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.