Future Infrastructure budget cuts are inevitable – We must locate other means of investment to rebuild and innovate
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Normal MeansDelegation NMThe bank is delegationCongressman Keith Ellison 2009, D-Minn United States House of Representatives, The Brookings Institution, The Bernard L. Schwartz Forum on US competitiveness infrastructure investments, economic growth and jobs, Thursday, December 10, 2009 CONGRESSMAN ELLISON: Well, de-politicizing something that is an instrument of government completely is obviously impossible -- even in the selections that are made there will be political considerations. But I think that, you know, if we put a range of “completely politicized,” to “not politicized at all,” we can certainly move the knob from one end of the spectrum to the other. We can lessen the effects of just base political considerations when it comes down to making these decisions. And, of course, Congress delegates all the time, doesn’t it, you know? And so that wouldn’t be new or even precedent-setting. But I think that it would allow for these projects Executive Appointed BoardThe board would be appointed by the presidentMallett et. al. 2011, “National Infrastructure Bank: Overview and Current Legislation” William J. Mallett, Specialist in Transportation Policy, Steven Maguire, Specialist in Public Finance, Kevin R. Kosar, Congressional Research Service, December 14. Analyst in American National Government How might an infrastructure bank be governed? The three bills would locate the proposed infrastructure banks within the federal government and establish executive branch direction over them through presidential appointments (Table 1). Each bill would have the President appoint the board of the infrastructure bank, and S. 652 would have the chief executive officer be presidentially appointed rather than chosen by the board.59 Self-Sustaining GoodMandating bank solvency would assure quality project completionRobert Poole, February 3, 2009, A National Infrastructure Bank? Proposed bank can fill a niche, but current proposal needs to be refocused, director of transportation at Reason Foundation. http://reason.org/news/show/a-national-infrastructure-bank Rather than simply dismissing the NIB proposal as the wrong direction for expanded and smarter infrastructure investment, I consulted a number of experts in infrastructure finance and asked their assessment. All basically agreed with my critique of the existing proposal-but all of them also argued that since the legislation already exists and has some political momentum, the best approach for critics might be to propose better content for the measure. The gist of these people's overlapping comments was that there is a role for the federal government to do more to encourage sound investment in large infrastructure projects-at least those like highways, bridges, water and wastewater systems in which a user-fee revenue stream is feasible. There is already nearly $200 billion sitting in infrastructure investment funds, looking for good projects. But there are very few large-scale projects ready to go. What's need is a lot of detailed (and costly) pre-development work to establish basic feasibility, get environmental clearance, and do preliminary design. Funding those pre-development efforts for user-backed projects of national or regional significance could be done on a soft-loan basis by such an entity-soft in the sense that the loan would be paid back (on a subordinated basis) if the project ultimately gets financed and built, but could be forgiven if the project proved non-viable and did not get financed. The need to make this "bank" self-sustaining would serve as a restraint on funding pre-development work on highly speculative projects. Another expert, Dana Levenson of RBS, gave the analogy of one of the more successful government-sponsored enterprises, PEFCO (Private Export Funding Corporation). PEFCO started out with a mix of government and private sector capital; it assists with the financing of exports, both as a direct lender and as a secondary market buyer of export loans originated by lenders, and is currently leveraging its capital at a 50:1 ratio. Levenson suggests that on an initial (public plus private) capital of $20 billion, a National Infrastructure Bank modeled after PEFCO could leverage up to $1 trillion in infrastructure. (Even with 25:1 leverage, it could jump-start $500 billion in projects.) But all of that would have to be infrastructure with a user-fee revenue stream to pay back the loans. In short, I'm persuaded that there is a niche that an NIB could fill, to help this country take advantage of the huge pool of investment funds seeking to invest in U.S. infrastructure. Whoever ends up as our next president should seek to refocus current national infrastructure bank proposals into this sustainable form. LocalitiesLocalities “Skin in Game” GoodAn NIB reduces infrastructure management pressure on localities, while also increasing their input in the processEverett Ehrlich 2010, Ehrlich served in the Clinton Administration as under secretary of commerce for economic affairs, president of ESC Company, a Washington, DC-based economics consulting firm. Senior vice president and research director for the Committee for Economic Development, and assistant director of the Congressional Budget Office, “A National Infrastructure Bank: A Road Guide to the Destination,” Progressive Policy Institute, October 2010 But the kind of Bank we have described could change the way we think about this trade-off. In fact, it would most likely require such a change by forcing state and local governments to plan more rationally and put more of their own “skin in the game” when proposing new projects. This would give local governments strong incentives to think creatively to maximize efficiencies and returns on their own resources. The modal infrastructure programs were designed to create a national set of facilities such as roads, airports, water treatment facilities, and so on. In their early stages, virtually any segment of the Interstate Highway System or new airport had a very good chance of having a positive economic return. But now that these systems are mature, there can be no doubt that other related activities can produce returns competitive with new construction. Writing almost two decades ago, Ned Gramlich found that the maintaining the Interstate to its current condition had an annual rate of return of 35 percent, while the return to new segment construction was minimal.2 That finding is likely to be even more true today. We also face a challenge of managing existing assets in order to optimize their use. Pricing, technology, land use, and other non-structural solutions all have an increasingly important role to play here, but these are either not funded by construction-oriented programs or they require that costs be imposed on local users. On-theground infrastructure managers know this better than outside analysts or critics, but the system does not reward these solutions. I believe that these local managers would welcome federal involvement that forces them to exhaust, or at least exhaustively review, these non-structural alternatives. This would free them up to implement solutions in which they had confidence and avoid pressures to devise new ways to spend free federal dollars. But the good news is that having local users put some “skin in the game” is a good starting point for getting localities to broaden their search for solutions. Moreover, the Bank itself can move this process along. It can require that proposals be accompanied by a discussion of non-structural solutions, and by using its abovementioned assumptions regarding state and local fiscal carrying capacity, social benefits, and the distribution of income, to determine whether the costs borne by local users are adequate.
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