In his first State of the Union Address to a joint session of Congress, President Donald J. Trump made investing in infrastructure a cornerstone of his vision for America. The President campaigned with a pledge to invest US$1 trillion in American infrastructure over 10 years; his call on Congress last night was more aggressive, asking Congress to send him “a bill that generates at least US$1.5 trillion for the new infrastructure investment we need.”

“Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private sector investment…” –President Donald J. Trump

The Federal government will almost certainly not fund US$1.5 trillion in infrastructure projects over the next decade. A draft of the Administration’s infrastructure plan leaked last week, laying out a series of funding principles that would turn infrastructure funding on its head. Historically, the Federal government routinely funds approximately 80 percent of infrastructure projects, with state and local governments making up the balance. In the preliminary White House plan, Federal grant awards “can’t exceed 20 percent of total project cost,” effectively reversing the Federal government’s role in funding national infrastructure projects.

The most recent reports from the Administration include only US$20 billion annually in Federal dollars to fund infrastructure projects. With state and local governments lacking sufficient local dollars needed to bring projects to fruition, many projects will be impossible without an injection of significant private funds.

President Trump was clear in his address that he expects Congress to send him legislation that will “leverage” scant Federal funds to attract state, local, and “private sector investment” that will meet his $1.5 trillion target. The degree to which minimal Federal funds will stimulate private investments remains unclear.

Reduced federal dollars may drive state and local governments to court private funding and overcome political obstacles that have prevented higher levels of such funding in the past. Institutional investors could see increased opportunities as state and local governments seek other sources of capital for infrastructure. Possibilities to deploy capital could include increased public private partnerships for new projects; for those investors reluctant to take development risk, the privatization of existing infrastructure assets to raise funds for new projects; and concessions to operate and upgrade existing infrastructure.