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Transport finance sector eagerly awaits US election results
By Barry Parker
06 March 2008
All eyes are on the upcoming US presidential election, which will profoundly affect financial markets in the near term. Longer term, trade flows will be affected, which will influence the fortunes of transportation-related business and institutions financing the sector.
The outcome of the 2008 election will drive approaches to funding. The current line-up features three senators: Republican John McCain and Democrats Hillary Clinton and Barack Obama. Traditionally in the US system, Republican administrations, ostensibly supporting the free market, attempt to pare down the size of government. Democrats, on other hand, are typically more supportive of government involvement in financing and in the actual marketplace.
A series of current legislative efforts, sponsored by members of both parties, are aimed at jump-starting financing solutions in which the private sector would play a crucial role.
Financing of US surface transportation infrastructure is at a crossroads, with funding needs greatly exceeding the ability of present mechanisms to generate required finance. Air transportation, likewise, contends with physical real estate constraints at the regional level, and with a national air traffic control system in need of modernisation.
On the maritime front, the Republican George W Bush administration has sharply cut back one programme that has an impact on ship finance: US government ship mortgage guarantees. During Bush's tenure, existing commitments have been maintained under the now moribund programme in which the tenor on guaranteed bonds can reach 25 years. Bush's stance, which has effectively precluded all new business, is in direct contrast to the previous (Democratic) regime, under President Bill Clinton, when this programme ballooned outwards, as the US government moved squarely behind US commercial shipbuilding.
However, early on Bush's watch, the programme saw a default of USD65 million, stemming from a politically motivated Clinton-era shipyard refurbishment of which approximately half was recovered by the US Maritime Administration (Marad). Title XI also made headlines with a payout, under a guarantee, of USD187 million in 2001 for an ill-fated US cruiseship project that subsequently found its way to a US subsidiary of Norwegian Cruise Line (NCL).
In a late February budget request before a US congressional subcommittee, Sean Connaughton, Marad's administrator, requested a meagre USD3.5 million allocation to manage the existing portfolio of guarantees that totalled some USD2.9 billion in mid-2007. If the Republicans win, bankers should expect more of the same. John McCain, the likely Republican nominee, has been adamantly opposed to the Title XI programme, which was partially oversighted by the Senate Committee on Science, Commerce and Transportation, chaired by McCain. In railing against a proposed USD50 million appropriation for Title XI in 2003, McCain called it a "broken programme in dire need of reform". McCain and others have pointed to approved transactions that they maintain would not stand up to the rigours of private sector analysis.
If the Democrats emerge victorious under Obama or Clinton, the landscape could look much different. While speaking at a Wisconsin automotive factory in mid-February - deep in what some refer to as the "rust belt" because of the contraction of manufacturing employment in the region - presidential hopeful Obama, currently a US senator from the neighbouring state of Illinois, put forth a plan for a National Infrastructure Reinvestment Bank (NIRB). Obama's NIRB plan comes about a month after a contentious US Department of Transportation (DoT) examination of surface transport funding - primarily highways - through 2025. His plan would have the federal government redirect some USD60 billion to transport infrastructure over a decade.
In the true spirit of US politics, Clinton, Obama's rival for the Democratic nomination, has claimed that Obama is recycling an old Clinton idea. In fact, Obama's plan has direct antecedents in Senate legislation introduced in mid-2007 by Connecticut Senator Chris Dodd, an Obama supporter, and four other senate sponsors. The roster of co-sponsors for 'National Infrastructure Bank of 2007' (S 1926) included Hillary Clinton - but not Obama.