Infrastructure Bank Plan Gaining Attention And Momentum

In today’s New York Times, columnist Bob Herbert spotlights the congressional proposal for a National Infrastructure Development Bank that would issue bonds, make loans and create securities to help finance needed rebuilding projects around the country. As Herbert put it:

rosa.jpgRep. Rosa DeLauro (D-CT) (Photo: America2050 via Flickr)

[T]here was a development in Congress last week that
should have been seen as significant but could not elbow its way into
the media precincts obsessed with Rush Limbaugh, Dick Cheney and swine
flu.

Representative Rosa DeLauro, a Connecticut Democrat,
introduced a bill to establish a national infrastructure development
bank that would use public and private capital to fund projects of
regional and national significance. These are projects that are badly
needed and would be a boon to employment.

DeLauro’s plan would give the final say over which transportation, energy and telecom projects receive assistance from the development bank to an independent board of directors. Separate risk management and audit committees would keep an eye on the bank’s balance sheet, which would get a $5 billion annual infusion of taxpayer money to help attract more capital from private investors.

The development bank has won backing from a collection of strange political bedfellows, including the U.S. Chamber of Commerce, the AFL-CIO and Felix Rohatyn, the investment-banking magnate who helped New York City avert insolvency in the 1970s.

Still, the risk-management aspect of the plan appears particularly crucial. Why? The development bank would be able to "purchase and sell infrastructure-related loans and securities on the global capital market," according to DeLauro’s summary. That phrase sounds innocuous enough, but several communities that issued infrastructure-related bonds to pay for recent improvement projects have found themselves facing bankruptcy after making risky bets to help keep pace with fluctuating interest rates.

With the municipal bond market on shaky ground right now, it’s easy to envision the infrastructure bank taking — to use a euphemism — creative measures on the market to help convince private investors to participate. It’s important, therefore, for the bank to ensure states and localities aren’t getting talked into overly complex financing arrangements.

Does the infrastructure bank proposal have a real future in Congress? Its current 27 co-sponsors in the House are all Democrats, but former GOP senator Chuck Hagel signed onto a similar plan in 2007, and its appeal is undeniably bipartisan. Transportation Secretary Ray LaHood also has spoken approvingly of the bank, meaning that it has a strong chance of appearing in the federal transportation bill slated for introduction this summer.

So Herbert could soon get his wish for more media coverage of DeLauro’s proposal … if the House pushes forward to a final vote on its transportation bill.

  • Barnard

    It’s good to see lawmakers talking at least 1 new way of raising revenue for transportation. The highway trust fund, which pays for pretty much all of the federal government’s share of the surface transportation budget (highways and transit), will go broke before we see a new federal transportation bill.

    In addition to coming up with new revenue streams, I think they need to go back and fix the existing ones. Two panels of experts–the National Surface Transportation Infrastructure Financing Commission and the National Surface Transportation Policy and Revenue Study Commission–released reports in the past two years recommending that the U.S. raise the gas tax and peg it to inflation. That’s a first, interim step to fixing things.

    In the long-term, government should consider replacing the gas tax with a VMT fee (as was tested in Oregon and Seattle recently), a carbon tax and/or any other ways to better internalize the costs of driving a private motor car, get rid of the massive subsidies we all provide for drivers and provide more funding greener, healthier transportation.

    Do others have ideas on this?

  • Ian Turner

    Barnard,

    What is the policy justification for replacing the gas tax with a VMT tax?

    As far as a carbon tax on driving, it seems like that can just be rolled into the gas tax: The amount of carbon emitted per gallon of gasoline does not depend on the efficiency of the automobile in question.

  • Larry Littlefield

    Generation Greed strikes again.

    Rather than have the federal government use taxes to pay for a few years of infrastructure investment, they’ll loan money to state and local governments.

    Who will pay it back, how?

    This isn’t new revenues, it’s new debt. The “innovation” is that the federal government doesn’t count it as debt because it is with a “bank.” And state and local governments don’t have to try to borrow money from anyone who would be lending their own money, and thus worried about repayment.

    What’s important is now how it will be paid back, but when. When Generation Greed finishes sucking every last dime out of the future and then passes on.

  • Bedfellows

    The “U.S. Chamber of Commerce, the AFL-CIO and Felix Rohatyn” all support the infrastructure bank because they, and the interests they represent— the building trades, construction contractors and Wall St — all stand to make money from it. Larry Littlefield is right that this is fundamentally a new way of issuing debt off the ledgers of the US Treasury or states and localities. Cities and states have maxed out their borrowing and don’t want to raise gas/VMT taxes or transportation user charges. The question is whether it is easier to default on loans from this bank or bond issuances. Odds are the states and cities borrowing the money believe the feds will ultimately let them slide because it will be too politically difficult too collect. One thing politicians of all stripes believe is that their constituents deserve a break. If this things happen, NYC and the MTA should borrow as much as they can as fast as they can and then try to shove the costs off on the feds like everyone else will. Since NYC sends billions more to Washington than it gets back, this is a rare chance to cash in and bring the money home.

  • Larry Littlefield

    “Larry Littlefield is right that this is fundamentally a new way of issuing debt off the ledgers of the US Treasury or states and localities.”

    Deferred maintenance of our infrastructure is also an off the books debt. So are public employee retirement benefits that are promised but not fully funded, based on ridiculous assumptions about the rate of return on current assets.

    The massive on the books debts, of course, are in addition.

    The question is what happens when the bailouts stop because the federal government can’t borrow anymore?

  • Right… how about a “Sustainable Infrastructure Bank”?

  • Gregory Francis

    Better yet…direct all transportation/infrastructure funding through the infrastructure bank and allow the bank to fund metro areas to construct the projects. The terms of the funding should be linked to the coherence of metro area’s land use/transportation policies and the projects seeking funding. For example, transit funds won’t be release if a metro area fails to curb its lateral expansion.

    The bank could also invest in the real estate projects that complement the infrastructure assets as an additional source of funds.

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