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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.

A number of important new studies draw on these local experiments and best practices from around the world, including those of the European Investment Bank, which was established in 1958 and attracts a wide range of investors. Emilia Istrate and Robert Puentes note that 30 countries have specialized public-private partnership (PPP) units within their governments to promote this kind of cross-sector work. They suggest that, in addition to a national I-Bank, such an office could be housed within the Office of Management and Budget and could support state and local governments with their infrastructure investments. The idea is not to supplant or crowd out state or local investment efforts. As William Galston and Korin Davis point out, a national I-Bank would facilitate regional projects that span multiple states or those that promote goals that are truly national in scope, such as renewable energy development, a seamless power grid, or multimodal freight transport.

This would not be the first time we have looked to public-private partnership for massive infrastructure modernization and job creation. Franklin Delano Roosevelt’s New Deal included public-private ventures like the Tennessee Valley Authority, which FDR described as “a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” Obama’s New Deal – Keynes meets leveraged finance – would draw on this tradition of cross-sector collaboration with an eye toward our 21st century economic needs.

Calls for greater infrastructure investment have been amplified in recent months by events like Hurricane Sandy, which underscore the urgency – and often regional and national nature – of the need. Polls from Lazard and the Rockefeller Foundation, among others, show that the vast majority of Americans, despite valid privatization concerns, are supportive of a mix of infrastructure finance that includes private sector capital, particularly if it is in lieu of further budget cuts or tax increases. The president and Congress must seize the moment: the time is right for a significant public-private investment in our nation’s future.

Georgia Levenson Keohane is a Fellow at the Roosevelt Institute and the author of Social Entrepreneurship for the 21st Century: Innovation Across the Nonprofit, Private, and Public Sectors.

Cross-posted from the Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo by Mats Molin/Flickr

Going On The Offensive Against Poverty In America

As part of the series “A Rooseveltian Second-Term Agenda,” suggestions for how President Obama can get serious about combating poverty.

Hurricane Sandy’s violence was a tragic reminder of some important truths in American life: climate change matters, government matters, and caring for the vulnerable—those severely afflicted by circumstances beyond their control —not only matters, it is the essence of who we are as a people. Today, our country’s vulnerable include the 46 million people—nearly 1 in 6—who live in poverty, and 16 million of those are children. This deprivation is particularly grievous in context: earnings for the wealthiest continued to grow last year, while income for the rest stagnated or fell. These levels of poverty and inequality are not only unconscionable, they threaten our economic security.  When it comes to fighting poverty, what do we make of the Obama team’s record and, more importantly, what should be its priorities for the next four years?

The Poverty of the Debate on Poverty

Poverty’s notable absence during the campaign season disappointed and galvanized many progressives who hoped to insert the issue into the election platform and political debates. Those concerns echoed earlier remonstrations that the president had failed to address poverty over the last four years with the passion or federal muscle promised in his 2008 campaign. “Barack Obama can barely bring himself to say the word ‘poor,’ Bob Herbert wrote this spring in The Grio. Paul Tough, Herbert’s public conscience heir at The New York Times, explains the political conundrum behind the administration’s focus on the economic woes of a broader set of struggling Americans rather than on the poorest per se: “how do you persuade voters to devote tax dollars to help the truly disadvantaged when the middle class is feeling disadvantaged itself?”

While we may long for the soaring rhetoric of 2008, the fact is these broad-based policies have worked. They have not eradicated poverty, but many important domestic programs—the stimulus, in particular, which included new and expanded tax credits, enhanced unemployment insurance, and increased eligibility for food stamps—kept an estimated seven million out of poverty and cushioned against even greater hardship for more than 30 million people already below the federal threshold. Not to mention that health care reform extended coverage to tens of millions of uninsured Americans (in part by expanding access to Medicaid). The federal poverty measure does not take into account non-cash transfers, including food stamps, housing subsidies, and health care benefits like Medicare and Medicaid. When these are factored in, it appears as though poverty has not increased under Obama’s tenure.

Pivot from Defense to Offense

When it comes to a new kind of war on poverty, the Obama administration must recognize that it now has the freedom—and, arguably, an electoral mandate—to address need in this country in ways that serve the struggling middle class and target programs and policies to help the poor. This is not an either/or proposition. And of course job creation is the primary lever: there is no better way to help all Americans in the next four years and beyond.

In terms of programs to address persistent poverty, however, Obama’s second-term agenda must pivot from defense to offense, graduating from “could have been worse” blood staunching to an even greater commitment both to long-term investments in human capital and interim supports that shield children and families from some of the most severe privations of life in poverty.  Here are three places to begin:

(1)  Redouble investment in comprehensive and community-wide approaches to fighting poverty. Tough laments that, while in 2008 Obama called for “billions” for programs like Promise Neighborhoods that are modeled on Harlem Children’s Zone’s and provide a broad swath of interventions for poor children and their families, the administration to date has spent just $100 million on pilot programs in 37 communities across 18 states. Ongoing and expanded support for these kinds of holistic programs in cities across the country would make for a sound investment in human potential, using federal structure and funds to support local and community generated solutions.

(2)  Commit more fully to investments in high-quality early childhood education and childcare, which yield substantial returns in the school success and life prospects of low-income children and their working parents. This means expanded tax credits and other financial supports for families paying for childcare. It also means increased funds for proven programs like Head Start and Early Head Start, particularly when state governments across the country, with budgets in crises, have been forced to cut Pre-K programs. Head Start and Early Head Start are chronically underfunded and therefore do not reach many eligible families.

(3)  Reform welfare reform, so that it provides real “safety” for poor families in tough economic times. Although it has long been touted as a success of the Clinton administration, the 1996 welfare reform, which devolved much of TANF to the states and linked cash assistance to stringent work requirements, was structurally flawed. First, it was not indexed for inflation (and is funded at its 1996 level). Second, as a block grant it leaves poor people dependent on (now) cash-strapped states for support. Third, the original work requirements were predicated on the existence of work, not on the stubbornly high unemployment rates of this recession. The federal government must reclaim a greater role in the redesign and provision of temporary assistance for needy families to help keep them out of extreme poverty in the way it has done with other critical strands of the safety net like food stamps and unemployment insurance.

With this second term, the Obama administration has the chance to broaden opportunity and to make vital advances in the fight against poverty.

Georgia Levenson Keohane is a Fellow at the Roosevelt Institute.

Cross-posted from The Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.