs for which there are funds out the door and can you please highlight some of those programs and any other sort of interesting components of that?
Alex Zaman (
Yeah happy to, I think just taking a step back it's it's really no surprise that the rollout of this program has taken some time with so many of the major objectives and new funding programs through IIJA and the sheer amount of staff time and and numerous federal entities that are now involved in sort of the roll out of this program. It's no real small feat to to have done this particularly given a lot of competing priorities and and interests in DC over the past year. And really without getting too into the weeds on the transportation side there's a pretty complicated budgetary framework that that governs the distribution and provision of of federal transportation funds that that does take time. But just taking a step back in January of 2022 the white house did release a pretty helpful comprehensive guidebook on the programs in IIJA fast forward to March the appropriations act was signed by president Biden. And that was an important bellwether to really remove a lot of the implementation hurdles for IIJA and really kickstarted some of the the dollars really flowing out the door of no transit funding was increased by about 58% for fiscal year 2022. Through that bill highway was also increased about 50% through the bill. We saw a fivefold increase in passenger rail funding as well for this fiscal year for for programs like Amtrak and and other railroad endeavors an important program that the federal government has used over time is the raise program for a variety of transit highway rail port programs in prior regimes and administrations. This was known as either build or tiger. but in August of this year the president did announce about 2 billion in funding for those programs across 166 projects throughout the country. That's an incredible program that this year has taken on a bit of a different focus. We've seen much more of a of an emphasis on on as Emily mentioned equity with that program about half of the funds have gone to rural communities the other half to urban and two thirds of the funds have gone to areas that are sort of impoverished across the country. the FTA also released a new program last month for clean energy and zero emissions transit about a billion and a half was was awarded. That's another new program as part of this bill that everyone's very excited about. and and as Emily mentioned there are a number of NOFO out there currently I think there's about 10 in the transportation space two of which are of particular importance and and maybe interest for folks. One is the reconnecting communities program which provides about $2 billion for the removal of highways and transportation facilities that impede community connectivity and another is the bridge investment program which is also brand new provides about 15 billion to really help repair and restore a number of structurally deficient bridges across the country. One other big emphasis in this bill is really the rollout of electric vehicle charging infrastructure and and zero emissions transit. The bill does authorize about 20 billion for those efforts. And really that's a a a part of the bill that has seen some substantial traction in recent months I think in February the FHWA did release some guidance on a new program called Nevie national EV infrastructure formula funds which really gave guidance to a lot of state dots to start putting together plans for the rollout of that charging infrastructure and in August all 50 states had submitted their plans for the network and I think by the end of this month there is the hope that approval will provided to to those qualifying and those funds will will start to roll out the door at at that point. So certainly a lot of progress I think on the transportation side with respect to funds getting out the door and much more to come in the next few months.
Mark Capel (
So Sarah when we were talking one of the key funding sources is gonna involve the state revolving fund and those programs there's obviously one for every state. And maybe you could talk about what those SRF programs look like in general. And are there any is there anything specific to the California SRF program as it relates to this these these sources of funds that we should know about?
Sarah Hollenbeck (
Yeah. Sure. Thank you, So as Alex was describing there are a lot of new programs in different areas of the legislation and he was identifying some of those in the transportation space. It's certainly also the case that in a lot of cases large amounts of this funding are gonna be sort of flowing through existing programs such as TIFIA but also as you mentioned mark the SRF programs. And so it gave us an opportunity to think about the many positives and some of the challenges that clients we have who have borrowed through the SRF program. Over the years have encountered. We certainly see that our clients like the low cost of borrowing that they are able to secure through SRF loan funding. some of the challenges relate to historically the relatively long and somewhat cumbersome timeframe for the application process. We have a client who recently shared with us that they believe they could construct a specific project that they have in their capital plan between 12 and 24 months sooner if they don't borrow through the SRF program and fund it through revenue bonds on their own rather than pursuing the SRF. So in the context of the existing construction cost environment and inflation that certainly is a meaningful consideration. It's exciting to see that nearly half of the supplemental funding for the SRF program under IIJA is directed to principle forgiveness or grants in contrast alone. So that's that's a very exciting development talking about the application process just to say a little more on that. And I think Emily this ties back to something that you were mentioning about the real directive and desire on the government's the federal government's part to make sure that the processes for accessing these funds is not unduly burdensome. The compliance and reporting requirements are not so difficult to manage that typically underserved and under lower capacity communities are not able to access them. there was a recent interesting Brookings piece on application processes for the I I J A funds and they noted O and B guidance on this topic. But unfortunately that does not apply to states. So the state as you mentioned mark do each have their own SRF program and their own process. So hopefully maybe some of the challenges that folks have faced in pursuing these low cost dollars can be we can give some thought to how that might be a little bit easier and quicker. In addition there are some aspects of the loan terms themselves they don't necessarily always provide the flexibility that borrowers would like to see in terms of prepayment and or they the terms may not mesh well with existing bond and dentures around the country. We've seen some other states we work with lots of these programs and there are states that have longer repayment terms between 35 and 45 years in some cases for certain types of projects and even one state that we work with who takes a sublean position on everything and only requires one times coverage. So I don't expect that we're gonna see that here but there is precedent across the country for more flexibility than what we've typically seen in the SRF program here in California
Mark Capel (
Frank talk to us about sort of the federal fund flow going forward. And as these continue to kind of move out both state and local funds what are the thoughts and concerns that your clients are focused on?
Frank Doyle (
Sure. Thanks mark. When we talk to our clients they're concerns other than some of 'em have already been mentioned up here the slow funding initially. So funding of the federal processes the lack of personnel et cetera seem Alito but most of their concerns are without shocking to anybody inflation they're very concerned about inflation. In some cases inflation in the construction area has been double digits sometimes higher as high as 20% Moodys did an excellent report last month. I think it was where they were talking about how it is so eaten into some of the budgets for local governments. That one entity had to actually dip into the reserve funds to cover some of the inflation costs. There's the supply chain issue which is still out there the one of our most of our customers are very concerned about supply chain disruption still. I mean it's getting better. They'll all say it's getting better but they're taking action to try and diversify their usual sort of vendors going for our national reach if you will et cetera but still it's quite an issue. And then the last and probably the most important low it feeds into the inflation is that their concern is about the construction especially when it comes to hiring not so much companies but the companies that they do hire will have the personality need to do the construction project. In that sense, It was interesting. The what is it the associated general contractors of America review had a survey recently and for California for instance to give you a scale of the problem 86% of the construction companies in California reported that they had open slots 75% of lows companies. So roughly around 60% of the companies if I do my math right said that they're it was very hard for them to fill their slots because for generally two reasons one they're not getting skilled people or two that they're not even the skilled people that they sometimes get or people in general are not passing the drug tests. And So it's really actually sounds like the trucking crisis in some ways but in but that's that so that's a big concern for them. Now the trend line is positive. They think that everybody's telling us that they think in 2023 the inflation rate the supply chain issues the number of construction workers especially as housing may decrease in size through the increase in the federal fund rates and more construction workers go from building homes to doing other things. They think it'll get better but no doubt it will be much more expensive than they anticipated a year ago still. And that's that's their three those are their main concerns how they adjusting to that. There's generally three ways. They're either like those municipalities I mentioned earlier they're either increasing their size of their capital programs. They're canceling non essential CA capital programs or they're drawing them out. So instead of doing it in two or three years they'll take 'em four or five but most of those involve eventually that the cost will increase to the municipality.
Mark Capel (
Yeah well that's one thing I think we all count on in our market is that the projects that we all participate in whatever role we have in municipal bonds is are critical critical infrastructure. So it'll get built it just might cost more and take longer. Right. so before we move on to talk a little bit more about some of the sectors and themes of the act are there any ways this to Sarah are there any ways and activities or ways to track activities and benchmarks to date and how can the audience here ensure that they don't miss out on any of these sort of key activities or programmatic dates what kind of help is out there?
Sarah Hollenbeck (
Great. Thanks mark, So Emily mentioned the really excellent NOFO tracker that G F A has created and we have on the slide the website link for that tool. There are others of those as is noted on this slide as well. there are are some of the federal agencies who have their own trackers also there's something called the local infrastructure hub. the national governor's association has a tool. The national league of cities has a tool national so there are tools like that out there. And those are really wonderful resources. I would say though that rather than driving yourselves crazy looking at websites and trying to comb through them to see what grants are there it really needs to be flipped around on its head. And we really need to emphasize the importance of developing a strategic approach to seeking these dollars and that really starts with planning. It starts with having a prioritized capital project capital improvement program and then identifying what the funding puzzle pieces might look like to get that to the finish line. So it's a matter of mapping it to the available federal state and local sources strategically pursuing those sources that are most appropriate and can be braided and blended which is another theme that will talk about throughout the federal legislation. And that's going to be responsive to the evaluation criteria which as Emily mentioned earlier are heavily focused on equity and sustainability. So that's how we would recommend approaching this is having a whoever your advisor or your team is that sit down with you and work with you on developing a strategic capital improvement plan. That really is focused on identifying the resources you have and the ways they can be put together to maximize not only federal dollars but the projects that you can get accomplished and we'll talk a little bit more about the equity and sustainability piece a little bit later.
Emily Brock (
If I get follow up just a little bit that that excellent point Sarah about the about the strategic approach for jurisdictions. Of course we don't wanna get NOFO FOMO. That's a fact but you have to realize there have been NOFO that have actually closed out already. There are there are closed NOFO. So if you haven't taken a peak at the NOFO yet you're already getting a little bit of FOMO. So take a peak at the trackers think also that each year as a congressional appropriation. So the ones that we've left behind already the ones that maybe you didn't know about as issuers they're gonna come back around there's five year appropriation cycles. And so a good opportunity might be to go ahead and take a peak now at what has been missed over the past couple months and what opportunities may lie in 365 days from now.
Mark Capel (
I think a good example of that. Emily is two programs that really had their their NOFO closed out infra and mega both transportation programs infra is a is a tried and true program. And the transportation space and mega is a new $5 billion program that really touches on some of these large complex multi jurisdictional economic development projects across the country. I think awards are gonna start to be dolled out soon on that but to your point these are five year programs. There's gonna be a chance each year for infra mega raise some of these other programs that we've mentioned. And I think it's just continued vigilance and and diligence and in tracking some of these resources.
Mark Capel (
Yeah. So this is great cuz we now kind of talked about some of the bigger programs and we've talked about kind of the tiiny issues. And so now let's let's talk a little bit about some of the specific programs and areas that will will benefit from the act. And there really is a full spectrum of variety of of infrastructure out there that is named specifically in the act obviously roads and bridges mass transportation system upgrades for airports and rail there's even a network of electric vehicle chargers being being discussed power infrastructure clean energy nuclear broadband development all kinds of other kinds of of specific programs. And so Emily why don't you start and tell us or just talk about any specific sectors that you think are the most interesting and kind of most impactful for the audience?
Emily Brock (
Yeah, when in the development of I I J A remember it went from a $2.2 trillion progressive wishlist from the house down to 550 billion which I guess in grand scheme of things is smaller than $2.2 trillion but when in so doing that was president Biden working with bipartisan senators. So it isn't just infrastructure that has progressive initiatives in it. But now what we can see in that 550 billion package is there is traditional infrastructure. There is roads and bridges and highways and build and infra and all of that stuff. But there's also broadband. I mean ARA actually built out a big backbone in the middle of our country and quickly in the middle of the pandemic we realized Hey children have to stream school and there's not enough broadband to get to the homes. So they're talking about a bead program that would get the middle mile and the last mile into homes so that commerce can happen and learning can happen. They're also talking about sustainability and how can you build back better? Those infrastructure projects that you have not just focusing on actually and Alex mentioned the bridge program the bridge program wants to know first of all what's where are you going from? Where to where but how are you proverbially bridging your community in a more effective way? It's just fascinating the way that these snowfalls are coming out and and the and the descriptions that they want to kind of think about what kind of new infrastructure what kind of innovation what kind of ways can we build out infrastructure that creates a more healthy and sustainable economy?
Mark Capel (
So Alex one of the sectors you're of course focus on professionally and and one that's a target of significant amount of funds is transportation. specifically the fast act which you might have mentioned earlier. Can you talk about that program and any other transportation related programs that that that are on your mind?
Alex Zaman (
Certainly I think it's incredible what the I I J A did accomplish in terms of top line infrastructure funding for a variety of sectors but really inherently this is a crucial tool for transportation issuers across the country because it did in fact reauthorize the fast act which was the prior authorization for federal transportation funding across the country. And and that's a huge win environment where we've frankly seen several dozen short term continuing resolutions for federal transportation funding transportation funding seems to be always kind of at the center of things that don't get accomplished until the very last minute. And even then some sort of takes months and months after the federal fiscal year to to get its a portion and appropriations but this bill does reauthorize existing funding levels for transportation for the next five years and also increases by about 50% funding for vital transportation transit and highway projects as well as some of the other categories that we mentioned. So at its core that this is a major win for the transportation industry. I think a couple of policy related items that we really haven't touched upon. I know we've talked about some of the competitive and formula grant programs but on the policy side of the spectrum TIFIA and RIF are two very popular programs that are issuer clients take advantage of they're designed to obtain low cost flexible federal loans for transportation projects TIFIA is sort of the more active program having secured 35 billion in loans over the past two decades while RIF is also active but more focused on freight and and railroad projects throughout the country. Those have seen significant improvements enhancements throughout the bill here TIFIA and and RIF both now have the option to see their their maturities extended from 35 years to up to 75 years which can be tremendous for some long live assets such as as bridges and roads. The size threshold for two investment grade ratings that have been needed for TIFIA and RIF have been increased from about 75 million to 150 million which is great for some smaller projects. TIFIA and RIF can now be used for transit-oriented development or or T O D which is huge back in 2015 D O T did put out some guidance on using TIFIA for for TD but it really never got off the ground. I I J A actually codifies that and we're gonna I think see some some traction on on TIFIA for T O D for some large scale economic development pro programs in the near future. and then TIFIA is also now available for the airport sector and while it's a bit more limited in scope and breadth that's gonna be an important tool for for airports going forward for various capital plans. One other theme from from the bill kind of touching on transportation but some other sectors as well is just the increase incentive and involvement of the private sector going forward. This bill doubles the private activity bond volume cap for surface transportation and and highway facilities especially for passenger rail from 15 billion to 30 billion that's massive for some of the the very complex rail projects that are out there across the country. and even beyond transportation the private activity on program is now being expanded to things like broadband as well as carbon dioxide capture facilities there's even a new program called CIFIA which is designed to help provide those low cost federal loans for carbon dioxide sequestration and storage modeled off of the very successful TIFIA and RIF programs for transportation and water. So all of those programs will certainly spur more private sector involvement and investment going forward.
Mark Capel (
Okay thank you. Frank I've got a two part question for you. first in your view are there any sectors that you see benefiting kind of more than others and obviously on a relative basis cuz some are just naturally larger in the budget. And then second other than inflation reduction act is this act kind of it for major sort of funding for infrastructure going forward or is there something else floating around out there that you're aware of or thinking about?
Frank Doyle (
Sure mark. So I agree with my colleagues on the board here that I think broadband and transportation have been the big winners. I think that broadband especially has the potential to unleash tremendous economic development in parts of the country that have lacked it for too many decades. But I also think that the third big winner has been especially in conjunction with the inflation reduction act has been the electric utilities. And I was recently talking with a couple treasury CFO types for some of the electric utilities that we deal with. One was actually out here in California and they're very excited especially about the inflation reduction act and the tax credits et cetera. And they think that'll lead them to really embrace actually not so much contracting out for renewable power from entities that do it but maybe even building their own or having other flexibility they're in obviously all the sectors have done well under these bills. But to get to your second question I think this is pretty much it I think especially as we go into election season and for two reasons in the short term I think as we go into election season et cetera I mean I'm not up here to procrastinate about anything per se but I don't think I don't I could say that most of us probably think that we're not gonna get a probably gonna get a divided Congress. That's probably the best way to say it. And I think that'll reduce any incentive to do more of these programs. When you look out beyond the five year range of these programs the federal budget picture looks very dark. They're when you think about the federal budget right now about 80% of the federal budget goes to five items social security Medicare Medicaid which about 60%. Then you have the defense department budget which is almost 20 and then the rest is the other big component is the interest on the debt. By the end of the decade the interest on the debt is gonna overtake. According to OMB is going to overtake the defense department budget. And I think that unless we have another huge productivity improvement sort of like how the internet was under president Clinton given that the steady state growth of what most economists think for the countries every 2% of the year I think that the requirements of these core programs for the government are going to just squeeze even though the defense department budget is discretionary in this great new world of ours of great power competition. I don't see anybody you might have some people want to decrease the defense department budget but I don't think it's gonna happen. I think it's gonna squeeze the rest of the discretionary budget. And I think that means that all the state and local government issuers out here are going to have to rely much more so on their own resources to fund their capital plans whether it's through raising fees or their own taxes or issuing debt. I think debt issuance is gonna climb significantly over the next few years not only in conjunction with the matching grant portion of this but just because they have to I mean we all saw with Jackson Mississippi what happens when you don't upkeep your infrastructure. And I think that is gonna be the big challenge. I think the day of where the federal government was able to spend 50% of all the dollars for infrastructure will never happen again like it was under Eisenhower and the Johnson administrations. So yeah I think that the this is probably the last big Harrah pending any substantial increase in the economy from some productivity improvement.
Mark Capel (
Okay. Well it it's a little dark but it also sounds like a full employment act for the municipal bond community. So that's good.
Alex Zaman (
I just want to add on to some of Frank's comments which I think we're spot on when you look at the transportation and infrastructure space. Well I think we're all very happy that a bill was passed and there was reauthorization. The reality is nine months after that construction inflation expense increases have eroded a lot of the buying power that have been embedded in a lot of those increases. So issuers are starting to be forced to to revisit those capital plans maybe thinking about borrowing sooner to to sort of de de-risk a little bit and also to Frank's point really revisiting other sources of funding long term with transportation the highway trust fund which is the main vehicle for funding is kind of always on the precipice of of insolvency. And while the current funding levels will kind of maintain the the solvency for the near term. Issuers do have to look at other sources of of of matching money whether it's local dollars state dollars user fees. We have a lot of issuer clients starting to analyze road usage charges or VMT based fees congestion pricing things like that. So I think while it's a good first step it's certainly the outlook is is uncertain. And it all kind of goes back to strategic planning as Sarah mentioned for really looking at the entire toolbox and in addition to what the federal government can provide in the interim.
Emily Brock (
And two I think ARPA was an interesting test run at knowing and understanding both the origination of the federal funds and the expiry of the federal funds. So when a local government or say government approaches these federal funds I think to Frank's point an excellent point is that there's a beginning and that there's an end of spend and that the end of spend is marked on your calendar in fact we've had a lot of conversation disputing the word obligation with ARPA so many times with treasury. I couldn't believe it. but the opportunity that presents itself has a window that closes. And so that strategic approach that Sarah mentioned GFA communities are constantly looking at federal funds and saying okay here's the horizon. We have this long to spend it. And that's how long it will take and then move beyond that to our own devices.
Frank Doyle (
And I don't wanna leave too many people with a dark image. Okay. So what I'm looking forward to over the next five to 10 years is actually seeing how the states I'm a big believer in that states are the laboratories of democracy and how the states embrace this new. What I think will be the new normal once all these funds run out and you take again California since we're all located in this great state it's the fifth largest economy in the world. If it was by itself number four is Germany. And when you think about that I mean here in California you're almost 40 million people and Germany is 80 some million people and yet you almost have the size of economy that Germany does only about 90% of it. And probably the next few years we're gonna overtake Germany and become the number four economy in the world. This is a rich state there's a lot of resources available to do things and to fund things. It just takes an innovative and approach to try and figure it all out. And that's when I'm retired I'm looking back in 2030 I look forward to reading in the bond buyer how California among other states have solved some of these problems. I'm just saying that you can't rely on the federal government for it. That's basically my thrust.
Mark Capel (
I don't think anybody disagrees with that. So we've talked about a lot of different things so far and and Sarah mentioned earlier some kind of overriding themes that I guess exist across the spectrum of projects and sectors here. So Sarah you want to you wanna bring it home and talk a little bit about that?
Sarah Hollenbeck (
Sure. I'd be happy to and this will be a little bit of referring back to to comments and points that have been made by other panelists and previously but really I think the three key themes that we see interwoven throughout the I I J A are sustainability or resiliency partnerships which we haven't really talked about but I think it really does tie back to the point that Frank was just making an equity. these three themes are highly interdependent and coming back to the earlier references they really do require a coordinated strategy to blend and braid not only the financing but the outcomes that we want to see in the communities to maximize the impact that they have on on really what we're trying to do is make communities better places and solve problems. The communities that develop a strategic and crosscutting approach may best position themselves. As I mentioned earlier to not only maximize the success in seeking and obtaining federal dollars but also really the impact they're able to make with with these funds specifically with relation to sustainability I I J A really as we said accelerated the adoption of these resiliency practices and sustainable planning. They want to see long-term project planning not just capital funding but looking out in the future at operating costs labor costs and and be sure that the project that's going to be funded can be maintained appropriately and sustained over time. we as you were just men mentioning Emily there's a real fiscal cliff out there when some of these federal dollars expire and folks need to be planning out to and beyond that to be sure that that what they're building is something they can maintain and operate and will continue to make impacts in their community going forward. I'll skip over partnerships for a minute but with regard to equity we already kind of talked about this. It's important to remember that I I J A is being implemented in the context of the Biden administration's justice 40 initiative which targets 40% of the overall benefit of certain federal investments to flow to disadvantaged communities. So again if we may not have guidance on exactly what the scoring criteria are going to be for all of the NOFO yet. but I think we can be sure that that's going to be a theme throughout it really recognizes the history of disinvestment in marginalized communities and provide certain specific programs as Alex mentioned such as the reconnecting communities program to target what the impacts of those disinvests or or investments and the impacts that they've had. And other programs are more broadly just going to allow communities to invest dollars in water sewer other types of infrastructure in communities where when there was more constrained funding unfortunately there's certain neighborhoods that just didn't necessarily receive the investment that others did. It's there's some very interesting work going on around the country in equity mapping and equity atlases. we certainly can provide some examples of those to the folks that might be interested didn't wanna get into too much detail on that in the interest of time here but just the broad point being for competitive funding opportunities we think equity outcomes are going to be an important evaluation criterion. And then finally just coming back to what Frank was talking about about this great state of California having a lot of resources and a history of innovation to solve problems together. And I think this really ties into the emphasis in I Ija on partnerships intergovernmental relationships and cross-sector coordination are really key to implementing this. There are sort of three different types of partnerships that are heavily emphasized I don't know 207 references or something to the word partner or partnership in the I I J A there are public partnerships and this is what I think is very interesting. Regionalism federal state and local. I know certainly in the bay area there's some very exciting regional efforts going on in the realm of housing but also transportation. There's certainly are public private partnerships which we are all familiar with and have been implemented across the country in different contexts and different maybe different varying levels of success. And then public Phila philanthropic partnerships are also something that's talked about a lot in the act. So I think just being collaborative and trying to while it takes time and we've certainly seen this in the context of communities trying to implement for example infrastructure financing districts with a city and a county there are challenges there but building partnerships and reinforcing partnerships that may allow us to find new ways to enhance governmental capacity and outcomes and maybe a way to attract and really enhance the impact of these federal dollars. So I'd like to think that we can be creative about this and come up with new approaches that when we're on our own without the federal dollars will continue to move us forward.
Mark Capel (
Okay. Thank you. So let's go ahead and open it up for questions. Do we have a microphone?
Audience Member 1 (
Hi , I wanted to ask a question about the water sector and the implications of I I J A specifically on the water and wastewater sector. And whether you think that California or Western states in general will benefit in a higher proportion than other states given drought and as you were talking about the increasing kind of partnerships that are developing particularly in Southern California water districts.
Emily Brock (
Well I think that's a great question. So obviously the SRF are generally getting discretionary programs. So, the programs that were originally depended upon are getting funded up but then there's also new programs underneath the SRF spectrum that are also getting funded up from a competitive perspective. EPA has been well not the fastest in make and NOFO I think if you look at it fresh out of the gate transportation took off in true fashion started making NOFO. And now all of a sudden we see some commerce NOFO and EPA has been so deliberate in particular because of what Sarah mentioned the justice 40 initiative but more importantly build America by America has a significant impact on procurement and relevance in water systems and water systems. Build out your question though go into sort of the fundamental question. Hey look we have more drought than Virginia here is it possible that Californians may take priority? I do know that I don't know what will take priority. Nobody knows what will take priority until we see the NOFO come out. But I do know that while drought plays a significant role in the inflation reduction act it wasn't quite mentioned as much in I I J A rather we saw more references to lead pipe remediation efforts and other things like that. So it's like the federal policy kind of was lagging just a couple months behind in each generation of each one of these stimuluses but I do think there will be drought remediation that will be specifically addressed in the inflation reduction act NOFO as they start to come out. I mean that's my guess. I'm not sure if the rest of the panelists have any thoughts.
Alex Zaman (
I would just add that. I agree with all of Emily's points. I think we we did start to see some other director indirect funding provisions in the inflation reduction act not not only for sort of clean energy which was the top line headline issue in addition to some other family and and social objectives but for drought I think there was a couple billion 4 or 5 billion dedicated to drought efforts in the west. I think there was another $20 billion program for sustainable agriculture which I think indirectly sort of affects reduction of greenhouse gas emissions sustainable farming and and sort of water provision and sustainability going forward. So I think taking together there is increased funding. It's certainly not enough but I think over time we'll start to see how those dollars ultimately roll out between the two pieces of legislation.
Frank Doyle (
And I'll just also add that I know the bureau of reclamation is laser focused on the situation with lake Powell lake Mead et cetera. And I'm sure that over the next few years it will probably given the amount of the population of the country that's impacted by what goes on with that river system. I'm sure more funds will be directed that way.
Mark Capel (
All right. Any other questions?
Emily Brock (
Voluntary information here on Babs because it was it was discussed on the last panel and obviously a very important issue for issuers in the in the state of California. And this is a little off topic but I did want to mention that the PayGo waiver that implies that there will be a loss of funding for subsidy payments from the federal government is currently not waived. We need for it to be waived in order for Bab subsidy payments to be paid. We are also a small dog in this fight. There's also Medicaid payments that are part of this federal funding scheme. There are huge payments involved in the PayGo waiver efforts. And so what we're doing right now is we're currently waiting for the the house budget committee to act to sign that PayGo waiver just as an offer of context. Every two years Pego has to be waived even after the 2017 tax Act PayGo had to be waived. And we have seen consistent efforts to make sure that the federal government doesn't shut down and that PayGo is waived. So we feel confident. We feel we feel very confident that this is something that will happen and that we will make sure that the issuer community and the whole entire municipal bond community understands the political reality of that passage by December. the last thing I would say is Bab subsidy payments that are owed in January will very likely be covered by the congressional budget. So if you do expect for a Bab subsidy payment in January there is no need to panic right now you will receive that even if there is some delay in waving PayGo. So that's where we are right now. We're continuing to make sure we maintain. We're feeling very very very confident indeed Derek and we will keep you all updated as that happens in Congress.
Mark Capel (
Thank you. so we've got about a minute minute left. I'm gonna ask one more question of all the panelists starting with Alex. so does the house flip does the Senate flip or do they both flip
Alex Zaman (
Not a betting man but I'm gonna say one one of them flips. I'm not sure which
Sarah Hollenbeck (
I will not put your prognosticate.
Frank Doyle (
I love it. I think the house will flip for sure. I think the it's 50 50 on the Senate.
Emily Brock (
I don't know if I'm as a hundred percent on the house actually I'm starting to sort of read a lot of the the sort of general sentiments from actions in the Supreme court and how that may actually impact those Republican houses. so we've got some some some watch and in November I always love that stuff. So happy like Frank to always chat about it.
Mark Capel (
I'll thank you everyone. please join me in thanking the panelist for today's session.