It's time for a $1 trillion national infrastructure bank

By Matthew Slavin
BridgeTower Media Newswires
 
PORTLAND, OR — As the new year begins, Congress should place high on its order of business enactment of a 10-year, $1 trillion national infrastructure act. It should provide investment capital to renew, rebuild and harden the nation’s transportation, water and wastewater, energy and other critical infrastructure. The $1 trillion should be made available each year in tranches of $100 billion.

The need is clear and present, as delineated in the American Society of Civil Engineers’ (ASCE) most recent national infrastructure report card. It gave the nation’s infrastructure a grade of D – one grade removed from failure. Among the most pressing needs it named:

• $2 trillion for surface transportation, including highways, roads and bridges (only an estimated $942 billion funding is available, leaving a gap greater than $1 trillion)

• $105 billion for water and wastewater infrastructure

• $177 billion for electric transmission and distribution infrastructure

• $200 billion for airports and marine ports, rail networks, inland waterways and dams

• $102 billion for public parks and recreation infrastructure

All told, ASCE has identified a shortfall of more than $2 trillion for investment in national infrastructure assets through 2025. This is more than 40 percent of the $4.5 trillion that needs to be invested through mid-next decade.

There’s no shortage of ideas. Industry groups, labor interests, politicians, universities and think tanks have all weighed in. To be most effective, a forward-looking national infrastructure program should heed the following:

First, and most importantly, smart infrastructure policy requires that highest-value investments be prioritized, with projects being evaluated on a case-by-case basis while eschewing the next shiny object. A national infrastructure bank should be organized along lines similar to the Federal Reserve, with regional banks weighing proposals and making investment decisions under the aegis of a central board composed of congressionally confirmed officials. Organizing along the decentralized lines of the Fed will allow confluence with economic realities on the ground while helping insulate it against political hijacking of investment decisions.

Capital raised through sale of private activity bonds by regional banks would be used to issue loans during each appropriations cycle for projects located within a bank’s geographic region. The regional or district banks would collect repayment of the principal and interest to be recycled to make new loans in the manner of a revolving loan fund. Over time the banks would become self-sustainable. The treasury, via the infrastructure bank, would insure the bonds against default to optimize low-cost financing.

Infrastructure bank investments should require matching funds, a baseline requirement being a 20 percent match, as is generally required for federal transit projects, for example.

Investment criteria needs to acknowledge the different levels of government by which our infrastructure is built, financed and operated as well as that much of our infrastructure is provided by private business. Steadily growing in popularity, public-private partnerships should be encouraged by according private activity bonds the same tax advantage accorded publicly financed infrastructure bonds when projects are undertaken under the aegis of a regional infrastructure bank.

High-value projects for which loan repayment is difficult could be placed on a sliding scale or loans made forgivable, effectively converting them into grants, while smaller projects could be aggregated to achieve the best financing terms.

Projects should be prioritized based on objective scoring methodology that weighs favorably investments that will reduce greenhouse gas emissions and build resilience in the face of extreme weather events like drought, hurricanes, flooding and rising sea levels. Priority should likewise be given to projects that are smart-grid enabled and that harden the nation’s infrastructure against cyberattack.

Allocation of the money to fund the infrastructure bank will require courage by Congress. It will likely need to reallocate money authorized elsewhere along with debt issuance and/or tax increases, including raising and indexing the federal gas tax, which hasn’t been raised in 25 years.

ASCE estimates that failure to make needed infrastructure investments will reduce national GDP by $3.9 trillion and cost the nation 2.5 million jobs over the 10-year period while McKinsey estimates raising U.S. infrastructure spending by 1 percent of GDP would add 1.5 million jobs to the economy.

Creating a national infrastructure bank won’t totally solve the nation’s infrastructure investment deficit. But it will go a long way toward repositioning the nation to effectively compete in the modern economy while meeting the public’s need for healthy, safe, accessible and reliable public infrastructure. An infrastructure bank is exactly the type of national endeavor that all of us should be able to agree on.

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Matt Slavin founded M.I. Slavin to provide consulting in project management, strategic planning, research and communications. Contact him at 503-619-5601 or matt@mislavin.com.