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Speaker 1 (
Great. Thank you very much. I hope everyone had a chance to get lunch and has found a seat. I have the honor of introducing today the honorable Henry Cisneros. He has one of the longest sets of accomplishments and biographies that I've read. And I'm not gonna read the whole thing to you today. otherwise you won't be able to hear from him but he is currently the vice chairman of the board of directors and equity owner of Shank Williams Cisneros. And he's a principal of Siebert Williams Shank and he's also chairman of American Triple I, an infrastructure investment firm. He is the founder of Cityview which is a partner in building more than a hundred communities in 13 states and building more than 7000 homes totaling over 5 billion. He's had an incredibly accomplished career starting out as a council city council member and then mayor of the city of San Antonio. He was the first Hispanic American mayor in a major city. He was named in 1986 he was named outstanding mayor in the nation by city and state magazine in 1992. He was appointed by president Clinton to be a secretary of the us department of housing and urban development and then he's held a number of positions since then. while we were eating lunch I did have the opportunity to ask him a little bit about the work he's doing now. And he described it well to me. He said you know for our purposes it's really the intersection of public finance at Seabra Cisero shank and infrastructure at American triple I. and so I think he's incredibly he will be insightful for us here as we think about the infrastructure investments that meet need to be made in our country. And we've talked a lot about housing where he's clearly an expert. I did have the opportunity to ask him in terms of he's held all these incredible jobs. And I asked him what his favorite position was and what his his greatest accomplishment. And he said it was really serving as mayor. And he said as mayor it was a job where he could get things done. He knew where to where to go where to get things accomplished. And he said it sounded like that was where you really had the opportunity to have an impact. So secretary Ciseneos thank you.
Henry Cisneros (
Thank you so much for a very very kind introduction and thank you to the bond buyer for the invitation to be here. In fact congratulations to the bond buyer for putting on this full fledged scale conference. The first of its kind in three years since the pandemic and it's obvious that a lot of good exchanges have occurred here the program has been strong. I've I've seen the folks networking and and seeing old friends there's something to be said a lot to be said for gathering in this way. And we've been through an incredible experience. It's no question that almost every institution in our country has been touched some in ways that we don't even know yet by the pandemic. But the concept of getting people together to talk about their business set their calibrate their goals going forward exchange information is so important. And it's great to see everybody present. Congratulations to you as attendees who participated in keeping capital flowing for essential public projects over the last three years. My remarks today are intended to be a sort of an assessment of where we've come over that period. And some thoughts about public finance going forward your participants in one of the world's most unique financing systems the American system of municipal bond and public finance. It's a structure that I have seen work firsthand as mayor of San Antonio. We were able to build a tunnel under the San Antonio river in order to keep the to create the the constant level of the of the river walk complete a nuclear power plant double the size of the convention center add a terminal at the airport build a 65000 seat dome stadium and participate in the double decking of the freeway system around the downtown. Every one of those projects required extensive public financing. And it was an introduction for me to the process. As secretary of HUD I traveled to 200 different American cities in every one of the 50 states and saw the importance of municipal facilities for our national economy. So it was very clear to me that America is a metropolitan nation and our economy is a metropolitan based economy. And it depends so heavily on facilities that are provided by public finance. In my more recent years as vice chairman of Seabert Williams shank I've watched municipal capital and its role in building the country in trillions of dollars of transactions. And as chair of American triple I am involved presently in a P three system that will add a terminal out of the present terminal six and seven a new terminal for jet blue at JFK airport. So I've observed the intersection of public finance and the broader challenges of American infrastructure and carefully studied their respective roles at this juncture in America's progress today I wanna share some thoughts with you perhaps some conclusions about public finance in this time of unprecedented public investment in infrastructure. Unfortunately we stand at a point where the American society of civil engineering grades our national infrastructure as a C minus and that is scant comfort. When last year the great grade was a D plus and it's interesting to see the way they have assigned those grades aviation because of our age aging terminals and inadequate cargo capacity gets a D plus from the American council on civil engineering our dams and their dangerous flooding potential earns a D drinking water with a hundred year old water systems. And some of the toxic issues we've seen gets a C minus energy with over reliance on fossil fuels a C minus inland waterways with ports damaged by along rivers by flood waters from extreme storms gets a D plus our roads with issues of congestion and deterioration and bridges that are in in deteriorated in dangerous condition earn a D school buildings that are a hundred years old earn a D plus from the council transit systems with internal combustion engines polluting cities and causing all kinds of ozone issues get a D and our waste water systems under the pressure from growth in many parts of the country a D plus not a good report card but these issues have brought implications for the country as a whole.
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They're not just some abstract grade given by a public interest body a nation's infrastructure drives its economic competitiveness and growth. And for the us as a metropolitan nation when we see some of the shortfalls in infrastructure in our major metropolitan areas it results in things like crowding of ships at the port of Los of long beach and Los Angeles or delays caused by inadequate broadband reach and slow of broadband activity and congestion on our roadways that slows productivity of goods. Chicago had an immense problem a few years ago in just getting rail across the city on its antiquated antiquated rail system. It took longer to cross Chicago than to get from the west coast to Chicago because of delays in the rail system. There infrastructure also creates jobs and is the transition to better paying jobs in our country. Our country is constantly transitioning in terms of the kinds of jobs we rely on and infrastructure provides a steady bridge to good jobs. It also is characterized by technological modernization. The infrastructure changes that we're seeing today tell me that the next iteration of infrastructure is not going to be just more of the same not just more roadways with more capacity for example or more fossil fuel plants but different. It's going to be roads that have sensors built into them because the technology allows that now for traffic management it's going to be fossil fuel plants replaced by renewable energy and many other forms of applications of technology and our infrastructure boosts our sense of national identity national pride. If you will from a sense of decline as we see deteriorated structures all around us to state of the art systems and infrastructure has national security implications as trade and economic competitiveness become such a part of economic security calculations. Well it was against this backdrop of serious shortfalls serious oversights in our infrastructure spending that the infrastructure investment and innovation act was signed into law in November of 2021 a 1.2 trillion initiative in total if you include the authorized programs from before being extended but 550 billion of that in new spending not in previously authorized measures that came to 375 programs in the bill 125 of them 25 of them are completely new programs. And I can tell you from my time at HUD that starting up a new initiative in a cabinet office is a hard thing to do. This administration is starting up 125 new programs to match the new requirements of infrastructure. It's a very impressive thing. And my view is from having seen these early months that they're working very hard at places like the department of transportation and energy to push out new programs on a speedy timetable in August of this year just last month the inflation reduction act was passed and it included 386 billion of energy related upgrades. So as I focus on the implications of these two massively important pieces of legislation for the interaction of infrastructure and and bond transactions I want to cite a research report by Hilltop securities that labeled these laws as well as the pandemic related American rescue plan as creating what Hilltop called the golden age of public finance. How can that be the golden age of public finance? Well I wanna try to explain that confluence of realities but permit me for just a quick aside to set some context in the pandemic related measures because they play a role in setting the context for where we are today. Try to remember that moment in February and March of 2020 when we were first learning about the pandemic and then could grasp the significance of what it would mean for the country. A series of measures were passed to deal with the crises as they came up on March 6th 2020 the Congress passed and the administration signed a bill that dealt with principally medical supplies and research toward the vaccine on March 18th a bill for testing and the first of paid leave nine days later an unemployment and economic security program huge $2.7 trillion which enabled people to have money to put food on the table when they were not at work on April 24th just a month later was the paycheck protection act which made it possible for small businesses to stay open. And that was incredibly important in many many places across the country that was $733 billion. And on December 27th at the end of 2020 the vaccine distribution became possible. And that was $910 billion. The final one of these was on March 11th 2021 just after the new administration came into office. And that was the American rescue plan which dealt with an element that had not been thought of before which was the deficits in state and local governments. And it saved many estate and local government on the whole that was $6.4 trillion of public money to offset the pandemic. And I would say it was very very necessary and frankly saved the country Hilltop reports. The Hilltop report that I made mention of asserts that the American rescue plan alone that was $650 billion to finance public sector entities had a positive effect for public finance. It kept local governments fiscally in business including their debt capabilities exceedingly important in the way that it supported the credit quality of local governments. So just by way of context before we ever get to the infrastructure act or the inflation reduction act there's been two there's been $6.4 trillion of money to support the public sector over the course of the last three years. Now let's return to the infrastructure investment and jobs act. The largest of its kind ever passed signed in November of 2021. It had major sections which we will recognize they're the sections that deal with the things that I was describing earlier as getting such low grades roads and bridges passenger and freight rail public transit airports ports and waterways broadband water infrastructure power and the grid and EV charging networks over five to 10 years $550 billion worth of new spending. And 1.2 trillion. When you look at previously authorized laws extended and provided additional funding. In addition the act extended the authority of the highway trust fund and its expenditures and highway related taxes. All in all as I said earlier 375 programs of which 125 were completely new. Also it included some bond specific authorizations increases in the current cap for highway air for surface freight facility bonds of 500 million private activity bonds for broadband in rural areas of 600 million and private activity bonds for carbon capture and direct air capture of 266 million. The bottom line four bonds according to multiple analysis that while most of the infrastructure act is in grants these will be largely supplemental supplements to tax exempt finance issuances not replacing them. I know there are people who were worried at the time that this would somehow displace public finance but the analysis since then show this supplemental. This in addition to what is being done and not replacing public finance overall the funding is additive not displacing tax exempt and taxable municipal market financing over the years.
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So when the description is of a golden moment for public finance this the basis for that kind of analysis. Also just as a footnote when the pay force are calculated to the infrastructure act it adds only modestly to deficits over a 10 year budget horizon because most of the expenditures have some sort of pay for attached to them. So it's not likely to be a contributor to the deficit in and of itself. So we can conclude the following about the interaction of the infrastructure expenditures under the infrastructure act and the public finance implications. First with respect to the macro picture it seems that capital needed to complete projects to complete the scale of infrastructure projects we confront is not covered by the federal infrastructure grants alone in the aggregate that American society for civil engineering report that I described calculates a 2.59 trillion deficit in our infrastructure. We get that C minus grade to get it up to a B would require $2.6 trillion. The infrastructure act included at its best analysis 1.2 trillion. So we have covered by the infrastructure as less than half of what needs to be done in the country in infrastructure. So that's the big picture effect at a smaller level at a micro level cities that do not get the grants are not gonna get out of the game. They're gonna compete themselves by finding funding. And usually that will mean public debt. So that infrastructure those those grants are only gonna go so far. They're not gonna cover the massive needs that exist. And it's in the competitive nature of cities and mayors to continue to try to build the roads the facilities the public facilities the ports the airport improvements that they need. And hence there will be a continuing need for robust public financing. In addition at a micro level there would be projects that cannot be completed with the federal money that is available. That is to say it will require a match or it will just not go enough far enough to complete the project. So whether you're talking at the city level or at the project level there will be a need for robust public finance going forward. That rule require you the industry to be involved in spade work at the local level. There's no other way to do it. So, so far what I've been talking about is the infrastructure act that was passed in November of 2021. Let me say a word about the inflation reduction act which passed last month. It included some important healthcare initiatives. It included some deficit reduction but perhaps the most important piece of it was the allocations to infrastructure related in energy. They passed a clean air tax credit air pollution and hazardous materials clean energy incentives clean manufacturing tax credits clean vehicle and fuel tax credits building efficiency funds and power transmission funds a total of 386 billion more for energy related clean energy initiatives. The assessment of the Hilltop report and others is that energy and climate related items are going to be positive for public finance particularly for public finance entities concerned with climate change and more and more across the country communities are understanding at the state and local level that they need to be involved in addressing climate issues whether it's flooding extreme storms ocean sea level rise extreme heat drought or other considerations it's going to be on the table at the local level and it will require public finance. Now there's been one concern. I'll just say as an aside with respect to the inflation act the inflation reduction act and that is that the 15% corporate minimum tax would somehow because of the tax status of particular companies make them less likely to need tax exempt bonds. But that 15% only affected about 150 companies. The way it worked out 75 of them were manufacturers and 75 were holding companies with trade tax issues only about 150 companies. So it's negligible. It will not have an effect although the industry needs to be attentive to make sure that that framework is not extended at some future point but it's not expected at this time. Okay. Let me cut to the point of this address. If there is a golden age of public finance as the report that I cited states then it will be because we're entering a golden age of infrastructure modernization. These things are inseparable. These are realities that are greatly interwoven. Follow my logic. First there's a new awareness in the country of the need to modernize our infrastructure that is clear it's unavoidable. Second the awareness created the politics that made the infrastructure act and these other measures possible. These are things that nobody said could be done. They they passed with some bipartisan support because the need is so clear. Thirdly the effect underway is massive, massive investment and infrastructure. Some to upgrade existing overburdened and obsolete infrastructure like congested roads and deteriorated bridges. Everybody knows that needs to be done. Some to build completely new technologies like broadband and EV charging government wants to put in place 500000 EV charging stations. The industry says by 2035 when the American manufacturers will stop making internal combustion cars that that needs to be 2 million EV charging stations. So we gotta get from 500000 that'll be funded with federal funding to 1.5 million more charging stations in order for the economy to work because there's enough charging stations for electric vehicles. And some of the infrastructure will have elements of both like upgrading power distribution to meet higher demand. It's inadequate today but doing it with renewed a renewable energy with solar and wind and other advanced technologies so forth the result is a massive dynamic. That's been set in motion and there is not enough federal funding to cover those vast needs the upgrading of the obsolete and the building of new technologies. So fifth some funding may come from private capital like public private public private partnerships but the greatest source of funding will be public finance. Some of that public finance will be an integral part of a strategic plan of the city or state level looking at their capital leads and saying we're going to need more public financing. I just encountered an experience in my hometown San Antonio which is in bear county where the bear county hospital system as a result of what they learned in the pandemic. This almost like a perfect example of what I'm trying to convey here during the pandemic they they concluded that it simply is not viable to bring every sick person who needed pandemic care coronavirus care into one of the into the one megalith of a public hospital. And so they're going to a strategy of regional facilities in different parts of the county. They have $500 million on hand to start the program but this week they went out and Seabert Williams. Shank was able to to underwrite $300 million more so they can start the first of those regional hospitals a perfect example of a place that's saying as a plan we see a new era a new need we've woken up. And and our experience tells us we're gonna have to approach one of our basic services in a different way in a regionalized way. And we have a capital plan to carry it out but it includes public finance. So you're gonna see that over and over again and it's not just the pandemic and hospitals but it's all of these other things that I've been describing where the technology requires completely new levels of investment. That's the one case the strategic plan the other the other instance that you'll find that public finance will be necessary for specific projects that cannot be completed without a local match. Many of the federal funds require a local match. And in other cases you'll see a city start down the road towards some massive project but just not have the funds in the federal funding to get to the completion of costs particularly with cost going up on some of these projects as a result public finance will be required. There will be a debt component. Even the project that I described to you a moment ago that American triple Is involved in at JFK has a capital stack. That includes a debt component. So let me just conclude here by saying it is presumptuous of me to propose directions for the public finance leaders in this audience but that is the action end of the address I was asked to deliver. So let me share with you some conclusions first you leaders in public finance will have to recognize that we are in a new time. Some of the old structures and ways of of older ways of doing business will give way to new concepts. Second you'll have to learn the language the technologies the science of the innovations that require public capital. We're gonna spend we're gonna be allocating public capital for things that you've never heard of before carbon sequestration hydrogen fuels broadband autonomous vehicles transit with artificial intelligence interactive grids telemedicine remote education resilience projects climate adaptations. All of these are the new language of what cities and states are dealing with. And experts in public finance will have to be expert in those concepts. Third you will not be able to wait for the issuers for the usual processes of issuers but act upon your own knowledge and creativity and preparedness. And that means advancing different approaches to fiscal structures not just traditional bonds but private activity structures and many many other combinations working in concert with with the FAS for addressing some of these new technologies and new opportunities. Next you'll need to relate to the ESG priorities of a new generation of decision makers all across the country. There are a new generation of younger decision makers who come to positions of responsibility with a different experience. Some of them are of diverse ethnic backgrounds. Some of them have come from different kinds of income settings but they believe that it is the role of state and local authorities to address some of these bigger questions. And they're gonna be looking for ways to do it and public financial have to relate to their initiatives. So in closing let me go back to the Hilltop assertion that I began my remarks with is this indeed a golden age of public finance my answer. Yes. And it is for those in this room who believe it and those in this room who choose to make it. So it is there to be done. Thank you very much for allowing me to come over and share some thoughts with you.