Among the legion of problems facing the U.S., two stand out: Unemployment remains appallingly high, and the public works undergirding our economy are in alarmingly bad shape. Creating a national infrastructure bank presents a harmonized solution to these two problems that should be feasible even in austere times.
Airports and transportation networks, levees and dams, water and energy systems are deteriorating. The American Society of Civil Engineers estimates that 25 percent of our bridges are deficient, 7 billion gallons of clean water are wasted each day because of leaking pipes, and a third of our major roads are in poor or mediocre condition. The costs of all this to U.S. businesses -- in delays, accidents, lost productivity, red tape -- are enormous.
Yet improving such facilities adequately, the ASCE estimates, would require a five-year investment of $2.2 trillion. If you’ve been within shouting distance of Washington lately, you know that finding anything near such a sum is an impossibility. So a revitalization program that doesn’t rely entirely on federal munificence is crucial.
Enter the infrastructure bank, which would provide loans or loan guarantees for big projects deemed to be in the public interest -- and attract private investment by offering cheap access to capital and a path to profit from tolls, fares and other charges.
The bank could leverage the government’s outlay to lend more. An initial $5 billion a year for five years could result in $50 billion or more in loans. And because these loans would be paid back with interest, the institution could become self-sustaining. Financing for such a bank should be seen as an investment, not “spending.”
The resulting projects would not only improve lives and safety, but would also go some way toward replacing the many construction jobs lost in the recession and housing meltdown. Every dollar spent on public infrastructure yields a $1.59 boost to gross domestic product, estimates Mark Zandi of Moody’s Analytics.
There are many suggestions for how to structure such a bank, including a Senate proposal sponsored by John Kerry, Democrat of Massachusetts, and Kay Bailey Hutchison, Republican of Texas, which earned the strange-bedfellow support of both the AFL-CIO and the U.S. Chamber of Commerce. Representative Rosa DeLauro, Democrat of Connecticut, has introduced a House bill, and President Barack Obama has advanced a plan that mixes loans and grants.
All these proposals have merits and deficiencies. Any final version must contain a few critical elements that ensure that the bank spends federal money efficiently and that there’s little risk to taxpayers.
It should have an independent board of directors that would evaluate competing loan requests using a transparent cost-benefit analysis, thus avoiding pork-barrel political machinations. Its board should be biased toward approving projects that use intelligent congestion pricing and similar user charges to produce a steady stream of revenue and help ensure long-term solvency. It should be permitted to issue long-term bonds and to sell the loans it makes as securities in capital markets. And, as a caution, it should require a project’s sponsors and private investors to provide at least, say, half the total cost.
It won’t be perfect. The gruesome tales of Fannie Mae and Freddie Mac suggest the perils of independent financial institutions that have implicit federal backing.(DeLauro’s bill attempts to prevent similar problems by saying explicitly that the bank will not be guaranteed by the government.)
Finding seed money will not be easy, but the costs of not doing anything would be greater. The U.S. Chamber of Commerce estimates that aging transportation infrastructure cost the economy almost $2 trillion in 2008 and 2009. And reality will keep intruding: Bridges and roads do not repair themselves, and jobs do not magically materialize. In an era of diminished national ambition, an idea that addresses two of the country’s most persistent problems is a good investment.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.