David Dreier at RealClearPolicy:
During the 2016 campaign, Hillary Clinton proposed spending $275 billion over five years on infrastructure, and Donald Trump promised “at least double” that. Now, the President says he wants to spend “at least $1 trillion” on infrastructure, and Joe Biden says promises $2 trillion in his first term. The ante is being upped, but nothing is happening, and America’s infrastructure keeps failing.
Meanwhile, we desperately need to restart an economy ravaged by COVID. This is the time. Interest rates are at rock-bottom, and investors are ready to deploy capital in the world’s largest market. Massive investment in infrastructure will quickly put Americans to work at home improving roads, bridges, sewage systems, energy pipelines, an electric grid that ranks 26th in the world, airports that are a global embarrassment, and much more.
What’s missing? Money.
A 2017 report card on the condition of infrastructure from the American Society of Civil Engineers gave the U.S. a grade of D+ and estimated that $4.5 trillion was required by 2025 for remediation; that figure is now $1.5 trillion higher. While there is bipartisan will in Congress and the White House to address the problem, the cupboard is bare. The U.S. faces a record $3.7 trillion budget deficit this year.
Reviving infrastructure, however, does not require taxpayer dollars. A new private institution can attract investment money from around the world and put it to work in rebuilding projects in the United States. That institution is a nationwide infrastructure bank that requires zero federal funding or loan guarantees. As a “non-bank bank,” it would take no deposits. Its model is the Federal Home Loan Bank (FHLB) system, which is privately owned, managed, and funded. With $1.3 trillion in assets, the FHLB has been a safe source of funds for the U.S. housing market for the past 88 years. During the 2008 financial crisis, for example, the FHLB provided $1 trillion in advances when other sources of credit dried up.
The U.S. is the only major developed country without an infrastructure bank. The European Investment Bank (EIB) has helped Europe become “more adept than America at mobilizing private capital for public infrastructure,” writes Terrence Keeley, global head of the official institutions group at BlackRock, the largest investment management firm in the world. The EIB is credited with creating 1.7 million jobs.
The U.S. has state infrastructure banks, but most are moribund or tiny. The proposed new private infrastructure bank would provide funding to help revive these state banks so they can put money to work. Funds, as well, would go to private-sector projects. According to a Cato Institute study, just 3% of fixed assets are held by the federal government, 19% by state and local governments, and 78% by private owners. No matter who owns the assets, every trillion-dollar investment creates 12 million new jobs, according to Georgetown University researchers.
There are hundreds of important projects waiting for the funding an infrastructure bank could offer: the Camden Spaceport in Georgia, the Gateway Tunnels in New York and New Jersey, the Texas Central Railway (high-speed train line), the Sites Reservoir in California, and many more.
Where would the money come from? The U.S. is a magnet for investors around the world — investment and pension funds, sovereign wealth funds, wealthy individuals, banks and other financial institutions. What these investors demand is a responsible manager for their money, a bank that can select and oversee the right projects to produce a profit.
The federal government’s role — as outlined in a bill introduced just last month, the Infrastructure Bank for America Act — would be to charter the bank, oversee it, and offer a tax credit. The five-year credit would amount to 10% annually of the amount of equity an investor purchases in the bank. This is not an unusual incentive for directing funds to socially valuable projects, and the foregone revenues would pale in comparison to the hundreds of billions that the Treasury would receive in new taxes from the projects.
The equity would provide the capital cushion that all banks need, and shareholders would elect directors, who in turn would hire management — all without political interference. The Federal Reserve would provide oversight for the bank, which would be designated, like any large commercial bank, as a SIFI, or systemically important financial institution, to ensure its safety. The Fed might also use funds from its quantitative easing program to buy infrastructure bank bonds – purchases that have no effect on the federal debt.
A national private infrastructure bank will make America a better, more productive place to live – all the while generating millions of new jobs at no cost to taxpayers a time of high unemployment. The question now is whether Democrats and Republicans can get together in this time of crisis to rebuild America.
David Dreier served 22 years in the U.S. House of Representatives, including 10 years as chairman of the Rules Committee. He chairs the Annenberg-Dreier Commission, which seeks to strengthen the free flow of goods, services, capital, ideas, information and people throughout the greater Pacific region.