Will a New Federal Bank Guarantee Loans for U.S. Infrastructure Projects?
A national infrastructure bank for the United States would offer a way to fund projects that improve competitiveness and economic vitality and not just please local constituents.
Ideas for a national infrastructure bank have popped up periodically over the last 20 years, most recently in a proposal unveiled last week by U.S. Sens. John Kerry and Kay Bailey Hutchinson, who want to create a self-sustaining American Infrastructure Financing Authority that would provide loans and loan guarantees to projects based on merit.
Such a financing agency would be novel, but so too is the concept that we fund infrastructure in America according to the country’s larger economic goals and not politically maneuvered earmarks.
Robert Puentes, a scholar at the Brookings Institution, says politicians are taking the idea more seriously now after years in infancy thanks to a growing recognition that America doesn’t make decisions very well on which infrastructure projects bear national significance — or even what that national significance should mean. As the U.S. tries to transition out of the recession into a new kind of economy, we should build infrastructure that serves that goal, Puentes says, that reinforces global competitiveness and economic growth (and not, say, the levy crumbling in an Appropriations Committee member’s hometown).
“That’s what a policy wonk would answer,” Puentes said. “The real reason it’s getting so much attention now is that it’s mistakenly framed as free money, as something that, if we can’t raise money other ways, if we can’t raise the gas tax, can’t tap general funds, let’s do an infrastructure bank — that’s a good idea!”
Politicians who think an infrastructure bank would operate that way will be sorely disappointed, Puentes says. But he’s glad we’re at least now having the messy conversation about exactly what such an institution should look like.
Federal money would be needed to capitalize the bank, but ultimately, worthy projects would receive loans, not grants. Of course, the first tricky problem is that we’re forced to consider an infrastructure bank precisely because of the bleak budget situation, but several billion dollars (Kerry and Hutchinson have suggested $10 billion) will need to be found in that bleak budget to get the bank off the ground.
“The next thing we really need to figure out is, well how do you choose the projects?” Puentes asked. “What kind of infrastructure are we talking about? What really is a ‘project of national significance,’ and what criteria would you use to measure that?”
Would the bank be enclosed inside a federal agency, where it could benefit from low interest rates, or should it be designed as a hybrid corporation like Amtrak or Fannie Mae? The governance structure matters, Puentes, says, if we really want the bank to make independent, merit-based decisions on which projects get to tap its money.
Assuming we want the bank to make such decisions, Americans will also have to shed the notion that everyone deserves a fair share, and this may be one of the trickiest elements of the project.
“The idea is that we’re trying to move away from this spreading-it-around kind of thing,” Puentes said. Then he went on to utter words that will be anathema to fiercely defensive rural representatives. “There is an understanding that in order for our country to be economically strong, its major metropolitan areas need to be economically strong. This is where 85 percent of our GDP is produced and a large proportion of the population lives.”
That’s not to say an infrastructure bank would finance only urban projects, but you could perhaps see its decision-makers eschewing the argument that, “well, Oklahoma hasn’t gotten anything lately!” The country does have crucial infrastructure needs that fall outside of major cities. Smart grid experiments would need to be tested in smaller localities, and freight projects and border crossings would impact rural communities – all arguably have “national significance,” too.
“If [a project] doesn’t fit into our larger economic priorities,” Puentes said, “it’s still probably worthy, but it will have to find another means of funding or financing.”
The federal government just doesn’t have money any more to rain on local potholes, and Puentes adds we’re entering an era when many Americans want to reconceive of the role of the federal government in local initiatives.
“This would be a niche,” he said. “It’s not something that’s going to change everything about how we invest in infrastructure in this country. But it’s to help those projects that need some kind of complex funding packages put together, that have public-private partnership components — projects that are almost guaranteed to have a return on investment, as opposed to projects that have questionable merit.”