Future Infrastructure budget cuts are inevitable – We must locate other means of investment to rebuild and innovate
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- FIB solves best through investment unlike traditional methods that are considered “waste of money”
- Investment Uniqueness: Interest High
- Private capital investment interest is high
- Infrastructure bank can invest more money than traditional government grants
- NIB resolves hesitancy of private capital to invest in national infrastructure
- Public private partnerships increase American global economic competitiveness, efficiency, and longevity of infrastructure
SolvencyPrivate InvestmentPrivate CapitalPrivate funding has enough capitalBrad Plumer; Washington Post; September 19, 2011 “How Obama’s plan for infrastructure bank would work” http://www.washingtonpost.com/business/economy/how-obamas-plan-for-infrastructure-bank-would-work/2011/09/19/gIQAfDgUgK_story.html NCHO In recent years, reams of white papers have come out describing how much of the nation’s transportation, water and energy infrastructure is in shambles. A 2010 Government Accountability Office report, for one, found that a quarter of the country’s 600,000 bridges are either “structurally deficient” or inadequate to today’s traffic needs.¶ Most U.S. infrastructure is funded through either federal outlays or state and local municipal bonds. The country lacks a central source of low-cost financing for big construction projects, akin to the European Investment Bank.¶ The private sector chips in just 6 percent of infrastructure funding, although supporters of the bank say that number could be higher. Last year, Robert Wolf, chairman and chief executive of UBS Americas, told the Senate Banking Committee that there was more than $180 billion of private-equity and pension-fund capital available for infrastructure investments.¶ The White House estimates that its infrastructure bank could ultimately backstop about $100 billion to $200 billion in construction. That would, in theory, boost the overall size and impact of its jobs bill, which nominally costs $447 billion.¶ But that depends on how quickly the money flows. Sen. John F. Kerry (D-Mass.), who has backed a bank bill in the Senate, has said “We have projects all across America that are ready to go tomorrow.” Yet other supporters, including the Chamber of Commerce, sound more cautious, saying it could take a few years for the pipeline of projects to get going. FIB solves best through investment unlike traditional methods that are considered “waste of money”Council on Foreign Relations, 7/3/12 (Elizabeth Dovell – contributor, “U.S. Rail Infrastructure Policy Options”, http://www.cfr.org/united-states/us-rail-infrastructure/p27585) Over the past three decades, aviation and highway infrastructure have received more than a trillion more federal dollars than rail. For nearly a decade, Amtrak's federal funding was stagnant or falling. But in 2008, a year with historically high gasoline prices, Congress nearly doubled rail funding (WSJ).¶ When President Obama took office in 2009, as part of the American Recovery and Reinvestment Act, he allocated $8 billion for high-speed rail projects. The administration also announced the creation of the High-Speed Intercity Passenger Rail program. The proposal included a $1 billion per year allocation for the next five years for high-speed rail investment in strategic areas around the country, such as Chicago, New York, and Los Angeles. The HSIPR program was also designed to address other outstanding rail transport problems around the country, and sought to upgrade existing passenger rail lines to increase speed and efficiency of services. In February 2011, Vice President Biden announced a six-year plan to build a HSR network that would fulfill President Obama's promise to grant HSR access to 80 percent of the country within twenty-five years.¶ But in November 2011 the U.S. Senate and the House of Representatives killed HSR stimulus funding (USA Today), a measure that was controversial from the start. It faced opposition at the state level, where some lawmakers and policy analysts claimed high-speed rail was impractical and a waste of taxpayer dollars. Republican governors from Florida, Ohio, and Wisconsin rejected their HSR stimulus grants (TransportationNation), calling for the redistribution of funds to other infrastructure and transportation projects. In spite of the funding setback, the Department of Transportation announced in its 2011 DoT Year in Review the accumulation of $9.4 billion in Federal Railroad Administration grants for HSR innovation.¶ Some experts see a national infrastructure bank as a way to fund new transportation projects, including rail, and avoid these types of fights. Proponents claim that it would promote federal spending allocation based on merit as opposed to more traditional methods, such as earmarking. It would also provide credit assistance and low-interest loans to local and state government investment and encourage private investment. Several congressional bills, such as the American Infrastructure Investment Fund Act of 2011, would create an infrastructure bank-like entity.¶ Washington Monthly's Philip Longman notes that "the choice of infrastructure projects is de facto industrial policy; it's also de facto energy, land use, housing, and environmental policy, with implications for nearly every aspect of American life going far into the future." Investment Uniqueness: Interest HighInvestment interest is high nowTanya Snyder, Streetsblog's Capitol Hill editor in September 2010 after covering Congress for Pacifica and public radio, 10/07/2011 “Does the Elusive Infrastructure Bank Already Exist?” http://dc.streetsblog.org/2011/10/07/does-the-infrastructure-bank-of-our-dreams-already-exist/ And indeed, there’s plenty of private capital out there ready to invest in infrastructure. Ed Smith of Ullico, Inc., a union insurance company, said his company wants to invest pension funds in a national infrastructure bank. It would create jobs for union members and have a long-term, safe and stable payout that works well with pensions. And as a member of the labor movement, he said “People have to get out of the habit of saying we need to create jobs today through infrastructure. We need to create jobs over the next ten years – and infrastructure can do it.” “You talk about infrastructure, you don’t talk about short-term stimulus. You talk about a stimulus that’s being put in place for five, 10 years,” Smith said. “Short-term infrastructure is an oxymoron.” That’s why job creation should focus on repair, said Gene Sperling, director of the White House National Economic Council. He told the PPI gathering yesterday that the president’s jobs bill won’t just focus on big capital projects. “If you’re having to have a quick impact on the economy, there aren’t that many large projects that are ready to go,” Sperling said. “Like at a home – if somebody told you you could build a new room, not everybody is ready to do that. Everybody is ready to fix something in their kitchen or their stairs.” Tanya Snyder became Streetsblog's Capitol Hill editor in September 2010 after covering Congress for Pacifica and public radio. She lives car-free in a transit-oriented and bike-friendly neighborhood of Washington, DC.
The Brookings Institution Obama’s Infrastructure Agenda: Understanding The Pillars Washington, D.C. Thursday, September 16, 2010, www.brookings.edu/events/2010/09/16-infrastructure MR. PUENTES: Matt, are you still seeing this on this interest from the private -- we hear this all the time, that there’s this palpable interest, private folks are ready to invest, the money is out there, we just need direction, we need guidance. I mean, Virginia has a long history. MR. STRADER: Yeah, there’s still a lot of interest. It seems like almost every week there’s another fund, another infrastructure investment group coming and wanting to talk to us about investing in Virginia. And I think one of the things that we’re really going to try and focus using the money on the bank for -- in the bank for is to help fund this PBTA type projects, because right now Virginia doesn’t have a dedicated source of funding for the public subsidy portion of the PBTA. And, you know, we have a laundry list of projects that we’d like to get moving on. You know, first off, 460, we just received three bids for the 460 project last week. We’d also like to look at adding another tunnel to HRBT -- the Hampton Roads Bay Bridge Tunnel -- a third crossing, 66 hot lanes, winding I-64, just any number of projects that are in the pipeline down the road that we really see using this bank to help, you know, fund up-front subsidy -- or not really subsidies, but as another option for the private sector to get money to help pay for these projects. Private capital goodInfrastructure bank can invest more money than traditional government grantsReuters, 8/11 (John Wasik, contributor of Reuters - the world's largest international multimedia news agency, “Job creation: Fixing America with an infrastructure bank”, http://blogs.reuters.com/reuters-money/2011/08/05/job-creation-fixing-america-with-an-infrastructure-bank/) We have iPhones, iPods and iPads. Why not an “iBank?”¶ This wouldn’t be an electronic gizmo that’s obsolete in a year, though. It would be a public-private partnership to bolster America’s infrastructure. It will create jobs, cut the deficit and repair what needs to be fixed all over the country.¶ An infrastructure bank, or iBank, solves a lot of problems without busting the budget. Instead of providing direct government grants or earmarks for specific projects, loans are made by a government-banking entity.¶ The U.S. is inexcusably late to the game on this time-tested idea. The European Investment Bank has financed some $350 billion in projects from 2005 through 2009. China spent 9 percent of its gross domestic product — also roughly $350 billion — to build subways, highways and high-speed rail in 2009 alone. Brazil invested $240 billion over the past three years.¶ The idea is not without high-level support. President Obama recently called for the creation of an iBank. In backing a U.S. iBank, Senator John Kerry of Massachusetts testified last year that “a national infrastructure bank will make Americans builders again.”¶ If the iBank became reality — and really it’s a necessity to compete in a globalized economy — there’s no shortage of projects. According to the American Society of Civil Engineers, more than $2 trillion is needed to fix U.S. bridges, dams, waterways and wastewater plants.¶ The sheer scale of a big fix is staggering: Some 69,000 bridges need to be repaired. The outdated electrical grid needs to be modernized everywhere. You can build solar plants and windmills all you want, but if you have no power lines to transport the electrons from the deserts and plains, you’re whistling in the wind.¶ Several spin-offs of an iBank have been floating around for years, and the idea already has support across the political spectrum. A “Clean Energy Bank” would fund solar energy equipment. Sen. Bernie Sanders of Vermont, supports legislation that would install 10 million roof solar panels. Sen. Mark Kirk of Illinois proposed a “Lincoln Legacy” infrastructure bill.¶ How is the iBank different from just handing out the money to each Congressional district and letting the local representative decide where the money should go?¶ In Kerry’s vision, federal dollars would be matched with private dollars from pension funds and endowments. Kerry told the Time’s Joe Klein recently that “a $10 billion federal contribution will leverage about $640 billion in private investments.” Kerry claims he has support from business, labor and Republican Senators.¶ Instead of doling out pork-barrel funding for bridges to nowhere, an independent board would decide which projects are needed most. It’s the inverse of a military base closing commission. Instead of shutting down facilities, this entity would greenlight and finance the most-worthy projects.¶ One thing an iBank wouldn’t be is another big-check stimulus plan, which Congress passed in 2009. That nearly $800 billion package was a huge fiscal band-aid to help states, school districts and wage earners through the recession. Yes, there were some public works projects that created short-term jobs, but the bulk of the money went to tax relief and the states.¶ The U.S. needs a new approach to economic triage. The June jobs report was nothing short of dismal as employment growth hit a wall with only 18,000 new jobs coming on the market.¶ Crumbling infrastructure will cost the U.S. economy nearly 1 million jobs and shave $3.1 trillion from gross domestic product by 2020, the Society of Civil Engineers estimates.¶ What about the budget? Isn’t there a disconnect between the current passion for cutting the federal deficit and spending money to fix America?¶ There’s little question that putting people to work will help the economy. Working people pay income, sales and property taxes, which flow back into communities. The steadily employed buy homes, vehicles and appliances. Increased tax revenue in turn reduces the deficit.¶ The iBank may be able to accomplish what a decade of personal income and estate-tax cuts didn’t: Provide the necessary public-private capital to revive the economy. Not even Harry Potter can make magic work on the U.S. economy without some significant infrastructure investment. Public Private GoodNIB resolves hesitancy of private capital to invest in national infrastructureEverett 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 Second and perhaps more important in the long term, the current arrangements for infrastructure finance fail to marry the private appetite to provide infrastructure financing with the availability of potentially profitable infrastructure projects. Investors will readily confess that the risks associated with building new infrastructure assets are too large and complex for them to bear. That is because no mechanism exists to calculate and separate public (social) and private (appropriable) benefits and that distinguishes among the risks accordingly. For example, cost overruns due to public sector project management are not fair game for a private investor, but failure to achieve traffic targets might be. A Bank, beyond rationalizing project selection, offers the prospect of finding terms on which private money can enter the active provision of capital for new projects. Advocates for a Bank often speak of gearing or leverage ratios when discussing the advantages of such an institution. But this leverage will be built from the ground up, on a project-by-project basis — if the government puts up ‘x,’ then private investors will be invited to put up ‘y.’ This is more likely than investors buying bonds or preferred stock from a Bank simply because it announces it is open for business. And if investors do flock to offer money in such a fashion, then it is likely because they have come to believe that the Bank has the same kind of implicit guarantees that other government enterprises have famously abused. One good measure of any infrastructure proposal’s success, therefore, is its ability to bring private risk capital to these investments on a case-by-case basis. Public private partnerships increase American global economic competitiveness, efficiency, and longevity of infrastructureStephen Goldsmith, New York City Deputy Mayor for Operations, April 5, 2011, “Infrastructure Investment and U.S. Competitiveness” http://www.cfr.org/united-states/infrastructure-investment-us-competitiveness/p24585 Investment in America's physical infrastructure is directly tied to economic development. Businesses and the workforces they attract consider infrastructure when deciding where to locate. Too often, however, pressed by day-to-day concerns, state and local governments fail to adequately plan and invest in infrastructure. Tight budgets make it easy for officials to rationalize the deferral of investment until a time when surpluses return. Unfortunately, this pattern has been repeated for decades, and the accumulation of deferred maintenance and deferred investment in future infrastructure has led to an unsatisfactory status quo. To ensure America's future competitiveness in the global marketplace, we must rethink our approach to the construction and financing of infrastructure. And in this policy area, many of the most promising ideas for unlocking public value involve public-private partnerships. Public-private partnerships can produce access to capital that will accelerate the building of critical infrastructure in sectors ranging from transportation to wastewater treatment. The key question in a debate about infrastructure should be: "How can we produce the most public value for the money?" Answering this question should lead us to pursue both operational and financing innovations. The private sector has an important role to play in both. Public officials can produce more value for the dollar by better structuring the design, construction, operation, and financing of infrastructure projects that produce more lifecycle benefits and fewer handoffs among various private parties. A private partner can often achieve savings for government by identifying operational efficiencies and assuming risk formerly held by the public sector. Unlike the traditional model for bridge construction in which one firm designs, one firm builds, one company finances, and the public maintains, an arrangement which gives the private firm an ongoing responsibility for maintenance or durability will encourage design optimization and likely increase the length of the asset's lifecycle. Public-private partnerships can produce access to capital that will accelerate the building of critical infrastructure in sectors ranging from transportation to wastewater treatment. However, maximizing their potential to solve America's infrastructure challenges also requires governments to create a regulatory climate conducive to them. Government agencies should be given maximum flexibility to enter into partnerships with the private sector; and private companies should not have to navigate unreasonable tax laws that limit their ability to partner with government entities to produce better public value.
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