Executive Briefings

Making the Case for a National Infrastructure Bank

The nation's transportation infrastructure is in dire shape.

Making the Case for a National Infrastructure Bank

The latest report card from the American Society of Civil Engineers assigns the system a grade of D+. It estimates that $3.6tr is needed by 2020 in order to repair, improve or replace the crumbling bridges, highways and railroads that are essential to moving people and freight. Current funding mechanisms are woefully inadequate to achieve the task. Meanwhile, House Republicans spend their time casting 40 votes to repeal Obamacare.

Fortunately, there are serious adults with ideas on how to address the crisis. One is the creation of a National Infrastructure Bank, which would combine federal funds and private-sector capital to pay for critical transportation, energy and water infrastructure projects.

In the plan's current form, Congress would seed the bank with $10bn in start-up money. The new institution would then select projects that provide "a clear benefit" to taxpayers, costing at least $100m for urban construction, or $25m for rural projects.

Loans by the bank would cover 50 percent or less of total project costs, the remainder of which would come from private-sector investment or local governments. Upon completion, projects would be required to generate revenues to help pay back the original loan.

President Obama has been pushing the concept for two years. It also has support from the U.S. Chamber of Commerce and AFL-CIO, who rarely agree on anything.

A report issued late last year by the Brookings Institution makes the case for a National Infrastructure Bank. Authors William Galston and Korin Davis say the benefits would be "considerable." They note that U.S. infrastructure ranked 16th in the 2011-2012 Global Competitiveness Report of the World Economic Forum, down from seventh place four years earlier.

Brookings recommends that the bank be set up as an independent, government-owned corporation that is not beholden to any government agency. It would be led by a chief executive officer and board of directors, serving staggered terms of about six years. Some would be chosen by the President and others by the two parties. (The White House's proposal calls for a seven-person board of governors, with no more than four from the same political party, and the CEO named by the President.)

There's plenty of precedent for the idea, says Galston, who is a senior fellow in governance studies at Brookings. State-run investment or infrastructure banks can be found in the European Union and Brazil, among other places. The World Bank is thinking about setting up its own global infrastructure facility.

Brookings proposes an initial congressional appropriation of $10bn, divided into two five-year segments. But it wouldn't necessarily be all new money, says Galston. Some could come from existing funds that are transferred from other sources. (Supporters of the bank see it as complementing, not replacing, the current Highway Trust Fund.) In the process, he hopes, decisions about projects would be based on economic rather than political factors.

Nevertheless, says Galston, the bank's executives would likely have to be political appointees. "I suspect it would be politically unrealistic to set up the bank with public capital, and then for the government to have no further involvement with it. In the real world, the head of the bank and at least some members of its executive board would require congressional approval."

Key to the plan's success is the selection of worthwhile projects. Historically, the process has been controlled by the most powerful legislators, whose sole aim is to bring jobs and money to their districts. Galston believes decisions should be based on "a hard-headed assessment of the net benefits to be derived - society's return on that investment. The point is no longer the ribbon-cuttings, but the economic value-add of the project."

In addition, the bank should focus on projects that are being hampered by institutional factors. Those crossing state lines are liable to be "totally snarled" by turf wars among bureaucrats. Galston cites the failure of a proposed new train tunnel between New York and New Jersey, which was unilaterally canceled by New Jersey Governor Chris Christie.

The notion of revenue recovery raises some questions. The whole point of the Interstate Highway System, when launched in the late 1950s, was to construct a nationwide network that was funded by taxes and free to users. Would it be feasible for every kind of project supported by the National Infrastructure Bank to charge some kind of user fee?

"If you're a bank, you're not a public charity," replies Galston. "There has to be a stream of revenues on which the providers of private capital could rely." At the same time, he acknowledges that the bank would represent a significant shift in the assumptions behind infrastructure creation. The economic stimulus package of 2009, authorizing a one-spending surge, did nothing to forestall that change of thinking. Says Galston: "The infrastructure investment shortfall persists."

Don't hold your breath waiting for a solution, however. The bank's formation would need to be accompanied by a federal gas-tax increase, in order to recharge the Highway Trust Fund - a move that has repeatedly been blocked by politicians who reflexively view any tax increase as evil. Meanwhile, bridges continue to collapse, and lives are being endangered.

President Obama, who now seems to tout infrastructure development at every opportunity, isn't without blame for the current state of affairs. He was late in coming to the debate over renewing the trust fund. And he hasn't done a good job of laying out the finer details of how a National Infrastructure Bank would work, according to Galston.

Both parties have been guilty over the years of manipulating the issue for political gain. (Who wants to lose control over billions in federal funds that could placate his or her constituency and ensure endless reelection?) But the biggest culprit today is a cadre of radical Republican ideologues who are poisoning the discussion and rendering any progress impossible. Industry representatives and thoughtful legislators need to step up and address the crisis in spite of knee-jerk opposition. A National Infrastructure Bank is a good place to start.

Comment on This Article


Keywords: supply chain, supply chain management, Highway Trust Fund, National Infrastructure Bank, global logistics, logistics & supply chain, supply chain risk management

The latest report card from the American Society of Civil Engineers assigns the system a grade of D+. It estimates that $3.6tr is needed by 2020 in order to repair, improve or replace the crumbling bridges, highways and railroads that are essential to moving people and freight. Current funding mechanisms are woefully inadequate to achieve the task. Meanwhile, House Republicans spend their time casting 40 votes to repeal Obamacare.

Fortunately, there are serious adults with ideas on how to address the crisis. One is the creation of a National Infrastructure Bank, which would combine federal funds and private-sector capital to pay for critical transportation, energy and water infrastructure projects.

In the plan's current form, Congress would seed the bank with $10bn in start-up money. The new institution would then select projects that provide "a clear benefit" to taxpayers, costing at least $100m for urban construction, or $25m for rural projects.

Loans by the bank would cover 50 percent or less of total project costs, the remainder of which would come from private-sector investment or local governments. Upon completion, projects would be required to generate revenues to help pay back the original loan.

President Obama has been pushing the concept for two years. It also has support from the U.S. Chamber of Commerce and AFL-CIO, who rarely agree on anything.

A report issued late last year by the Brookings Institution makes the case for a National Infrastructure Bank. Authors William Galston and Korin Davis say the benefits would be "considerable." They note that U.S. infrastructure ranked 16th in the 2011-2012 Global Competitiveness Report of the World Economic Forum, down from seventh place four years earlier.

Brookings recommends that the bank be set up as an independent, government-owned corporation that is not beholden to any government agency. It would be led by a chief executive officer and board of directors, serving staggered terms of about six years. Some would be chosen by the President and others by the two parties. (The White House's proposal calls for a seven-person board of governors, with no more than four from the same political party, and the CEO named by the President.)

There's plenty of precedent for the idea, says Galston, who is a senior fellow in governance studies at Brookings. State-run investment or infrastructure banks can be found in the European Union and Brazil, among other places. The World Bank is thinking about setting up its own global infrastructure facility.

Brookings proposes an initial congressional appropriation of $10bn, divided into two five-year segments. But it wouldn't necessarily be all new money, says Galston. Some could come from existing funds that are transferred from other sources. (Supporters of the bank see it as complementing, not replacing, the current Highway Trust Fund.) In the process, he hopes, decisions about projects would be based on economic rather than political factors.

Nevertheless, says Galston, the bank's executives would likely have to be political appointees. "I suspect it would be politically unrealistic to set up the bank with public capital, and then for the government to have no further involvement with it. In the real world, the head of the bank and at least some members of its executive board would require congressional approval."

Key to the plan's success is the selection of worthwhile projects. Historically, the process has been controlled by the most powerful legislators, whose sole aim is to bring jobs and money to their districts. Galston believes decisions should be based on "a hard-headed assessment of the net benefits to be derived - society's return on that investment. The point is no longer the ribbon-cuttings, but the economic value-add of the project."

In addition, the bank should focus on projects that are being hampered by institutional factors. Those crossing state lines are liable to be "totally snarled" by turf wars among bureaucrats. Galston cites the failure of a proposed new train tunnel between New York and New Jersey, which was unilaterally canceled by New Jersey Governor Chris Christie.

The notion of revenue recovery raises some questions. The whole point of the Interstate Highway System, when launched in the late 1950s, was to construct a nationwide network that was funded by taxes and free to users. Would it be feasible for every kind of project supported by the National Infrastructure Bank to charge some kind of user fee?

"If you're a bank, you're not a public charity," replies Galston. "There has to be a stream of revenues on which the providers of private capital could rely." At the same time, he acknowledges that the bank would represent a significant shift in the assumptions behind infrastructure creation. The economic stimulus package of 2009, authorizing a one-spending surge, did nothing to forestall that change of thinking. Says Galston: "The infrastructure investment shortfall persists."

Don't hold your breath waiting for a solution, however. The bank's formation would need to be accompanied by a federal gas-tax increase, in order to recharge the Highway Trust Fund - a move that has repeatedly been blocked by politicians who reflexively view any tax increase as evil. Meanwhile, bridges continue to collapse, and lives are being endangered.

President Obama, who now seems to tout infrastructure development at every opportunity, isn't without blame for the current state of affairs. He was late in coming to the debate over renewing the trust fund. And he hasn't done a good job of laying out the finer details of how a National Infrastructure Bank would work, according to Galston.

Both parties have been guilty over the years of manipulating the issue for political gain. (Who wants to lose control over billions in federal funds that could placate his or her constituency and ensure endless reelection?) But the biggest culprit today is a cadre of radical Republican ideologues who are poisoning the discussion and rendering any progress impossible. Industry representatives and thoughtful legislators need to step up and address the crisis in spite of knee-jerk opposition. A National Infrastructure Bank is a good place to start.

Comment on This Article


Keywords: supply chain, supply chain management, Highway Trust Fund, National Infrastructure Bank, global logistics, logistics & supply chain, supply chain risk management

Making the Case for a National Infrastructure Bank