Infrastructure bank could provide benefits and pitfalls

No long-term spending boost

Steve Hawley, Mar 10, 10.

A national infrastructure bank could jump-start badly-needed infrastructure projects, but current proposals provide no long-term funding benefits, according to The Transport Politic.

President Obama has proposed a $4 billion national infrastructure bank in his Fiscal Year 2011 budget, but The Transport Politic notes that it would be nothing special:

[W]hat’s envisioned there is no bank at all, since it wouldn’t be generating revenue in return for its investments: it would be draining Washington’s coffers even more, with no clear explanation for why it is necessary. What’s the point of establishing another federal agency to dole out grants for infrastructure, when the Departments of Transportation, Housing and Urban Development, and Energy already do that all the time?

Another proposal has been circulated by a Connecticut lawmaker for years, based on the model of the highly-touted European Investment Bank. But even that has shortcomings:

But [these] models, as interesting as they are, do not actually increase the amount of money being spent on transportation in the long-term — they simply transfer more of the current spending load into debt. Is that a good idea when governments are already so squeezed by limited budgets? How can we be sure that we’ll be in an adequate financial situation to pay back these debts in the future? Spending now through loans inherently means less spending in the future: If Los Angeles compresses thirty years of transit spending into ten, what happens during the other twenty? Nothing at all, unless another separate revenue source is established.

So none of the the infrastructure bank proposals put forth thus far will actually aid in reversing the current lack of adequate financing for transportation.

But The Transport Politic provides another example that it says could work better: the French Caisse des Dépôts, which finances affordable housing, urban redevelopment, and high-speed rail projects, among others. The agency makes a profit off of bank deposits and then reinvests those profits in the form of grants, which increases the country’s infrastructure spending without increasing its debt.

Under that model, the US could provide high-interest savings accounts, investing the money in the market and returning the profits to the infrastructure bank rather than to private shareholders. The US could also leverage existing funds, such as those reserved for Social Security, for the same purpose. This is similar to the system currently used for pensions, and while market fluctuations can have a large impact on individual pensions, The Transport Politic says that an infrastructure bank “wouldn’t need to be as stable and continuous year-to-year, meaning the use of market investment wouldn’t be as problematic.”