By and large the public has lost faith in Washington’s ability to spend their tax dollars wisely. This is especially true when it comes to transportation investments. Years of Congressional earmarks such as the infamous bridge to nowhere have taken a toll and the public is fed up. But when it comes to infrastructure investments at the local level, the public is more understanding. Why? It is mostly because a clear case was made to the public about which projects would be built should the bonding measure or fee increase be approved.
Case in point is the 2010 elections, which occurred in an atmosphere of voter anger and concern about the ballooning federal deficit. Yet it is this very that had voters approve 74% of local ballot initiatives that sought to either increase fees or issue bonds for transportation purposes. When the public understands how their dollars will be used and which projects will be built they are more apt to support funding increases.
But in order for this to translate to programs at the federal level, there must be wholesale reform of the current transportation program structure. Americans are clamoring for greater accountability and transparency to ensure that scarce resources are being invested on the right projects that will bring long term economic benefits. Federal transportation policy still largely adheres to an agenda set over 50 years ago during the Eisenhower Administration. It’s time to bring bold and visionary changes to our current policies and bring our transportation policy into the 21st century. One way to bring greater accountability and transparency is to stand up a National Infrastructure Bank.
A properly constructed Bank will take politics out of the decision making process and will invest in projects based on merit and help to finance critical projects of national or regional significance. Right now, if multiple states wanted to complete a project crossing multiple jurisdictions or infrastructure sectors, there is no singular place to which they can apply for financial assistance. A National Infrastructure Bank can fill that void by leveraging dollars from state and local governments as well as the private sector and subjecting all requests to a benefit-cost analysis. Clear accountability and transparency requirements would be part of the process.
Building America’s Future, a national bipartisan coalition of state and elected officials that I co-chair with Mayor Michael Bloomberg and former Governor Arnold Schwarzenegger, believes that a National Infrastructure Bank must be part of a long term plan to invest in our nation’s infrastructure. We are not suggesting that an Infrastructure Bank will solve all of our infrastructure challenges. It is but one of a number of financing and funding options that must be part of the solution.
Ideally, a Bank would help to finance transportation and water projects with decisions being made by a panel of issue experts not politicians. The Bank would be an independent entity with the greatest flexibility to finance only projects that have national or regional significance. It would have the authority to employ a range of financing tools such as credit assistance, low interest loans, tax incentives, Build America Bonds, Private Activity Bonds and enhanced TIFIA authority. Clear performance measurement standards such as completing projects on time and within budget, reducing traffic delays for passengers and goods movement, reducing carbon emissions and improving safety must also be included.
Our international economic competitors get it. The European Investment Bank has been financing critical infrastructure projects since 1958 and has nearly $300 billion in subscribed capital by all 27 European Union member countries. In 2009 alone, the EIB disbursed over $70 billion mainly on transportation, energy and global loans. The EIB raises funds from capital markets and lends them at higher rates thereby keeping its operations financially sustainable.
We too can have this important financing tool here at home. Let’s put aside the usual partisan bickering and get to work on creating our own National Infrastructure Bank.
An infrastructure bank is routinely sold as a catch-all solution to the nation’s transportation challenges – it will allow us, as the thinking goes, to leverage private investment into our decaying infrastructure while at the same time improve new project selection and prioritization. We remain skeptical.
We agree a restructuring of how transportation dollars are distributed is desperately needed. For too long, lawmakers’ self-interest has won out over adequate prioritization of transportation needs. The 6,000 earmarks in the last transportation bill provide ample evidence, as most of these projects bypassed cost-benefit review and many ignored the states’ individual funding priorities.
A national infrastructure bank — theoretically — would solve these abuses by subjecting projects to the type of financial review that would be required to attract private dollars into the nation’s infrastructure. A bank would almost certainly improve project selection and create new streams of funding: projects with a high benefit to cost ratio (while also meeting the bank’s public benefit criteria) would be more likely to secure both infrastructure bank and private funding, while ‘Bridges to nowhere’ and other politically-driven boondoggles would not.
The bank’s enabling legislation would have to be carefully designed, creating a truly independent decision-making body, virtually free from the influence of Congress and the Administration. Our fear is that even the most independently-created entity may be influenced by political whims, as it must still rely on Congress and the administration for funding and appointments.
Furthermore, as we consider the required safeguards to protect taxpayers if an infrastructure bank were enacted, it leads us to at least one existing federal program that might make a bank duplicative. The Transportation Infrastructure Finance and Innovation Act (TIFIA) has been in place since 1999, and provides more than $100 million annually to leverage billions in private financing for transportation projects. Though there are fundamental differences between TIFIA and a proposed infrastructure bank – chief among them that TIFIA lacks an independent decision-making entity, with lending decisions within the Department of Transportation – an expanded TIFIA may be adequate to attract private financing and improve project selection without establishing a whole new government bureaucracy. TIFIA’s stringent funding criteria helps dilute the influence of any political or ideological agendas and ensures the most worthy projects receive funding.
At the very least, TIFIA provides some extremely useful lessons if Congress moves forward with an infrastructure bank: stick primarily to direct loans with dedicated revenue streams that increase the likelihood of repayment (so the infrastructure bank operates like, well, a bank); keep the federal investment in the project small (one-third of total cost in TIFIA’s case), therefore spreading the risk to private entities; and place taxpayers on equal footing with private lenders when it comes to recovering losses in case of a default.
Further, it is not enough to pretend taxpayers are protected because the legislation creating a bank says the loans made by an infrastructure bank are not backed by the full faith and credit of the Treasury. We learned all too well with Fannie and Freddie this doesn’t get taxpayers off the hot seat. In this regard, TIFIA has proven capable of protecting federal taxpayers: there has been only one default in the program’s 13-year history. Though taxpayers took a hit on the project, the sharing of risk with the private sector and the smaller upfront investment helped to dramatically reduce this loss.
Public-private financing can fill an important gap for maintaining, expanding, and improving the nation’s transportation infrastructure; it is just not clear an infrastructure bank is the best way to achieve this end. Congress is faced with several options for establishing a national infrastructure bank, but we are little assured taxpayers will receive adequate protection under these proposals. The devil, as always, will be in the details.