The focus on infrastructure in President Obama’s jobs speech was much-anticipated and necessary. While much the attention is on increasing funding for fixing roads and bridges, the president also reiterated the call to improve the way the federal government invests in infrastructure. (“No more earmarks. No more boondoggles. No more bridges to nowhere.”) He also called for the kind of transformative infrastructure investments that made the U.S. an economic superpower. One way to do that is through a national infrastructure bank.
A quasipublic entity like the Tennessee Valley Authority or Amtrak, the bank would make loans to fund transportation projects that were important to the nation as a whole. It would have to not only further policy goals, as a federal agency would, but also demand from project sponsors the same assurances and rate of return that a bank would. While not a panacea, if appropriately designed and with sufficient political autonomy, it could improve both the efficiency and effectiveness of future infrastructure projects of truly national significance.
That last part is important. Today we do not really have a mechanism to focus on investments that truly matter to the nation as a whole or that transcend state and metro boundaries. Think global ports to boost American exports, long-haul transmission lines for renewable energy, or a build-out of electric vehicle recharging infrastructure.
After the speech, some Congressional Republicans rightly pointed out that we already have infrastructure banks operating within 33 states. No doubt these state infrastructure banks (SIBs) are important and, since 1998, when the federal government provided $150 million in seed funding for initial capitalization, SIBs have become an attractive financing tool for transportation projects.
Most of this support comes in the form of below-market revolving loans and loan guarantees. States are able to capitalize their accounts with federal transportation dollars but are then subject to federal regulations over how the funds are spent. Others, including Kansas, Ohio, Georgia, and Florida, capitalize their accounts with a variety of state funds and are not bound by the federal oversight which they feel helps accelerate project delivery. Other states—such as Virginia, Texas, and New York—are also examining ways to recapitalize their SIBs with state funds.
The problem is that, rather, than bringing the tough, merit-based approach, SIBs generally do not filter projects through a competitive application process. A better approach would be for states to make their SIBs more strategic and more nimble than a typical appropriation process and as a complement to existing state, metro, and federal transportation funding and financing. Projects should be evaluated according to strict return on investment criteria, not selected with an eye towards spreading funding evenly across the state.
States should also think beyond just transportation and create true infrastructure and economic development banks to finance not just roads and rails, but also energy and water infrastructure, perhaps even school and manufacturing development. California’s Infrastructure and Economic Development Bank (“I-Bank”) provides a compelling model. After its initial capitalization of $181 million in 1999, the I-Bank has funded itself on interest earnings, loan repayments, and other fees, and has supported over $400 million in loans.
The bottom line is that either/or debates about a national or state infrastructure bank is a false choice. Both are needed but for different reasons.