China announced last week that it opened the world’s longest sea bridge and added a line to the world’s largest high-speed rail network. Meanwhile, on this side of the Pacific, the United States is struggling to address its crumbling roads and creaky bridges.
A bill wending its way through Congress looks to change that, and by doing so create jobs and fund projects, such as a high-speed rail line.
American has fallen to 23rd in infrastructure quality globally, according to the World Economic Forum. It will take about $2 trillion over the next five years to restore the country’s infrastructure, says the American Society of Civil Engineers.
Given America's weak economy and rising national debt, the government can’t promise anything close to an amount that dwarfs most countries' total economies. But a national infrastructure bank could help.
The idea of such a bank has been around since the 1990s but has never gained significant attention until now. In March a bipartisan bill was introduced in the Senate that gained the support of the US Chamber of Commerce, America’s leading business lobby, and the AFL-CIO, the country’s largest labor federation — two groups on opposite sides of most debates.
The BUILD Act, proposed by Sens. John Kerry, D-Mass., Kay Hutchinson, R-Texas, and Mark Warner, D-Va., would create a national infrastructure bank that would provide loans and loan guarantees to encourage private investment in upgrading America’s infrastructure. There are other similar proposals circulating in Congress, but the BUILD Act has gained the most traction.
The bank would receive a one time appropriation of $10 billion, which would be aimed at sparking a total of $320 to $640 billion in infrastructure investment over the course of 10 years, Kerry's office says. They believe the bank could be self-sustaining in as little as three years.
“Federal appropriations are scarce in this difficult budget environment, and there is increasing attention on inefficiencies in the way federal dollars are allocated,” wrote Kerry spokeswoman Jodi Seth in an e-mail.
Advocates offer a laundry list of benefits for an “Ibank.” At the top of the list, they tout the bank’s political independence. The bank would be an independent government entity but would have strong congressional oversight. Bank board members and the CEO would be appointed by the president and confirmed by the Senate. Kerry says this structure would help eliminate pork-barrel earmark projects.
If, for example, private investors wanted to invest in a project, under the BUILD Act they could partner with regional governments and present a proposal to the bank. The bank would assess the worthiness of the project based on factors like the public’s demand and support, and the project's ability to generate enough revenue to pay back public and private investors.
The bank could offer a loan for up to 50 percent of the project’s cost, with the project sponsors funding the rest. The bank would also help draft a contract for the public-private partnership and ensure the government would be repaid over a fixed amount of time.
If the Ibank funded something like the high-speed rail project, it would become another investor alongside a state government, a private equity firm or another bank. The project sponsors' loans would be repaid by generating revenue from sources such as passenger tickets, freight shipments, state dedicated taxes.
Relies on loans
Under previous proposals, which never have gained much momentum, an infrastructure bank would have offered grants, which would be more costly to taxpayers. The BUILD Act relies on loans instead, and project borrowers would be required to put up a reserve against potential bad debt. The bank would make money by charging borrowers upfront fees as well as interest rate premiums.
The bill’s supporters say this type of public-private partnership model has been successfully applied to the Export-Import Bank of the United States, which has generated $3.4 billion for the Treasury over the past five years. The Export-Import bank finances and insures foreign purchases.
It’s important to note that the infrastructure bank is only meant to jump-start infrastructure investment, not fund every project, said Michael Likosky, a senior fellow at NYU's Institute for Public Knowledge and a long-time proponent of a national infrastructure bank. Supporters hope the bank also would jump-start the job market.
Former President Bill Clinton endorses the idea of an Ibank, although he has not necessarily thrown his weight behind the BUILD Act.
“I think there are enormous jobs there,” he said in an interview last week on CNBC. “Every manufacturing job you create tends to create more than two other jobs in other sectors of the economy and it makes America more competitive, more productive.”
According to the Department of Transportation's 2008 numbers, every $1 billion invested in transportation infrastructure creates between 27,800 and 34,800 jobs.
And they tend to be well-paying, middle-class jobs construction jobs that cannot be outsourced offshore, said Scott Thomasson with the Progressive Policy Institute.
Likosky said the support the BUILD Act has garnered so far has surprised almost everyone involved.
“This infrastructure bank is the first thing on the table where we can start to talk about growing the economic pie, an approach toward moving toward prosperity," he said.
Advocates say a national infrastructure bank could be the way to take on major projects, such as upgrading America’s power grid, repairing damaged roads and bridges and building high-speed rail lines, an idea that has been discussed for more than 40 years.
High-speed rail has become something of a lightning rod issue. President Barack Obama has proposed spending $53 billion over six years to build high-speed rail lines in busy corridors across the country, an idea endorsed as recently as two weeks ago by the United States Conference of Mayors. House Republicans have criticized the plan, saying private investment, not government spending, should be used to build the rail systems, Reuters reported.
America is one of the last industrialized countries in the world without high-speed rail and will only get it built through public-private partnerships such as those encouraged by a national infrastructure bank, said Andy Kunz, the president of the US High-Speed Rail Association. The group has been pushing for a 17,000-mile national high-speed rail network run on electricity to be completed by 2030.
“Nearly every country in the world has come to us and said they have money to invest in our high-speed rail system in the U.S.,” he said.
Kunz said a national infrastructure bank would simplify the process of building a rail network because it would simplify the steps and the number of people needed to approve it.
"The bank would focus on the project as the number one issue, rather than constituents and politics as the number one focus," he said.
Opponents of the BUILD Act question this supposed political neutrality. One skeptic is Rep. John Mica, R-Fla., chairman of the House Transportation and Infrastructure Committee, whose support of the bill is considered critical.
“The Senate proposal empowers Washington decision-making and administrative earmarks,” he wrote in an e-mail. “We plan to give states more authority and take approval out of federal hands by empowering state infrastructure banks.”
There are currently a handful of state infrastructure banks, although it’s more difficult for them to cross state borders and bring municipalities together to fund national-scale projects.
Opponents also point to public-private infrastructure projects that have drawn public criticism, such as the $3.8 billion Indiana Toll Road, which was leased to foreign private investors.
“The issues with public-private partnerships and infrastructure banks is that these are just simply another way to collect revenue,” said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, who is critical of the Indiana Toll Road. “The American public, or me for example, have no real faith in the integrity of how those monies would be used.”
Manuel Lazerov, founder of private investment firm American Infrastructure Investors, opposes a national bank for different reasons. He insists private equity firms have plenty of money to invest in infrastructure projects without federal help. He doesn't trust the government to get involved and is concerned that the bank will turn into a mess like mortgage giants Freddie Mac and Fannie Mae, which had to be bailed out by the federal government to the tune of $160 billion.
“There was the implicit understanding that these were quasi-government institutions, but in no way were those obligations part of the U.S. government,” Lazerov said. “If there was a loss, there was a loss. But the taxpayer wouldn’t be on the hook for that money. As you can see that’s the way it ended up.”
Jason Delisle of the progressive New American Foundation, said the Fannie-Freddie comparison is a red herring.
“Fannie and Freddie were never on government books,” he said. “They were private companies, and they were never on the budget. But this bank would be on the government books to begin with.”
Voters, facing ever-growing commutes on crumbling roads and bridges, clearly want rancor over the issue to end. A Rockefeller Foundation poll in February found 71 percent of those surveyed wanted legislatures to come to a consensus on transportation — more than any other issue. And 60 percent said they would support an unspecified national infrastructure bank.
The debate surrounding the national infrastructure bank boils down to the age-old battle between government control versus private investment. Given the bailouts of government-chartered Freddie and Fannie and the bailouts of the privately-funded Wall Street, lawmakers will have to decide whether voters trust the government or the private sector, or if these two can actually work together to rebuild America's infrastructure.