The state of our nation’s infrastructure is a topic everyone can relate to. Whether it is the unexpected closing of the Washington, D.C. Metro earlier this year in response to safety concerns, or a recent report that the iconic Memorial Bridge that connects the Lincoln Memorial and Arlington Cemetery faces serious structural issues, there is bi-partisan agreement that something should be done not only to fix infrastructure problems in the nation’s capital but across the country. According to analysis by the Bipartisan Policy Center’s Executive Council on Infrastructure, there is a 1 trillion dollar funding gap in what needs to be done and what is now being allocated. Others might put the number even higher. This Basic provides an overview of the infrastructure problem we currently face and highlights one possible solution that many say would help alleviate some of the financial pressure: a National Infrastructure Bank (NIB).
What is “Infrastructure?”
In a policy context, “infrastructure” includes a host of things that many of us take for granted. This includes our roads and highways, bridges, railways, airports, ports, electrical grids, public transportation, and our water and sanitation systems. It also includes broadband and cellular networks, in addition to other high tech services that are central to our 21st century economy.
The State of our Nation’s Infrastructure?
America’s infrastructure system is in shambles. According the Tom Donohue, President and CEO of the U.S. Chamber of Commerce, “We are on an unsustainable path. The sooner we address this challenge the sooner we can secure the funding we need to increase our mobility, create jobs, and enhance our global competitiveness.” Consider some of the following facts:
- According to a McKinsey Global Institute Report, between 1992-2011, China has invested 8.5 percent of its GDP towards infrastructure, Japan 5.0 percent and India 4.7 percent. The U.S? Just 2.6 percent.
- Traffic costs commuters $160 billion in 2015, translating to $960 per commuter.
It is estimated that more than 25 percent of bridges need major repairs and are already handling more than they are supposed to carry.
- Because of increasing global trade, ports will need to deal with almost double the amount of cargo by 2020.
- The American Society of Civil Engineers gave a “D+” grade (2013) to the U.S.’s drinking water and wastewater systems.
- According to the Information Technology and Innovation Foundation, a $5 billion broadband investment creates 250,000 jobs. Three hundred thousand jobs are created with a just one percent increase in broadband expansion.
Of course, there are many other examples. Please see the “More Resources” section of this Basic for organizations with further information.
One idea: A National Infrastructure Bank (NIB)
While there is broad bi-partisan agreement that there is an infrastructure problem, as always, there is an issue with funding. America continues to experience national deficits and states are often strapped for cash. Add to that the political reality that there is not much of an appetite in Congress to increase the federal deficit for almost any issue.
That is why one policy has emerged as a possible way to leverage a modest federal investment with private sector funding: a National Infrastructure Bank (NIB). The idea is not a new one. Different versions have been around for years and many other countries have NIBs of their own. Over time, the NIB has garnered bi-partisan support, and today is no exception. There are a number of bills currently introduced in Congress that enjoy the support of both parties and chambers.
So what is a NIB and how would it work? Here are some details and common themes from proposals past and present:
- Most plans infuse the NIB with federal dollars to start it up and to use this money to leverage other private sector and local dollars. President Obama’s plan calls for $10 billion in startup money, Presidential candidate Hillary Clinton calls for $25 billion and Senator Deb Fischer (R-NE) calls for up to $30 billion.
- The NIB would then offer lower-interest loans, bonds and loan guarantees to fund infrastructure projects (each plans defines “infrastructure” in different ways with some plans more transportation oriented, some add telecommunications, water projects, and the like). Most of the proposals would require a private sector or local government match and has detailed provisions for the repayment of the loan. These repayments could take the form of profits realized from the project, or from state and local taxes, tolls or service charges. It is estimated that there is at least $1.5 trillion in private sector funding available through 2025.
- In many of the proposals, the Bank would have a bi-partisan Board appointed by the President and confirmed by the Senate. Senate and House Leadership could also have a say on who would be appointed. They also would exert strong oversight of the Bank and an Inspector General could oversee the NIB’s operations.
- In order to address some of the unique needs of the rural community, some of the plans give special provisions like lowering the amount the project must at least cost. For example, President Obama’s plan calls for at least a $100 million cost for most projects but lowers it to $25 million for rural ones.
There are critics of a NIB. Some note that there already exists a Highway Trust Fund that should be fully utilized and funded to deal with infrastructure problems. Others site funding plans like the gas tax, which could be increased. Alternatively, some have philosophical differences creating another government entity that they view “interferes” with the private sector. These arguments are similar to the recent debates in Congress over the Export-Import Bank. Please click here to read a Basic on the Export-Import Bank.
While the NIB is not a catch all solution to a major problem facing America’s economy, it is one idea that enjoys bi-partisan support as a way to marry and leverage limited federal funding with private sector capital in an era where federal and state resources are strapped.