What $1.3 trillion of federal spending can mean for you

While the president’s budget blueprint from last year proposed dramatic cuts in discretionary spending, the March 2018 omnibus budget signed into law was remarkable both for its high price tag and for continuing many status quo priorities set by the Obama administration.

The massive $1.3 trillion spending bill funds the federal government through Sept. 30. For executives in the construction services, development and private lending industries, it offers important funding initiatives that have been maintained and, in some cases, expanded. Some of these initiatives can be tapped for exciting private/public partnerships. Two of the best hunting grounds for these federally funded projects are the Department of Transportation and the Department of Housing and Human Services (HUD).

What’s Omnibus About?

Before we delve into the opportunities in the Omnibus Bill, a little background on the federal budget process is warranted. Congress passed the omnibus federal allocation bill due to the bitter partisan battles over fiscal spending. It’s a political shortcut from the normal appropriations process.

The normal process (called “regular order”) is supposed to begin each February, with the president initiating a budget for the following year. In theory, it should move to the House and Senate, where each chamber passes an appropriations bill detailing major allocations. Next, a conference committee of House and Senate members irons out cross-chamber differences, and then appropriations subcommittees sub-allocate money to specific programs.

Each sub-allocation is supposed to have hearings and votes as it winds through subcommittees, full committees and the floors of the House and Senate. Differences between the two chambers’ versions are to be resolved through joint conferences. Then a final bill—following hundreds of hours of public hearings on the finer program details—should reach the president’s desk by October.

Due to continuous infighting, regular order has been ignored for years. Instead, the government has relied upon the omnibus bill, which completely skips the committee-level work. More than 2,000 pages of sub-allocations were hurriedly cobbled together in closed-door meetings by party leaders and staffers and bundled into floor votes for the House and Senate. After a quick conference between the two chambers, the omnibus bill was sent to the president, chock full of so many surprises that the president threatened to veto his own party’s work. He did reluctantly sign it.

Many of these surprises offer significant opportunities for public/private partnerships.

TIGER Program Tripled

Huge funding programs are available for private/public partnerships with the Department of Transportation. One of the largest is called the TIGER program, short for Transportation Investment Generating Economic Recovery. This funding contributes to public/private infrastructure projects such as toll-roads, bridge repairs, earthquake-related improvements and railway projects. Although the president’s plan was to eliminate TIGER funding altogether—despite other promises around funding infrastructure projects—the Omnibus Bill tripled it to $1.5 billion through Sept. 30.

Private companies, including developers, construction companies, service providers and others, can partner with public entities to apply for TIGER grants. Check for existing projects being applied for by state and local governments, transit agencies, port authorities and metro planning organizations. Also, a significant portion of the TIGER funding was allocated to Native American tribal lands. Recent awards are shown on the U.S. Department of Transportation’s website.

According to the government, the primary criteria for receiving TIGER grants are considerations related to safety, state of good repair, economic competitiveness, quality of life and environmental sustainability for each project. Secondary criteria include innovation and partnerships.

One still-unexplained surprise is that the Omnibus Bill increased the percentage of TIGER funding that must be set aside for rural projects. This used to be 20 percent of allocations, but the Omnibus Bill requires it to now be 30 percent. No one is quite sure who made the change. This means there is nearly half a billion dollars available to be spent on public/private projects for rural towns and counties over the next six months that was pretty much unanticipated. So, if you primarily focus on urban projects, it’s worth spending some time to investigate opportunities out in rural areas. Check the census bureau’s site for counties with fewer than 85,000 residents.

A second surprise of the Omnibus Bill is that it now allows grant money to be used to pay for the earliest stage of project planning and design. This was intended to help smaller public/private partnerships that don’t have sufficient capital to get through the planning stage. So, developers and construction companies should keep a sharp eye out for programs, particularly in the rural counties, that can get off the ground with funding from a TIGER grant.

Other Transportation Goodies

Other gems in the Omnibus Bill include significant support for public/private initiatives in the transportation infrastructure sector: 

  • Fixing America’s Surface Transportation (FAST) Act // This is funding for highway and transit development, and it is fully funded up to its previously authorized spending level. Construction companies working on various federal- and state-level projects are breathing a sigh of relief. Just weeks before the Omnibus Bill passed, things appeared to be going the opposite direction. But rather than find some programs to cut, Congress fully approved $55.6 billion to cover prior commitments. The largesse went even further—the funding was supplemented with an unanticipated $3.4 billion more in general funds. These are split approximately 75 percent for highways and 25 percent for other transit.
  • State-level funding for transportation projects // Nearly $2 billion of new highway funds will be distributed at the state level for the construction of highways, bridges and tunnels. The Omnibus Bill’s new $834 million for transit will be distributed through existing formula and discretionary programs.
  • Infrastructure for Rebuilding America (INFRA) grants // These grants, which are designed to support major freight investments, got a significant boost. INFRA grants are focused on “shovel ready” projects in which a local sponsor is significantly invested and ready to start construction. Eligible INFRA project costs may include reconstruction, rehabilitation, acquisition of property (including land related to the project and improvements to the land), environmental mitigation, construction contingencies, equipment acquisition and operational improvements directly related to rail systems.

Funding for HUD

The HUD nabbed a 10 percent increase in its total budget through Sept. 30. HUD public/private opportunities have certain advantages over traditional projects. Qualifying HUD projects can provide developers with access to a flexible source of long-term debt to support challenging capital structures.

HUD’s tax credit incentive projects work a little differently, but also have significant perks. Developers can sell the tax credits they earn for building these projects to institutional investors. Spread over 10 years, tax credits can nearly equal the entire cost of the project. For example, if an equity investor puts in $10 million in capital over 10 years, they can effectively recoup $10 million in credits, plus gain additional tax benefits. Meanwhile, the developers can earn a developer fee of about 10 percent of the project cost.

Specific programs that will see an infusion of money from the Omnibus Bill include:

  • Community Development Block Grants (CDBGs) // Developers should pay attention to the $300 million increase in funding for CDBGs. For example, Section 108 of the CDBG program offers loan guarantees for economic development, housing rehabilitation and medium and large-scale development projects. Loans typically range from $500,000 to $140 million, depending on the scale of the project or program. They can be combined with private capital and private financing. Section 108 financing offers some unique benefits, like spreading out project costs over time due to flexible repayment terms, while offering lower interest rates than you can get from non-public debt sources.
  • Section 202 Housing for the Elderly // This is funded at $678 million, which represents a major increase from the $502 million for fiscal year 2017. This appropriation sets aside $105 million for new Section 202 construction and project-based rental assistance, which represents the first significant amount of new construction funding since 2011.
  • HOME Investments Partnership Program // This program is funded at $1.36 billion, up from $950 million in fiscal year 2017, which represents an increase of more than $400 million and the highest funding HOME has seen in seven years. This program pushes federal block grant money to state and local authorities to support new low-income housing projects.
  • The Project-Based Rental Assistance (PBRA) Program // The program will receive $11.5 billion, up from $10.8 billion in fiscal year 2017. PBRA funds Section 8 housing assistance payments to owners of multifamily rental housing. The rental assistance makes up the difference between what a qualifying low-income household can afford and the approved rent for housing in a multifamily project. When PBRA started, the assistance was provided for new construction or the substantial rehabilitation of buildings. Today it’s only eligible with existing housing. While funding is no longer available for new builds, if you own or want to acquire property that’s already approved for Section 8 assistance, you can rely on federal support to remain in place this year.
  • The Tenant-Based Rental Assistance (TBRA) Program // The program will receive $22.015 billion, up from $20.292 billion in fiscal year 2017, a $1.72 billion increase. TBRA programs subsidize individual households rather than projects. However, if you own a rental property with qualifying tenants, the TBRA programs provide guaranteed payments to make up the difference between the amount a household can afford to pay for housing and the local rent standards. Other TBRA programs can help tenants pay for costs associated with their housing, such as security and utility deposits. HUD-supported low-income housing may not be as sexy as the newest high-density mixed-use project, but they certainly can produce a great deal of value.

Public/private projects can be a lucrative opportunity for construction companies, developers and other business providers. Even private lenders can find a seat at the table when it comes to complex capital structures that may need a combination of financing sources. The $1.3 trillion Omnibus Bill is filled with intriguing opportunities, particularly within the Departments of Transportation and HUD. With a little homework, exciting and innovative projects can be brought to life, making a difference both for your organization and for your community.