National Infrastructure Bank idea gains momentum

The problem of the U.S. infrastructure deficit received prominent attention from the governors and state officials meeting in Washington during the month of February. Aside from agreeing that the needs for infrastructure funding are great, that present resources are inadequate, and that earmarks are a poor way to deal with the problem, few solutions were offered as to how to meet the revenue shortfalls. This is why, writes Cascadia’s Ken Orski, an 11 March hearing by the Senate Committee on Banking, Housing and Urban Affairs took on special significance. The hearing focused on a bill sponsored by Senate Banking Committee chairman Christopher Dodd (D-Connecticut) and Senator Chuck Hagel (R-Nebraska) to create a National Infrastructure Bank (S. 1926). Described by Dodd as a “unique and powerful public-private partnership,” the proposed bank could potentially offer a fresh solution to the challenge of infrastructure financing.

The bill proposes to create an independent national bank financed with a $60 billion bond issue. Using the bonds to leverage private capital, the bank would supplement public spending and finance large capacity-building infrastructure projects “of substantial regional and national significance.” Candidate projects would be brought to the bank’s attention by state and local sponsors. Eligible projects would include roads, bridges, mass transit systems, wastewater treatment facilities and public housing. “The federal government does not and will not have the resources to meet our future national infrastructure needs,” said Hagel in his opening statement. “While the proposed legislation is not the entire solution, it can be part of the solution.” The intent of the legislation is to create “an architecture,” in Dodds’ words, that would make it possible to address the challenge of modernizing the nation’s public infrastructure in a concerted and systematic manner. The bill is not entirely clear on this point, but Orski assumes that preference would be given to income producing assets such as toll roads and bridges. Principal and interest on “project-based infrastructure bonds” issued for such assets could be repaid with revenue generated by user fees and make the projects self-financing. The tax-free bonds, backed by the full faith and credit of the federal government, would offer an attractive investment to institutional investors such as pension funds, whose liabilities and payout requirements would match the bonds’ long-term maturities.

The Dodd-Hagel proposal should appeal to the large majority of congressional lawmakers who are reluctant to vote for higher gasoline taxes but who nevertheless believe that the nation’s growing infrastructure deficit must not be left unattended. The idea of separating capital spending from normal operating expenses and the concept of a national capital budget that would be immune from the vagaries of annual congressional appropriations, has a number of influential proponents. They include Pennsylvania Governor Ed Rendell, and Felix Rohatyn and Warren Rudman, co-chairs of the Commission on Public Infrastructure of the Center for Strategic International Studies. Note that the idea of a national capital budget is not without its critics. The Treasury Department might be opposed to the bonds if they became a new encumbrance on the U.S. treasury. The congressional appropriators might object to the Bank as usurping their prerogative to be the sole dispensers of the federal largesse. There might also be objections from those who believe that the answer lies in relying more heavily on market forces to direct private investment into the needed infrastructure rather than creating a new centrally directed bureaucracy. Lastly, the sum of $60 billion in the proposed bond issue may appear as insignificant when contrasted with the $1.6 trillion national infrastructure deficit estimated by the American Society of Civil Engineers.

Still, the bill’s endorsement by both Democratic presidential candidates, Senator Hillary Clinton of New York and Senator Barack Obama of Illinois, should add considerable weight to the notion of a national capital budget and ensure its continued visibility in the policy debate. What is more, House Speaker Nancy Pelosi’s support may earn the bill an early place on the House legislative agenda. At a news conference on 12 March, Pelosi said she favors a national infrastructure plan and wants the House to take up legislation such as the Dodd-Hagel bill that seeks to leverage public funding with private capital to finance critical infrastructure.