Infrastructure: The Macro View

With the $550 billion investment in infrastructure signed into law, it will have a huge impact on America’s transportation and information networks over the next five years. Turbo-charging the municipal finance market to keep the transformation going? That’s a longer haul. Our panelists will discuss how the market can integrate the infrastructure dollars to bolster the broader municipal industry.

Transcription:

00:00:08:26 - 00:00:38:09
Peter Keating

Thank you all for coming out. I appreciate everybody's time. We have a group of panelists so eminent I myself may apply for CPE credit at the end of this. Wow. One laugh. Wow. Look at old Johnny Carson, is the mic on?. We have John Markowitz, the assistant treasurer for North America at Transurban. We have Patrick McCoy, director of finance at the Metropolitan Transit Authority here in New York.

00:00:38:27 - 00:01:02:20
Peter Keating

And we have Emily Swenson Brock, director of the Federal Liaison Center at the Government Finance Officers Association. And we're going to talk about the big picture of infrastructure, which bond by the bond buyer began covering as its own beat this year because we felt infrastructure was having a moment when we introduced a series that I wrote, we wrote that Infrastructure Week has finally arrived, and it's going to be here for at least the next five years.

00:01:03:22 - 00:01:37:01
Peter Keating

The infrastructure investment and Jobs Act promises not just to pump a once in multiple generations infusion of federal cash into this sector, but also possibly to rewrite public priorities and spur new financing of projects. So our series looked at changes this infrastructure moment could bring to markets and landscapes across the nation. I wonder we'll start with the big picture first by asking our panelists how big a deal is the federal action we've seen since 2021?

00:01:37:01 - 00:02:02:21
Peter Keating

The IIJA was $550 billion over five years. Huge big projects that everybody around the country has been talking about in some cases for decades finally seem on the docket for progress. On the other hand, the bill has no specifically dedicated financing beyond five years. In fact, no additional taxes or dedicated revenues at all, even for the next five years.

00:02:03:16 - 00:02:37:13
Peter Keating

It's basically enough to fill the gap between where infrastructure funding would be had it stayed at 2010 levels and now for five years. And even since it passed, we've seen war, we've seen inflation, we've seen an already changing political environment. So I guess my first question we'll go to Pat first is this tranche of money coming on top of the American rescue plan enough to see the visibly big changes in infrastructure that have been bandied about in public discussion over the past few months?

00:02:37:25 - 00:02:38:04
Peter Keating

Sure.

00:02:38:22 - 00:03:23:11
Pat McCoy

Well, you know, I think the answer is yes. I think this is going to be a transformative round of investment nationally coming out of the IIJA. You know, we at the MTA are anticipating about 10.5 billion and increased formula funding over the five year period starting this year. We think that's real money. That's it. And when you put that in the context of the MTA's, you know, $51 billion capital program for transit and commuter services in this region, that is meaningful investment that will enable us to, you know, essentially have lower, you know, debt service requirements for the what we would otherwise bond finance to the degree that the IIJA money could come in and supplant

00:03:23:20 - 00:03:39:13
Pat McCoy

some of the local borrowing. So what you're not going to see these projects you know you know, you're not going to see ribbon cuttings for a while these things take time. But absolutely, I think there's going to be a transformative round of investment that's needed across the country.

00:03:39:22 - 00:03:59:00
Peter Keating

You just used the word supplant. Do you envision that the MTA will use most of the money coming from the federal bills to supplement or to add on to and bolt on to funding that's already in place for projects or to extend those projects out over a longer period of time. How's that money? How's that money going to be used?

00:03:59:07 - 00:04:17:14
Pat McCoy

So we're still going through an analysis internally on how we're going to do it so we don't have specific plans that we can release publicly. But I think, you know, as I said, supplant is one of the sort of the first ideas that comes to mind. Which is we've got an ambitious historically the largest capital program we've ever entered into.

00:04:18:14 - 00:04:37:14
Pat McCoy

And so to the degree that we can borrow a little bit less, you know, that that's just going to take a little bit of pressure off of our pledged revenues that support our debt. And. But again, those details will come out in time. As we, you know, prioritize what projects we want to, you know, identify for the funding.

00:04:37:29 - 00:04:42:00
Peter Keating

Emily, is that fit with what you're hearing from major issuers? Around the country?

00:04:42:24 - 00:05:08:10
Emily Brock

Yeah. I mean, major issuers, I think, are looking at the $550 billion and thinking to themselves, okay, well, of course a portion of it is a formula, the funding boost. So that's an important element. We're still, of course, waiting on Congress to act on fleshing up those formula funds but I think that what they're looking at is the potential for competitive grants there potential for being eligible.

00:05:08:21 - 00:05:43:01
Emily Brock

You know, but I want to make sure to emphasize I can, if it says this quite enough, is that the American Rescue Plan Act, it really was sort of the last blink that happened in Congress was $350 billion. And of course an eligible spending expenditure of the American rescue plan is in water, sewer and broadband infrastructure. And when we surveyed GFOA members at the end of 2021 we kind of asked them, we said well what are you going to spend it on?

00:05:43:01 - 00:06:12:23
Emily Brock

And I think that there's a lot of people kind of waiting to see what people spend American rescue plan dollars on. And a significant majority of GFOA members were saying we're going to, we're going to use it for infrastructure. And so that's cash that comes from the government. That comes from the federal government. That would allow for them to plan to displace maybe the cap, maybe capital improvement bottom bonds or maybe kind of insert that funding into an otherwise financed project.

00:06:13:09 - 00:06:24:16
Emily Brock

And I think that that's going to have sort of a derivative effect on how issuers are planning infrastructure leading up to the IIJA.

00:06:24:26 - 00:06:54:27
John Markowitz

Sure. Yeah. Great to be here. Good morning. So my firm is a global toll road owner and operator operating in the public private partnership space. So when we look at this infrastructure bill, you know, a lot of positives, certainly, you know, expanding eligibility for TIFIA,  elongating the loan terms. There's a real positives. I feel like TIFIA great federal loan program that spurs a lot of both private and public investment in infrastructure, certainly like the expansion of private activity bonds from 15 billion to $30 billion.

00:06:55:15 - 00:07:22:01
John Markowitz

You know, my company takes great advantage of that and that helps us invest a lot of our equity into infrastructure projects across North America. I think, you know, the user fee vehicle miles traveled pilot is a good step in the right direction. My personal opinion is that user fees and dynamically priced infrastructure is really one of the most efficient ways to pay for infrastructure to the point of a long-term funding source.

00:07:22:10 - 00:07:31:26
John Markowitz

You know, you pay for what you use when you use it. And so I think that might be a little bit of a miss with the infrastructure bill. And I hope that that's something you know we keep looking at with this pilot.

00:07:32:15 - 00:07:55:18
Peter Keating

Well, let's, let's talk about that. Let's talk about what it might spur beyond the direct funding of programs. Obviously, there are issuers all over the country who have been pressured by health care costs, pension obligations, and could really just use some money to just to get in better shape get, get these problems off their chests at the same time.

00:07:55:29 - 00:08:21:27
Peter Keating

Nobody wants to leave a bridge half built or a broadband network half connected. not all of these projects that cities and towns have lined up are going to be done in five years. Is this money going to spur new muni issuance? I talked to Tom Kozlik of  Hilltop securities and he rather dramatically wrote that we're in for an age or I should say a golden era of municipal finance because of largely because of these two huge tranches of federal money.

00:08:22:18 - 00:08:30:22
Peter Keating

That was a while ago. So we won't hold him to whether he believes that or not now. But do you see. Emily, we'll start with you. Do you see that coming down the pike?

00:08:32:05 - 00:08:59:01
Emily Brock

So yes and no. And I think to some degree, it's not going to be less. It's not going to be less issuance than it has been. But but here's why. Potentially, it could spur more. A lot of the grants a lot, of course, the formula funding. Put that aside. That is that is formula funding. That is plan that is otherwise left up for the states and has dedicated use.

00:08:59:11 - 00:09:31:19
Emily Brock

Then there is these competitive grants. And the competitive grants are not sort of shrouded in mystery. I mean, we have an idea of what they might look like. We know that the administration is very interested in elements of equity, elements of sustainability, and of course, they're interested in partnerships. So so we know that those three elements that maybe are legacy effects of the American families plan and the American Jobs Plan, which kind of roll into the potential for competitive grants.

00:09:31:27 - 00:09:55:14
Emily Brock

Now, do we think that there will be opportunities for issuers who maybe are moderate issuers or maybe high frequency issuers to displace some of that with some of the competitive funds? I mean, sure. I live in Alexandria, Virginia, and right down the street from me is an Amtrak station, we know that there will be railroad competitive grants that will be coming out of the IIJA.

00:09:55:28 - 00:10:26:28
Emily Brock

Does that mean Alexandria is going to maybe improve the intersection or improve the sidewalks in order to build up the infrastructure around the otherwise planned federal funds? That would be an element of the IIJA I don't see why not. I think that probably communities will be prepping for that to make sure that those federal effects, the effects of the IIJA competitive grants then have sort of a derivative good effect for their own communities around the country.

00:10:26:28 - 00:10:40:04
Emily Brock

So it's possible we may see some marginal new issuances that would go to enhance what IIJA is doing otherwise in their community, but otherwise we don't think it's going to displace issuance in the market.

00:10:41:10 - 00:10:42:04
Peter Keating

Does that sound right to you?

00:10:44:02 - 00:11:06:17
John Markowitz

Well, so I think I generally agree with Emily. To me, you know, one of the maybe perhaps more important things is are the issuers and governments ready to take all this cash properly, allocate it properly, track it. I know I worked I worked in the government and I know a lot of government issuers running on outdated IT systems, financial reporting systems.

00:11:06:17 - 00:11:24:01
John Markowitz

And so, you know, to make sure this money isn't just thrown at these governments, that there is a process to to track it and to properly use it. So we don't have a lot of projects that are half built or a lot of cost overruns. So, you know, personally, it'd be great to see some of this money go towards modernizing financial reporting systems, ERP systems I.T. infrastructure.

00:11:24:07 - 00:11:25:18
John Markowitz

To me, that's that's pretty important.

00:11:26:24 - 00:12:06:07
Pat McCoy

You know, I think from our perspective at the MTA, we are a large frequent issuer over the past two years, we've issued just under 20 billion in bonds either through not just new money, but also just keeping our portfolio active in the very space in our own space. So all this additional money is going to be, you know, additive and helpful, you know, even to the degree that we might move some bonding off the table to make room for the 
iija money, you're not going to see that move the needle in terms of our overall investment portfolio.

00:12:06:16 - 00:12:26:07
Pat McCoy

And in terms of just keeping our assets in good shape. So I think I think as Emily said you're going to see some changes maybe at the margins. But, you know, as Angela pointed out in the last panel, you know, her firm's estimating about a 400 and I want to say 40 billion. I think that was the number I heard Angela compared to where we were the prior year at about 480.

00:12:26:14 - 00:12:57:22
Pat McCoy

So to me that that feels like the muni industry is healthy and strong. The issuer community is going to continue to be active in the market. All this additional money is going to accrue to the benefit of the taxpayer, the users of our, of our, of our jurisdictions. And, you know, I think, you know, from a from a just a pure bond market perspective, I think, you know, investors and market participants can continue to assume that there's going to that this activity, this investment activity is going to continue on the on behalf of the issuer community.

00:12:57:24 - 00:13:20:28
Peter Keating

Did you have a personal aha. Or here it's really here moment. MTA's been dealing with different entities promising and withdrawing promises for funding for a long time. This is a lot of money to be coming through the door. Finally, I've ridden on trains many times. Sure. When the lights go out, the passengers begin chanting certain things about our governor in New Jersey.

00:13:22:10 - 00:13:28:01
Peter Keating

With these changes, I mean, what was it like to actually hear that this is actually going to happen, fail?

00:13:28:10 - 00:13:53:25
Pat McCoy

Well, look, I think, you know, as I said, we're we're in the midst of a really our largest five year capital program ever. You know, when we add bridges and tunnels and we're just under 55 billion over the five year period from 2020 to 2024. So if there's an aha moment in this, it just reinforces the fact that our partners at the federal government understand the needs.

00:13:54:02 - 00:14:25:16
Pat McCoy

They want to do something to help to kind of spark additional investment at the local level. In the case of the MTA, our partners, our governmental partners, the City of New York and the State of New York have been really in good times and bad. They have been there to support us. And, you know, I think about different crises we've encountered over the years whether it's nine 11, you know, if the financial crisis, you know, Hurricane Sandy, which, you know, came up the coast, it wasn't even a hurricane, was a superstorm at that point.

00:14:25:24 - 00:14:42:04
Pat McCoy

It cost $5 billion in damage to our system. So we've and again, the state of New York, the city of New York have been there to support us throughout. So I think you know, having a strong federal hand in our investment profile is just going to enhance what we're able to do.

00:14:42:29 - 00:15:08:10
Peter Keating

John, you mentioned TIFIA. And before we move on from the subject of what this might spur in terms of leverage and partnerships, I just want to talk about that a little. In our series, we covered what Sound Transit, which is the agency covering the Seattle metropolitan area, has been able to do through TIFIA partnerships, which is basically build a net zero emissions, really customer demand driven outstanding network of transportation.

00:15:08:19 - 00:15:28:05
Peter Keating

They're the country's leading client or partner with TIFIA, which I came away from talking with them, feeling like maybe TIFIA is an underutilized opportunity for many other issuers. Talk a little bit about what it's like to work through TIFIA and what opportunities might be issuers might be able to seize there. Sure. Well.

00:15:28:18 - 00:15:50:24
John Markowitz

You know, the Build America Bureau has done a great job in being a patient lender. And certainly the cost of funds I mean, you can borrow at Treasury rates for, you know, 30 or 40 years now under the new bill and maybe 50 years. So it is very attractive from a cost of funds perspective. Certainly is as they've progressed and done more to fill loans that the Bureau has gotten more sophisticated.

00:15:50:24 - 00:16:21:07
John Markowitz

So I think some of the negotiations back and forth between borrowers and TiFIA has gotten, you know, it's gotten longer and I think kudos to TIFIA for that. But so I think it's a good a good tool. I have seen some issuers lately moving away from TIFIA here because taxable tax systems are so close in terms of spreads that some of the burdensome requirements in terms of reporting and senior lien priority, things like that, maybe not worth it for some issuers, but I think it's a great tool that you can't point to in every other country.

00:16:21:07 - 00:16:22:23
John Markowitz

So I give kudos to the Bureau.

00:16:23:15 - 00:16:39:05
Peter Keating

Now build back Better was supposed to come after the rescue plan and after the bipartisan jobs bill. Emily, I've heard you refer to it now as Bill back never what would have.

00:16:39:07 - 00:16:41:00
Emily Brock

My glass is half full, Peter.

00:16:42:08 - 00:17:03:20
Peter Keating

What do you think will come next? And what do you what are what are your folks saying is still most essential that hasn't passed yet that needs to be in there because I mean, we all know everything that was a little bit controversial got rolled in to build back better. On the expectation that it would be next and now it's anybody's guess what's going to happen.

00:17:04:10 - 00:17:30:02
Emily Brock

Yeah. I mean, I think if we just sort of take a step back in time to, you know, middle of 2021. I remember President Biden had a group of bipartisan senators at the White House and boy, do I remember those photo ops there was backslapping and everybody was shaking hands. Everybody was having a great time. The IIJA was something that incorporated elements of the American Families Plan and the American jobs plan.

00:17:30:11 - 00:17:59:25
Emily Brock

Senator Sinema, Senator Manchin, two very important people were there to say, we've reached a deal and you could probably feel Nancy Pelosi kind of shaking in her office, not invited into that space, thinking All right. Well, we're going to get ours. So, yes, the Senate does have this plan for the for the IIJA, but we need to incorporate elements of HR2 in that that that is sort of the more progressive elements.

00:17:59:25 - 00:18:26:28
Emily Brock

And those are the elements that involve climate. Those are things that were especially important for Speaker Pelosi and all of the leadership of the House. Now, of course, at the end of the day, at the end of 2021, we started to see or hear that conversation about, well, IIJA and build back better are going to be paired together and everything will move smoothly through until.

00:18:27:08 - 00:18:52:25
Emily Brock

Of course it didn't. And so you know there was sort of the promise of passing IIJA this $560 billion and then kind of looking very soon after to $1.2 trillion, which would be the build back better element. Now, I think the most important part of Build back better to me was the it was the notion that advanced refunding of tax-exempt municipal bonds was attached was in there.

00:18:53:28 - 00:19:20:20
Emily Brock

And so we thought to ourselves, okay, I wish that there was more than just a wing and a prayer or a promise that build back better would come. But that is the way that it went. Now, the question is for build back, build back better. Does it have a chance at this point? What we need to look at is what's on what's sort of happening in Congress right now.

00:19:21:01 - 00:19:50:17
Emily Brock

As we all know, the continuing resolution that funds the federal government was planned for February 18th. It got punted to March 11th. Question is, will it get punted down the road again? The reason that we're so concerned, of course, about the continuing resolution is because that will be the vehicle for us to put this spending dollars that would then fund and plus up the formula funding to IIJA levels.

00:19:50:17 - 00:20:15:05
Emily Brock

Until then, the states really don't have any more money from the federal government until the federal government passes that spending plan, which will be a part of the continuing resolution. What do we think is going to happen on March 11th? Are they going to look at another three weeks or are they going to look at really trying to create a spending plan that would last a year, which then you can attach the spending bill to?

00:20:16:01 - 00:20:42:03
Emily Brock

That's anyone's guess. But I can tell you that the elections are coming and people want to cut physical ribbons, not just talk about what the ribbons might look like or what the infrastructure might look like. So I think that there's a lot of energy to make it happen. Pass the bill and hopefully we'll be looking at plus up levels and those competitive grants and information about what we can apply for coming right down the chute.

00:20:42:07 - 00:21:18:05
Peter Keating

Yeah, the real deadlines, I think, are which both sides know, is how long in advance can you wait to pass something for people to feel anything by November? Right. And March is pushing it at six months. Is pushing it. But but you mentioned advance refunding. You know, the very last moment, advance refunding. And also what we thought might be a new version of Build America bonds were yanked from the infrastructure bill And I'm not I'm still not exactly clear why. the costs of those fiscal costs are not that great.

00:21:18:19 - 00:21:35:07
Peter Keating

And I'm wondering, okay, so they'll find a way or they won't find a way for big spending bills and and they'll probably try to the administration will probably try to narrow the big spending bills to something that's really popular. I don't think there's going to be a big national debate outside this room about advance refunding or build America bonds.

00:21:35:17 - 00:21:47:19
Peter Keating

But do you think that those will get. Do you have confidence that the industry will get those slipped in to whatever bills contain other items that are popular enough that we think they might pass?

00:21:48:15 - 00:22:26:14
Emily Brock

Yeah. One of the key elements right now, considering what's happened with Democratic senators, Senator Sinema and Senator Manchin has been sort of really a focus on cost and where the $550 billion IIJA and a $1.2 trillion build back better you know the cost of advance refunding is $17 billion. So it's like couch cushion change. It should have been in there. It should not have been cut but there's a political element to it as there always is in my job is that it was a part of the Tax Cuts and Jobs Act.

00:22:26:14 - 00:22:52:12
Emily Brock

And so there is this very strong Republican caucus unwilling to unwind things that were in the Tax Cuts and Jobs Act. Our job over the past year really has been to get Republicans and Democrats both onto restoration of advance refunding bills. We have a bill in the Senate which is sponsored by Republican Senator Wicker and Democratic Senator Stabenow.

00:22:52:16 - 00:23:25:14
Emily Brock

So we have an equal amount of Democrats and Republicans on it, an important thing. And then just the other day, I was talking with Democratic Terri Sewell, Congresswoman Terri Sewell out of Alabama, who is leading the effort for the full restoration of advance funding. She also sits on the Ways and Means Committee. I mean, these are these are pretty, pretty good chances for us to actually show when we do look at a spending bill of those bipartisan efforts that really are couch cushion change that could make a great deal of effort.

00:23:25:16 - 00:23:46:24
Emily Brock

And one last thing I want to say, though, Peter, we we talked about this on the prep call, the element of timing. So the market, we we like to look at things in 30 years. We like to look at things in ten years and 20 years and 30 years. From an issue of perspective, we look at, you know, the useful life of an asset, which is a long, long time.

00:23:47:20 - 00:24:12:06
Emily Brock

How long do we think congressmen look at? Look forward two years. Exactly right. So I think that's a very important notion here when ARPA passed. Of course, you have to spend that money in four years when it passed. You have to look at your five year window so that you could be eligible for the competitive grants. And you have to and you have reporting and compliance requirements after that.

00:24:12:13 - 00:24:49:15
Emily Brock

Well, the question is, well, we need a 30 year horizon. We need advance funding. We need a marketing market tool that allows for us to sustain those good projects that are already being thought out by the administration. Those things that incorporate equity, those things that incorporate sustainability and a market that can underpin that. So that's our that's our conversation with offices right now is that, yes, the Senate and the House have been very, very aware of the challenges of state and local governments and providing funding for that in the near term.

00:24:49:26 - 00:25:03:19
Emily Brock

But the financing part needs to be addressed, and we need the market tools in order to create that underpinning that allow for us to have a healthy asset structure moving forward beyond the five year window.

00:25:03:20 - 00:25:26:11
Peter Keating

I can tell you as a writer, you hear from editors all the time there's a difference between funding and financing. Words are not synonymous. Let's see who takes each one of those words more seriously before we talk more about politics and try to get into some trouble. Let me ask you about the substantive provisions of build back better beyond the support for muni market mechanism.

00:25:26:22 - 00:25:41:27
Peter Keating

Pat, are there are there provisions in there that would make your life easier or harder that the climate change fighting provisions? Are there things you would like to see included in this big last push of the Biden administration? Buckets of money? 

00:25:41:28 - 00:26:04:29
Pat McCoy

Well, I would say that for as much money as they can put on the table, we can figure out how to spend it. And we we have the needs here in this region. You know, when you think about our system, we're dispersed over 5000 square miles. We serve a population of over 15 million people. And this region, quite frankly, can't function without a strong public transportation network.

00:26:05:07 - 00:26:26:04
Pat McCoy

And as climate change becomes a bigger dynamic that we're all going to have to confront, the one of the one of the great benefits of this region is that we have the lowest carbon footprint of any major city in the country. And that's because of our transportation network that allows people to move around efficiently without being in a car.

00:26:26:14 - 00:26:57:17
Pat McCoy

And so, you know, I think hopefully, you know, we can we can show some leadership to the rest of the country and in improving public transportation and and really having a direct impact on on lowering greenhouse gases. You know, we are the largest green, green bond issuer in the country. We've been really pleased to be able to work with the climate bonds initiative to to take a programmatic approach to the way that we invest and the way that we present our our our capital program to the market.

00:26:57:27 - 00:27:23:07
Pat McCoy

So that's going to continue. We've we've issued 11.4 billion in green bonds thus far. And there's no reason for us not to continue to be a green bond issuer. So we're just wrapping up a new verification. We're anticipating a large verification for green bond issuance well into the future. And that just underscores, you know, the challenges that that all of us are going to have to face.

00:27:23:08 - 00:27:47:13
Pat McCoy

You know, this region is so important to the national economy, to the state economy. And and we're a harbor estuary with 573 miles of shoreline. So as we think about rising ocean levels, etc., all these things that really can flood us out and impact us, that's going to take substantial investment over not just over the coming five or ten years, but over over the long term term.

00:27:47:23 - 00:28:04:06
Pat McCoy

And as Emily said, you know, we have to think about 30 years, 50 years down the road. And so when we meet with our elected officials, we remind them of of sort of the, you know, the longer term view because it's so hard to get them out of that two year kind of, you know, myopia.

00:28:04:20 - 00:28:06:06
John Markowitz

I don't know if one of them.

00:28:06:27 - 00:28:24:21
Peter Keating

Yes. But let me just ask John. Yes, John. One second. Just because I don't want to get as too far off track into this, but since you mentioned green bonds. Yeah. Let me ask you about you are by far the biggest issuer of green bonds in the country. The MTA is. where does the value of that designation come for you?

00:28:24:21 - 00:28:41:12
Peter Keating

Is it in focusing your goals and giving you benchmarks or are I've seen studies suggesting or showing that investors aren't paying a premium yet. Is that different in your experience or what's the value proposition for you in issuing? Bonds that are actually called green?

00:28:41:20 - 00:29:14:00
Pat McCoy

Yeah. The value proposition for us is that one we issue on a programmatic basis, so we're not doing one off issues of project based financing. And as Martin noted earlier, that's that's similar to the way the City of New York funds its capital needs. The difference being is that what, you know, the MTA's investment portfolio, our asset base that we're investing in, you know, essentially more than 80% is moving people around an electrified rail that is inherently green.

00:29:14:09 - 00:29:40:26
Pat McCoy

So we're getting recognition for what we do every day. We don't have to you know sort of step out of our comfort zone and see how that's green. The fact is everything we do is green except except with the one exception being, you know, our bridges and tunnels, you know, and our diesel buses. But we're committed to transforming our 6000 bus fleet to an all electric bus fleet in the next you know, under 20 years.

00:29:41:03 - 00:29:56:03
Pat McCoy

That's going to take some time to get there. But back to your original question, I think I think getting that market recognition for what we do naturally is inherently good for our region. That's good for the planet.

00:29:58:24 - 00:30:27:25
Pat McCoy

You know, I don't have anecdotal even information about pricing benefit from green bonds. What I will say is that we know that additional investors come to the deals that are labeled green and do participate. And in my view, attracting that additional incremental investor to a bond pricing accrues to the benefit of the issuer now. And it's not it's not dissimilar to another marketing tool that you might employ, whether it be radio advertisements or print advertisements, whatever.

00:30:28:18 - 00:30:49:13
Pat McCoy

This, in my view, is more appropriate to what we do. And again, I think we are attracting those additional investors that show an interest in green bonds. I'm not going to our board and telling them that they're going to save a basis point here or there. That's not the reason we do it. We do this to get recognition for what we do naturally.

00:30:49:21 - 00:31:23:10
Pat McCoy

It is a very small cost in the overall issuance, cost of issuance. So from that perspective, it's not onerous. And and we've worked really, I think, really well with the CBI to develop a disclosure regimen that works for their standard and it works for us. And as we think about the next evolution of disclosure, ESG being the big the big topic, I think we're well-positioned to have a more robust disclosure around this, whether you want to call that ESG per se.

00:31:23:25 - 00:31:32:15
Pat McCoy

You know, I think, you know, we'll see where that all goes. But the reality is the green bond issuance for us is really, really works well.

00:31:32:22 - 00:31:54:09
Peter Keating

Well, I think that's something worth keeping an eye on. The green muni market hasn't taken off anywhere near to the extent that it has in the green bonds, in the corporate or international markets. I mean, municipal bonds are less liquid. They trade less in trade less frequently. They're more regionally scattered. So there are costs to smaller issuers for the designation.

00:31:54:17 - 00:32:09:06
Peter Keating

But as sustainability grows in importance, that's something that could really spur all kinds of new activity. I'm sorry, I didn't mean to jump past you, but we were talking about build back better. And yes, it might be valuable to pass next.

00:32:09:14 - 00:32:37:06
John Markowitz

So I spent a lot of time on resiliency and sea level rise and risk modeling that the MTA in Boston and we issued the nation's first tax exempt sustainability bond got a bond buyer, you know, Deal of the Year award and some some differences, important differences between sustainability and green bonds we can talk about. But the point I wanted to talk about is that the tough decisions about, you know, sea level rise and how to spend money, in some ways it's easier to just throw money at the problem.

00:32:37:06 - 00:33:01:12
John Markowitz

But when you look at the actual solutions, it's very nuanced and very challenging. And so I can talk about your particular station in Boston, right by the harbor. And it had flooding problems. And the decisions of solutions ranged from putting barriers around the station versus raising the station versus closing down the station. And so the politicians obviously have views on all of that.

00:33:01:12 - 00:33:17:14
John Markowitz

The private sector owners, you know, around that have views on that. So it's a very challenging decision how to spend all this money on climate change and resiliency. Very important, but it's very nuanced. And so I think when I look at some of these bills, it's we're throwing a lot of money at things. We're not looking necessarily at process.

00:33:17:14 - 00:33:18:28
John Markowitz

And I think that's really important to keep in mind.

00:33:21:25 - 00:33:54:09
Peter Keating

I think there's a political split that has opened wide that is not that old on this issue, and it is affecting funding and financing. I mean, John McCain ran for president in 2008 on a platform of one of these four most important points that he advocated was a carbon tax. And I was very interested to see that Pat Toomey, a Republican senator from Pennsylvania who's not aligned with the Trump wing of the party, when the subject of Build America bonds came up basically called them just another form of bailout.

00:33:54:24 - 00:34:24:07
Peter Keating

And whether it's for climate change or for just general financing general projects, there seems to have been in the last ten years or so just a violent opposition, not just to new taxes, not just to new spending, but almost to new financing. Of any future spending. Now, I don't know if I'm overstating that or not, and I'm sure there are other structural reasons for the sharp decline in state and local capital spending since 2011.

00:34:25:12 - 00:34:48:23
Peter Keating

You know, state and local governments were emerging from the rust, emerging from the recession at that time and a lot of other factors. But it's also the point at which a Republican wave took over state legislatures around the country. And, you know, even in the case of the bipartisan infrastructure bill, it was bipartisan. But a lot more folks showed up for the summer time announcement that Emily mentioned then for the signing ceremony.

00:34:48:23 - 00:35:03:09
Peter Keating

I think one or two Republicans showed up for that because by then, the former President Trump and others in the party had labeled that antithetical to anything they could support and threatened political retaliation Against Republican legislators who voted for it.

00:35:05:21 - 00:35:20:22
Peter Keating

You don't talk a lot about politics in this whole circle too much, but how much of this has just become a partizan split where, for better or worse, Republicans are now are not, by and large, not just opposed to funding, but opposed to financing as well.

00:35:22:23 - 00:35:50:07
Emily Brock

I don't know, Peter. I see what you're seeing. I don't see that in present day individual interactions with offices. I do see both Republicans and Democrats who appreciate the $4 trillion municipal bond market and what it does to underpin infrastructure in our country. But I would be remiss not to kind of address your segue there between green and where we are right now.

00:35:51:21 - 00:36:24:24
Emily Brock

Green and financing green elements and funding green elements is a fundamental part of this administration. The Biden administration is extremely conscious of integrating climate and equity elements into not just the funding, but also like where we might go with financing and I think the case in point is the nomination of Chairman Gensler. Gensler has made it very clear that climate is a very important part of the Securities and Exchange Commission's work.

00:36:25:22 - 00:36:48:16
Emily Brock

I have heard people say, you know, when you talk with Mr. Gensler, you do have to say the word climate a couple of times in order for there to be sort of a conversation about what's happening. Does that mean that climate green elements will come into the vernacular of Congress and all the work that they're about to do to close out this 117th congressional calendar?

00:36:48:25 - 00:37:19:28
Emily Brock

I think, yes. I mean, I think we have Chairman Neal, of the Ways and Means Committee very interested in addressing climate elements. And then, of course, Maxine Waters, Chairman Waters, of the House Financial Services Committee, is also very interested in both social elements and climate elements as a part of not just structurally what the financial industry needs to do, but also fundamentally the products that the financial industry may address.

00:37:19:29 - 00:37:23:08
Emily Brock

And I think that that will incorporate climate and social elements.

00:37:25:02 - 00:37:42:28
John Markowitz

I'll just add, you know, you look at the federal gas tax, you know, has it been touched since 93? Neither party wants to touch that. And so, you know, I firmly believe that this money will eventually run out and that we need a sustainable funding source. And you have to do that by charging people for the negative externality that they use.

00:37:42:28 - 00:38:01:22
John Markowitz

And so I'll just put in a plug for my company, Transurban, because in our lanes in the DC metro area, we're contractually required to keep the speed limit 55 miles an hour. We have sensors all through the lanes to make sure that that happens in the price of just based on demand and usage. However, if you have three people or more in your car, you ride those lanes for free.

00:38:02:00 - 00:38:21:05
John Markowitz

So there's some mobility getting people out of single family car, single occupancy cars, stopping people from idling. So there's an equity mobility angle there. But, you know, I firmly believe until we get to that type of model, this money will eventually run out. We're going to be back in the same conversation. And people neglect OpEx and operating expenditures.

00:38:21:05 - 00:38:26:22
John Markowitz

We're all talking about building, building, building how many people are thinking about what it's going to cost to operate these new facilities for 30 or 40 years?

00:38:29:10 - 00:38:55:06
Pat McCoy

You know, I think I think, you know, where I stand on climate issues, which is that, you know, they're real, they affect us and they're going to continue to affect us. And that means you know, we need to think about how we're going to, you know, have an investment sort of approach to our infrastructure. That's going to be sustainable and it's going to work in these extreme scenarios that we're already seeing around the world, around the country.

00:38:55:19 - 00:39:18:14
Pat McCoy

And, you know, I think Emily brought some good balance to the answer. The reality is there are politicians in Washington. We feel that, you know, get it and and are supportive. And notwithstanding a lot of the noise around this, you can't deny the facts that are out there. I mentioned earlier about, you know, sea level rise.

00:39:18:22 - 00:39:39:21
Pat McCoy

We can all talk about sea level rise because it's measurable, it's real. We know it. And we can disagree about what may be causing it, but we have a pretty good handle. The scientists have a pretty good handle on those causes, at least, you know. You know, for those of you that read The Times, there was a really interesting story yesterday about sort of ringing the alarm bells again.

00:39:39:27 - 00:40:01:23
Pat McCoy

We're at a point now where if we don't add up our investment in infrastructure, to deal with this climate change, that we're going to we're going to miss our opportunity to stay underneath that 1.5 degree warming in this century to the degree that we go over that, it just you know, it paints a very ugly picture for future generations.

00:40:01:24 - 00:40:09:00
Pat McCoy

And so now's the time to really think, you know, what can we do today here and now? To stop this? So to deal with this.

00:40:09:00 - 00:40:44:17
Peter Keating

So other than engineering problems and funding, which are the two huge things people often talk about associated with getting an infrastructure project done. Are there other obstacles we should be talking about, for example? I wonder if the environmental regulations of the 60s, 70s and eighties are now thwarting effective and efficient action in some cases to take care of climate change and other environmental problems in the 2010s if it takes 15 or 20 years to get anything done because of multiple overlapping levels of review, that can be a real problem.

00:40:45:05 - 00:40:56:19
Peter Keating

But tell me what else we should be thinking about in terms of if now's the time to act on this stuff. What should we be clearing? What's the dead wood? We should be thinking about clearing away in order for progress to be achieved.

00:40:57:04 - 00:41:13:22
John Markowitz

Well, I'll say one concept that doesn't get spoken enough, in my opinion at these conferences is managed retreat, and nobody wants to talk about it. But, you know, Neil deGrasse Tyson the physicist, believes in 50 years all the coasts are going to slowly move forward and have to retreat from, you know, starting some of the coast. And nobody wants that.

00:41:13:22 - 00:41:30:18
John Markowitz

Politicians don't want that. We all love the water, but I think topics like managed retreat get lost in this conversation. And so to, you know, how much money do you want to spend on one station into what year before you think about, well, should we move that inland a little? And so I think that's something it's not no easy answers, but I think that's something that just kind of neglected.

00:41:30:18 - 00:41:33:17
John Markowitz

It's an uncomfortable topic. I would throw that in the mix. Yeah.

00:41:34:16 - 00:42:07:17
Pat McCoy

I would just say from our perspective, you know, when we think about any new capital project, we think about we think about resiliency. We think about, you know, can this investment withstand, you know, our forecasts of climate impact? And so we're actually just building that into our planning processes and our development processes so that it becomes part of the matrix, you know, whether it's the cost benefit, etc. All that comes to bear when we you know, determine what our new projects are going to be.

00:42:09:00 - 00:42:30:21
Emily Brock

And I think just to get a little bit more of my finance nerd on, the question about of course, preparation for climate from an issue or perspective, if you look at trying to hit the ground running with IIJA you start to think about state and local governments relationship with the federal government. What is it going to be like to apply for this money?

00:42:30:21 - 00:43:03:23
Emily Brock

Once they get the money, then what kind of reporting requirements will be on the back end and beyond that? To your point, Peter, of course there is a lot of red tape that we anticipate around this. And so we are trying to actively participate in the administration is having industry listening sessions and opportunities for comment that would allow for them to create and establish programs that would allow for us to come in, understand the funding, understand the responsibilities and then understand the reporting compliance afterwards.

00:43:04:01 - 00:43:10:20
Emily Brock

That would allow for us to hurry up, use this money and use it to the to, of course, the administration's expectations.

00:43:12:15 - 00:43:33:26
Peter Keating

We're going to have some time for folks to ask questions if there's anybody. But before we do that one. One last thing I would ask each of you to just quickly, from your perspective, you've all talked about how important it is to think long term plan carefully. Two years ago, we probably wouldn't have expected the drastic shift towards working at home or working remotely.

00:43:34:04 - 00:43:57:17
Peter Keating

That has taken place among many Americans. Looking now at what you think things are going to, the landscape of our infrastructure is going to look like in 20 or 30 years, incorporating any recent changes like remote work and further electrification of the grid. Tell me each of you, tell me one or two of the biggest changes you think are going to affect everyday Americans life.

00:43:57:22 - 00:44:16:10
Peter Keating

You know, the way we wake up, go to work, go to school, the way we buy things, how we raise our families. What are the one or two huge changes you see coming that are going to affect this market, are going to affect issuers? You're going to need projects financed to help along those big changes.

00:44:17:15 - 00:44:17:24
Pat McCoy

Yeah.

00:44:18:11 - 00:44:51:16
Emily Brock

Of course. You start with me, Peter well, I mean, of course I'm there is significant. You'd have to be crazy not to see the political polarization that's happening in Congress right now that has sort of stymied efforts of talking about what what what things are happening sort of on the ground. And I'm certainly hopeful that we are looking at an election season that would allow for more bipartisanship, more structural conversations about what underpins our healthy economy.

00:44:52:08 - 00:45:19:13
Emily Brock

And certainly, I think from a coalition perspective, to see our industry working together to support those goals, that is to restore advance or funding to raise the ceiling of being qualified debt up to $30 billion and $30 million per borrower. And so all of those things, I think from a long term perspective, certainly hopeful and we'll be working our butts off in Washington to make sure that we have that bipartisan support.

00:45:20:04 - 00:45:55:23
Emily Brock

But I think in terms of just sort of that evolution of where we are going, we did a survey of state and local governments and the results are kind of all over the map with what does it look like to govern a local government now? What does it look like in the future? I don't think that we're quite out of what it looks like right now, and I think that there's still a lot of just kind of figuring out our budget, figuring out IJA, but of course making sure that we have the market tools to be able to lead us into 20, 30 years from now.

00:45:55:28 - 00:45:57:17
Emily Brock

Certainly our expectation and hope.

00:45:59:21 - 00:46:25:00
Pat McCoy

You know, I think in the case of the MTA, look, I would echo everything that Emily said and I think having that very supportive and, and productive, you know, federal dialog in the background I think is going to help, you know, state and local governmental entities continue to make the investments that they need to make in their in their communities to improve quality of life.

00:46:26:16 - 00:46:46:09
Pat McCoy

The one thing that is an obvious that we're very focused on is what is what is the new normal look like coming out of COVID in terms of the working in the office versus teleworking, etc.? I think we're all each of us probably has a different story from our own employer about what that looks like or what it may look like.

00:46:46:21 - 00:47:15:29
Pat McCoy

And just, you know, talking to folks informally, you know, there's a lot of different approaches to this that's going to affect our ridership and ultimately our revenues one way or the other. And so we're we're very intently focused on that because it's our survival and it is in it. And it is this this region's survival, quite frankly. So I think we're engaging with a new consultant to figure out what is the best forecast of ridership look like.

00:47:16:09 - 00:47:36:19
Pat McCoy

Our prior analysis done by McKinsey and Company would suggest that ridership isn't going to return to sort of that close to the pre-pandemic levels until about 2025 or beyond. So that t, of course, was before Omicron and before, you know, that whole episode so we're going to take a fresh look at things here in the coming months.

00:47:36:25 - 00:47:47:15
Pat McCoy

We'll have a July financial plan come out this July, which should incorporate a hopefully a better more current view of what that looks like. But that for us, that's, you know, issue number one.

00:47:48:22 - 00:48:04:20
John Markowitz

You know, that's a great question. I would echo some of Pat's thoughts. There's still a big debate out there over what the new normal looks like with commuting and certainly have worked in the transit space. And now the toll space. And I've got a team full of traffic, engineers and economists trying to think about what does that look like.

00:48:04:20 - 00:48:28:14
John Markowitz

And as you look at some people never want to go back to work some people want a hybrid model. You know, you combine the new hybrid model with autonomous vehicles, some point electric vehicles, you know, are we going to have during the week? Mostly trucks and some cars on the road and on the weekends, the roads are filled with people want to get, you know, get out because they're and all weekend and all during the week, you know, there are a lot of big questions there.

00:48:29:13 - 00:48:45:18
John Markowitz

I do believe that the Express Lane concept and clearly I'm biased, but I think that's going to continue to grow. It's in about ten states now. And so in places where transit can't solve all of our transportation problems, these type of dynamically priced lanes, you know, to me will continue to grow, whether, you know, publicly or privately operated.

00:48:46:09 - 00:49:02:05
John Markowitz

I think those are some of the trends and I personally hope, you know, government capacity, retaining good people like Patton and others, you know, is really important. And so I hope that some of those structural things like pension obligations will allow for some of this modernization that we need to see.

00:49:03:05 - 00:49:11:28
Peter Keating

Thank you. Is there anyone walking around with microphones or are we essentially does anyone have any questions? Thank you.

00:49:12:04 - 00:49:38:16
Emily Brock

I actually had a question for several of the panels. We work on a lot of infrastructure financings for clients. And one of the problems we're running into is local capacity, construction capacity. Obviously, they're, you know, the so-called supply chain issues, which could be potentially in some cases aggravated. You know, and then there's the chip issue with cars and where in the Midwest where cars matter.

00:49:39:08 - 00:49:54:11
Emily Brock

So I'm kind of curious what you all are seeing in terms of whether or not the funding and the ability to expand funding in a timely basis will be impacted potentially by short term price spikes or just capacity within the construction industry.

00:49:57:00 - 00:50:16:25
Pat McCoy

For us, it's a perennial question. You know, do we have the capacity to take on, you know, the scope of projects that are in our plan? For example, you know, we're we're we're aggressively working to move forward to the next phase of Second Avenue Subway, which will go from 63rd street up to 125th Street and connect up directly with the Lexington Avenue line there.

00:50:18:06 - 00:50:43:12
Pat McCoy

That coupled with the billions of other dollars that are being spent on the system across the region. does raise the question do we have the capacity regionally to take on these projects while at the same time, you know, the City of New York is taking on its, its portfolio of projects as well. But thus far we haven't seen sort of the red alarm bells that would suggest that there just isn't the capacity out there.

00:50:43:12 - 00:50:45:00
Pat McCoy

I think there is, to be quite honest.

00:50:45:14 - 00:51:02:2
John Markowitz

I would add it's a great question and I think a big challenge. We build roads all over the world. And I think there was an article in the Journal last week about inflationary pressures on you know, look at steel, you know, since last year has doubled or tripled, depending on where you measure you know, measure it from the labor costs, supply shortages.

00:51:02:21 - 00:51:21:17
John Markowitz

I think it's a big problem in the short term. And so I hope when we're looking at scoping out projects and estimating projects, that's something there's enough contingency in there to account for that, because I think it's a real challenge that the risk transfer between infrastructure developers and governments and contractors is  getting even more heightened. And so I think that it's a very important dynamic.

00:51:22:15 - 00:51:41:28
Emily Brock

And I think to Dana, thanks for your question. And that capacity goes hand-in-hand with when are we going to see the money? So I think that's probably the biggest question. The show me the money. Washington, we know you spent it. When is it going to come down the pike? Well, I think that reality, of course, Congress has to act to flesh up the formula funds.

00:51:42:04 - 00:52:00:25
Emily Brock

But then beyond that, we're probably looking at even more. 18 months down the road when we actually have the notice and funding opportunities or the. No. Probably my favorite acronym. So the No. That we can respond to that we can see the money. So, yes, I think capacity is a major concern. But if we if we really think about when are we going to see the money?

00:52:00:26 - 00:52:08:25
Emily Brock

It may be two years from now. And by two years from now, then it's three years until the funding runs out. So you get a short horizon to spend it.

00:52:09:22 - 00:52:11:11
Pat McCoy

Right? Big issue. Yeah.

00:52:11:28 - 00:52:32:07
Peter Keating

Thank you. I want to thank you not just for your expertize, but for conveying that fundamental optimism that the country can get a lot of this stuff done is urgent, needs There's obvious problems. There's crazy deadlines. But you're all you all do what you do because I think we can meet the challenges. And I appreciate that and I appreciate your time.

00:52:32:07 - 00:52:32:25
Peter Keating

And thank you all.