Revisiting the idea of a national infrastructure bank

In the run up to the Presidential election in 2008, there were a number of proposals for a "National Infrastructure Bank," that would sell bonds and use the monies raised to fund federal infrastructure improvements. (See the press release, "Dodd, Hagel Introduce Bill to Revitalize America's Infrastructure," the Slate article by Michael Lind, "Obama's single most important reform," this column from the New York Times, "Investing in America, and this not unfavorable response from the Reason Foundation, "A National Infrastructure Bank?")

This makes a lot of sense. Investment in the future requires big bucks, and for the most part the federal government is funded as "pay as you go."

Michael Lind writes:

Here the states can show the federal government the way. Most states, counties and cities, directly or through their agencies, issue municipal bonds to fund long-term, large-scale capital improvement projects like power plants, highways and school buildings. Usually these municipal bonds are tax-free. Most are either "general obligation" bonds, repayable from future general taxation, or "revenue bonds," repayable from a specific stream of income, like highway tolls.

When paying for expensive projects with long-term payoffs, it makes sense for governments, like corporations and nonprofits and ordinary individuals, to borrow the money rather than to pay the entire cost upfront out of current revenues. Raising money by means of tax-exempt bonds that are paid back over years or decades permits a government to spread the costs of roads, schools and energy grids among the beneficiaries over many years, instead of forcing today's taxpayers to pay the entire cost of a project that will mostly benefit future taxpayers.

He's right. But at the same time he overstates the case. States and localities have just as much difficulty funding infrastructure improvements as the federal government, even though they can sell bonds. At the same time, improvements require a lot of upfront investment that even large reasonably well functioning governments like the City of Chicago can't afford.

That's why state and local governments are doing these deals with the private sector, where they basically lease the infrastructure to the private sector in return for a payment, and an agreement for improvements to be paid for by the private firm.

This is the case with parking meter deals, bus shelters and public space improvements including bicycle sharing systems funded through advertising sales in the public space, speed cameras, and even "selling" toll roads and/or the creation of high occupancy toll lanes constructed by the private sector. The Macquarie Bank of Australia is one of the major participants in this field. (See "Toll Road Firms Continue to Lose Millions" from the Driving Newspaper and "Mayors Business Council Recognizes Best Practices in Public-Private Partnerships" from the U.S. Conference of Mayors, about Lockheed Martin's prowess in parking meter deals, and "Highway Upgrade Goes Private" from the Wall Street Journal.)

But as the fierce outcry to massive increases in parking meter prices in Chicago shows (see "Mayor Daley is sorry that we don't like the parking meter deal" from the Chicago Reader and the AP story "Daley to apologize for parking meter problems") this can come at a great cost.

And the reality is that there is no free lunch. The private sector does this because they can make money. The local governments do this only because they can't raise the upfront capital necessary to fund the improvements--disproving Michael Lind's point about the difference between state/local and the federal governments and their ability to fund infrastructure improvements). They leave money on the table--the profit made by the private sector--only because they can't otherwise raise the money to do the improvements themselves.

I think we need a National Infrastructure Bank not just for the federal government, but a bank that also lends monies to local and state governments, solely for infrastructure construction and improvement projects.

This isn't a stretch from what the WPA and PWA and other government agencies did during the Depression. Many of the public works projects created by the Federal Government in part as employment projects were in fact local projects, which contributed to the well-being and economic success of local and state governments for many decades after their construction. In fact, it is not a stretch to argue that part of the post-War success enjoyed by the U.S. was in fact partially a result of these Depression era investments, ranging from local roads and sidewalks to dormitories at state universities, public buildings, etc.