By Georgia Levenson Keohane

The Time Is Right To Create A 21st Century Infrastructure Bank

February 21, 2013 1:24 pm Category: Memo Pad 3 Comments A+ / A-
The Time Is Right To Create A 21st Century Infrastructure Bank

President Obama has called for the creation of an infrastructure bank. Congress must follow his lead.

“It’s not a bigger government we need,” President Obama said in the State of the Union address, “but a smarter government that sets priorities and invests in broad-based growth.” The creation of a national infrastructure bank is a “smarter government” idea whose time has come.

Plans for a national infrastructure bank – one that uses federal funds to incentivize or leverage even greater investment, public and private, in large-scale public-purpose projects – have been percolating since the 1990s. President Obama has long been a champion, and the idea has enjoyed bipartisan support in Congress and backing from the likes of the AFL-CIO and U.S. Chamber of Commerce. Yet we remain stalled in enacting this kind of finance facility, despite the weight of evidence of its potential efficacy and the urgency of the infrastructure (and financing) need. It is time, as the president urged, to put the nation’s interest before party, and to use this kind of public-private partnership to make the investments vital to our economic prosperity.

Arguments in favor of the I-Bank are premised on simple logic. Investments in the infrastructure we require to remain economically competitive – improved roads and bridges, high-speed rail, a new power grid, universal broadband access, renewable energy – will also put people to work. “Smart” use of some of our public dollars via grants, loans, loan guarantees, and other risk-mitigating instruments can encourage or stimulate substantially greater investment in these projects by states, municipalities, and private sector actors. Senators John Kerry, Kay Bailey Hutchison, and Mark Warner estimated that their proposed $10 billion American Infrastructure Financing Authority could unleash an additional $640 billion in infrastructure spending over the course of a decade.

With all this win-win, what explains the delay in actually establishing such a bank? First, given current fiscal constraints, every dollar counts, and even a few budgetary billions that promise significant return on investment may not deliver those returns in this election cycle. Instead, many in Congress prefer to retain prerogative over what and where investments are made (preferably in their districts) rather than cede allocation decisions to an independent authority. Second, despite the endorsements from pro-business groups like the Chamber of Congress, a number of conservative Republicans have voiced predictable remonstrations: concerns over project selection process (“picking winners”), fear that the investment needs of metropolitan areas will be privileged over those of rural states, and a general (and congenital) preference for state-level decision making.

In fact, states have already taken the lead on creating infrastructure banks, as necessity has bred all kinds of invention. In the U.S., approximately 75 to 85 percent of infrastructure spending is financed by state and local governments, an unsustainable burden for states whose budgets and borrowing capacity have been eviscerated by the global financial crisis. According to the Federal Highway Administration, 32 states have infrastructure banks, and many new entities are taking shape, from Alaska to Virginia. Last year, the New York Works Task Force, headed by Felix Rohatyn (who helped save New York City from bankruptcy in the 1970s) called for the creation of a multibillion-dollar infrastructure bank for the Empire State.

In Chicago, Mayor Rahm Emanuel, who as President Obama’s chief of staff was actively involved in the White House push for a national infrastructure bank, has created the Chicago Infrastructure Trust (CIT), designed to spur private capital investment in a range of infrastructure projects, including transportation, alternative energy technologies, and telecommunications and broadband access. The CIT will be capitalized by the likes of Citibank and JP Morgan and will fund projects with both debt and equity. The first local I-Bank of its kind, the CIT lies at the heart of Chicago’s new economic growth strategy.

A national infrastructure bank could learn from these local experiments. Private sector investment is not a panacea; it only lends itself to projects that can generate sufficient revenue, often in the form of user fees, like tolls on roads, to attract commercial capital. Sometimes, particularly when municipalities sell off assets, there can be unintended consequences to privatization. In 2008, Chicago mayor Richard Daley famously leased the city’s parking meters to a private consortium for a handsome upfront fee of $1.15 billion. However, subsequent valuations of the future parking meter revenues put them at approximately $11.6 billion over 75 years – money that will accrue to the private investors, not to the city for things like education, libraries, or transportation.

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  • nobsartist

    The sooner President Obama does this the better. This should be his MAIN priority RIGHT NOW!

  • Sand_Cat

    Did Kay Bailey Hutchinson fall on her head? Was she smoking crack?

    Seriously, it’s a great idea, which is why it’s virtually certain to be filibustered to death.

    Come on: you’re acting like the Democrats won the election – wait, they did.

  • Michael Kollmorgen

    I can just see it now, these construction companies are going to rake in the dough.

    There is an issue here in Canton Ohio, goes back many years. A portion of Rt. 30 stops dead in its track just east of Canton Proper and resumes again just outside of Lisbon Ohio. From Canton west, its all 2 to 3 lanes east and west to the Ohio border and beyond.

    I’ts been a Political Football for years. If they want to complete that section of the highway now, it would cost triple what it would have cost to get it done originally 20-30 years ago.

    It’s a nice idea, but its really nothing more than goody-two-shoe feeling proposals. Once people find out what the actual cost is libel to be, they won’t want to do a thing. Just maintaining our Infrastructure is expensive as hell, without expanding it.

    Then too, our Infrastructure is not designed to last a long time. Normal highway paving only lasts around 2 to 3 years in the northern states. They then have to do it all over again. It should be at least 3 times thicker. It’s called Planned Obsolesce. It keeps the construction companies quite profitable and us tax payers broke. Not to mention what we pay out in automotive repairs, etc. when traveling over these horrible roads.

    Many of the TVA Era Dams have been given to local counties for upkeep. They haven’t done there jobs for a long time. Some of these dams are now privately owned. Most of these old TVA Era Dams are on the brink of disaster.

    I’d hate to see what the bill would be to bring these dams up to current safe regulations.

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