Tax reform clouds 2018 “stable” outlook for U.S. transportation & ports

An otherwise stable outlook for U.S. transportation infrastructure next year will be clouded somewhat by questions surrounding tax reform, according to Fitch Ratings in its 2018 outlook report.

 Potential changes in tax, trade and border policies could affect growth for some transportation segments. The Trump administration's tax reform proposal is a mixed bag according to Cherian George, managing director.

"While the tax reform will increase costs for capital improvements for U.S. transportation assets in the near term and may limit issuer options, it would deepen the pool by opening up investments to a larger investor base," said George. 

 Broader questions aside, most major transportation segments are set for another stable year in 2018 with volume growth likely to mirror GDP and fuel prices remaining low.

Fitch's outlook is stable for U.S. ports next year.

The recent shake-ups from shipping mergers, alliances and bankruptcies are ebbing now, though some ports may see sharper cargo changes linked to specific counterparties or markets.

This concern is also being voiced by the American Association of Port Authorities (AAPA).

The AAPA notes that the historic “Tax Cuts and Jobs Act” legislation approved Dec. 2 in the U.S. Senate and a somewhat different version approved on Nov. 16 in the House of Representatives each contain provisions that would reduce or curtail much-needed tax support for investments in America’s infrastructure, including seaports.

It is particularly concerned over several provisions in the House-passed bill.  Provisions to (1) eliminate tax-exempt status for Private Activity Bonds (PABs) and (2) repeal the tax exemption for advanced refunding of bonds would seriously impair two important tools used to fund U.S. port infrastructure, which is a high priority for AAPA.

The Senate bill also includes repealing the tax exemption for advanced refunding of bonds, affecting the ability of issuers to refinance those bonds at lower rates.

Approximately 27 percent of the $451 billion in long-term, tax-exempt U.S. municipal bonds were advance refunded in 2016 to take advantage of lower rates.