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Transportation Funding & Financing

Proposed National Infrastructure Bank

Recently, there have been calls for establishing a National Infrastructure Bank to provide direct Federal investment in infrastructure projects and to foster coordination through state, municipal and private co-investment for U.S. infrastructure projects.

Dodd-Hagel Proposal

A detailed proposal was introduced in Senate Bill 1926 on August 1, 2007 by Senator Christopher J. Dodd (D-CT) and former Senator Chuck Hagel (R-NE) to (1) designate qualified transit, public housing, water, highway, bridge, or road infrastructure projects for loans, loan guarantees, and other financial assistance; and (2) issue general purpose and project-based infrastructure bonds exempt from state and local taxation.

The Bank would operate independently from the Federal Government in the same manner as the Federal Deposit Insurance Company. Its board would be authorized to hold hearings, issue subpoenas, and request information from federal agencies. Proposed infrastructure projects would be required to have a public sponsor, be of regional or national significance, and have a minimum Federal commitment of $75 million. The Bank would be authorized to:

  1. Act as a centralized entity to provide financing for qualified infrastructure projects

  2. Issue general purpose infrastructure bonds, and to provide direct subsidies to qualified infrastructure projects from amounts made available from the issuance of such bonds

  3. Issue project-based infrastructure bonds for the financing of specific qualified infrastructure projects

  4. Provide loan guarantees to state or local governments issuing debt to finance qualified infrastructure projects, under rules prescribed by the Board, in a manner similar to that described in Chapter 6 of Title 23

  5. Issue loans, at varying interest rates, including very low interest rates, to qualified project sponsors for qualified projects

  6. Leverage resources and stimulate public and private investment in infrastructure

  7. Encourage states to create additional opportunities for the financing of infrastructure projects

President Obama's Budget Proposal

More recently, President Obama endorsed establishing a National Infrastructure Bank during his campaign and suggested it be capitalized with $60 billion over 10 years to help leverage $500 billion in new infrastructure investment. In December 2008 at its national conference, the National Governors Association, chaired by Pennsylvania Governor Ed Rendell urged then President-elect Obama to establish the Bank as part of the economic recovery process. President Obama included funding for creating the Bank in his proposed 2010 Budget released in February 2009, capitalizing it with $5 billion per year from 2010 through 2014. Details of the Bank remain to be released.

Other Viewpoints

Given that a National Infrastructure Bank is still only a proposal and its formulation open to debate, notable facets of critique are relevant to its understanding, and potentially its eventual form, if enacted. In the July/August 2008 issue of Public Works Financing, the Director of Transportation Policy at the Reason Foundation offered some observations: the level of capitalization-even $60 billion-is insufficient relative to estimates in the trillions of dollars needed to meet nationwide infrastructure shortfalls; and, the proposed financing instruments are not sustainable from the perspective of a bank, with proposed user-fee-based-financing mechanisms-such as revenue bonds-absent. Poole recommended that the Bank target costly and unfunded predevelopment work-feasibility, environmental clearance, and preliminary design-for user-backed projects of regional and national significance on a soft loan basis. In this manner a loan would not have to be paid back if the project did not proceed but highly speculative projects would likely be screened out because the Bank would have to maintain self-sustainability. In turn, this initial project work backed by the Bank would help leverage private investment in these projects, potentially to the level suggested by President Obama during his campaign.

Senator Max Baucus (D-MT), chair of the Senate Finance Committee also cautioned against a National Infrastructure Bank after it was proposed in the 2010 Budget (Reuters, April 9, 2009). Senator Baucus noted the Bank would lack a valuable strength of the Federal highway program-its ability to support the country as a whole, including states that cannot pay for highway infrastructure as easily as others, like his rural home state of Montana. Senator Baucus warned that the project selection process might become politicized.

Finally, the National Surface Transportation Infrastructure Financing Commission did not explicitly endorse the creation of a National Infrastructure Bank or other national financing entity. In its February 2009 Final Report (Chapter 7, Section IV), the Commission concluded that if established, it should be structured in a manner that addresses actual funding and credit market gaps and that targets assistance to projects that are essential to the national network but that lack access to sufficient resources through existing programs or other source. It should also be properly integrated with or a logical extension of current programs, most notably federal credit programs such as TIFIA. The Commission cautioned that the focus on new or enlarged financing techniques may be seen as a substitute for generating revenue by raising taxes, expanding tolling, or developing other sources. The Commission stated that its finance-related recommendations can be achieved within existing agencies and programs and do not require the creation of a new national-level entity.