After Trump's Win, Construction Gears Up for Policy Shifts
Industry weighs President-elect Donald Trump’s ambitious infrastructure plan and his promises to undo Obama regulations
As President-elect Donald J. Trump starts to assemble a team of advisers to staff his administration, the construction industry is parsing his post-election comments for inklings about his priorities and plans when he takes office in January.
Industry executives like Trump’s ambitious infrastructure ideas but await more details. Says one contractor firm executive, “Trump says the right things, but will he follow through?” They also realize that—even in a Congress under Republican control, although with slightly diminished majorities—a long path lies ahead. One engineering firm CEO speculates that Trump “could be at odds with Congress even more than Obama.”
All sides expect the new administration’s regulatory policy to tilt sharply toward business interests’ point of view, including a pullback on Obama administration environmental and workforce-related rules. Groups that represent contractors and engineering firms support such prospective changes, but environmental groups and labor unions do not. Promised reversals of climate-change pacts and greenhouse-gas-emission curbs prompted Michael Brune, executive director of the Sierra Club, to pledge that groups will fight efforts to roll back rules. “We won’t be in a defensive crouch over the next four years,” he says.
A post-election statement by Robert Ivy, CEO of the American Institute of Architects also elicited a backlash from members, according to Architectural Record, ENR's sister publication, generating an apology from the group and plans for more dialogue with its community on issues.
As the industry digests the election results, Trump’s infrastructure program is a hot topic. “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” he said in a post-election speech. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
Construction groups support that idea. Steve Sandherr, Associated General Contractors of America CEO, said, “We are eager to work with the executive and legislative branch to advance new infrastructure investments and identify and put in place sustainable, long-term and reliable ways to pay for them.” A spokesman for North America’s Building Trade Unions says, “Infrastructure is of supreme importance, not just to our membership but to the nation and our economy.”
Trump first called for an infrastructure program that would be “at least double” Democratic candidate Hillary Clinton’s $275-billion, five-year initiative. Later, he proposed a $1-trillion, 10-year plan. Specifics were lacking, however.
To clarify the plan’s financing, two Trump senior policy advisers, private-equity investor Wilbur Ross and University of California, Irvine, professor Peter Navarro, in an Oct. 27 report said it would involve private investment in projects with revenue streams, such as toll roads. They said a $1-trillion program would require $167 billion in private equity. To attract those dollars, the administration would provide tax credits of $137 billion. Ross and Navarro said the credits would be repaid by revenue from income taxes from workers on the projects and taxes on contractors’ profits.
But a more recent Trump team infrastructure statement clouds the issues of how large the plan will be and what types of projects it will include. A post-election posting on the web page for Trump’s transition discusses a $550-billion plan. Robert Murray, Dodge Data & Analytics vice president for economic affairs, suggests the figure may reflect a shortening of the time period to five years from 10. The new Trump statement also refers to only transportation infrastructure.
Even with the question marks, the prospect of a big boost in infrastructure investment sent some engineering and construction stocks higher in the day after the election, including Caterpillar, Jacobs Engineering, Fluor Corp. and AECOM.
In a Nov. 9 note, Andrew Wittmann, lead construction industry analyst for investment firm Robert W. Baird Inc., said he was “incrementally positive” on E&C-sector stocks post-presidential election, “though not rushing in,” citing risks to industry firms of proposed protectionist policies and reduced support of alternative energy.
Industry officials hope that infrastructure legislation will break through Capitol Hill partisan fights. Steve Hall, American Council of Engineering Companies vice president for government affairs, says, “With tighter margins in Congress, this may be one of the few consensus issues that they can actually make progress on.”
The American Association of State Highway and Transportation Officials wants the infrastructure proposal to include a “fix” for the revenue-challenged Highway Trust Fund, says Jim Tymon, chief operating officer. “But finding a way to come up with a bipartisan offset or a bipartisan way to pay for it is going to be more of the challenge,” he told reporters. Moreover, it is likely that Republican fiscal hawks will seek to hold down overall federal spending, which could harm some construction programs.
Some see possible tax-reform legislation as a vehicle for a trust-fund solution. The National Electrical Contractors Association would like to see a tax measure that includes repealing the estate tax and tax-rate reductions for smaller firms, says Marco Giamberardino, executive director for government affairs.
While Republicans still will be in charge of the House and Senate, the GOP’s sway over federal policies and legislation will not be absolute because it lacks the 60 votes in the Senate needed to ensure that legislation and presidential nominees won’t be blocked by filibusters.
Republicans will hold 51 Senate seats and Democrats hold 48, including two Independents who caucus with them. That compares with a 54-46 Republican-Democratic/Independent pre-election split. The GOP, which won all but two Senate races rated as toss-ups, is expected to get a 52nd seat after votes are counted in a Louisiana runoff in December. One GOP winner in the Senate was incumbent Marco Rubio (R-Fla.), who bested challenger Rep. Patrick Murphy (D), son of the chairman of Coastal Construction.
The House will have 239 Republicans and 193 Democrats, with three races undecided. The breakdown now is 246-186, plus two vacant seats. In Florida, Republican Francis Rooney, chairman of construction firm Rooney Holdings, Naples, Fla., won his race for a U.S. House seat.
Industry executives predict that Trump will seek to cancel or ease Obama administration regulations. Industry targets include the “blacklisting” rule, which requires contractors to verify compliance with workplace-related statutes to qualify for federal work. Also on industry’s list is a rule revising compensation levels at which employers must pay overtime. Hall says Trump’s election “has to bolster our efforts at revisiting these rules and scaling them back to a fairly significant degree.”
AGC is seeking action on regulations mandating project labor agreements and paid sick leave and setting new limits on workers’ exposure to silica dust. AGC wants “significant changes, if not repeal” of the Affordable Care Act, a spokesman said. Trump pledged to repeal the law, but after meeting with President Obama, he said he wants a new health-care plan to retain some elements, such as a ban on denying coverage to those with preexisting health conditions.
But Gary Elliott, business manager for the Eastern Missouri Laborers' District Council, says regulations "are there for a reason," noting his concern that in the near future, deregulation of safety, such as the silica rule, will happen in the new administration.
Energy companies also seek regulatory changes. “With the oil and natural-gas industry facing 145 regulations or other policy-setting activities that could discourage production, preventing regulatory overreach should be a top priority,” said Jack Gerard, American Petroleum Institute president and CEO. One rule Trump probably will aim at is Obama’s Clean Power Plan, which seeks to curb power-plant emissions. Scott Segal, a lobbyist with the Bracewell Policy Resolution Group, said court challenges to the rule may succeed in blocking it, or the Trump administration could push new rulemaking. Trump also may revisit Obama’s decision to halt construction of a 1,900-kilometer segment of the Keystone XL oil pipeline.
The changes are being watched closely by those abroad with U.S. interests. Uwe Krueger, CEO of U.K.-based Atkins, welcomes tax credits for private project financing but notes the need for “clear policy proposals.”
Others are more concerned. "Investors don’t like any degree of uncertainty, and the possibility of major change in political direction of the USA may well cause international investors to take stock and simply do nothing for a few months. This restriction of investment, even in the short term, will have an effect on construction as the number of projects being funded will fall," Ann Bentley, the U.K.-based global chairman of cost consultant Rider Levett Bucknall told ENR.
"If trade barriers are imposed on imports, then the likely global upshot of this will be that the exporters will seek markets that are easier to work with elsewhere," she adds. "This could lead to a short-term oversupply of materials and construction products around the globe, and so temporarily deflate construction costs outside the U.S."
Bentley also contends that if the Trump win gives rise to more "national movements" in Europe, many global construction firm attributes, such as scale, access to overseas expertise and financing, and the easy importing of labor and materials, "which were until very recently seen as advantages could now be considered distinct disadvantages for businesses."
But Trump's infrastructure push, with greater private investment in projects—if they occur—"will almost certainly attract international players—so that could be very positive for the global construction market," she points out.
“2016 appears to be the year of political decisions that will alter the fabric of the major markets we all work in.” Bentley said in a bylined Nov. 9 opinion in U.K. construction publication Building.