The US House of Representatives has introduced legislation that would officially authorise the creation of a much-debated national infrastructure bank with up to $625 billion of lending capacity.
Last week, Democratic representatives Rosa DeLauro, Keith Ellison, Anthony Weiner and Steve Israel introduced the National Infrastructure Development Bank Act, which would create a publicly funded entity that would direct public and private dollars toward infrastructure projects.
Their bill envisions a government-backed but independently governed organisation with the authority to issue tax-exempt bonds and make loans and offer loan guarantees toward infrastructure projects, among other financing activities. It would aim to fund projects that contribute to economic growth, lead to job creation and are “of regional or national significance”, according to the bill.
Its structure would be modeled after the European Investment Bank, which includes an independent board of directors to make final financing determinations and an executive committee to handle its day-to-day operations. The directors would determine specific criteria for prioritising projects.
The bank would be capitalised with $25 billion over the first five years of its existence and have an additional $225 billion available from the US Treasury, if needed. It would be authorised to make loans 2.5 times its total authorised capital for a total of $625 billion in financing capacity.
Those monies have not yet been authorised by Congress. However, both the White House and Congress have previously expressed their willingness to give financial support for a national infrastructure bank.
In late February, President Obama unveiled his budget for the government’s 2010 fiscal year, which included budget authority of $5 billion per year for five years for a national infrastructure bank. And in late April, Congress passed a budget resolution supported by both chambers that also included a national infrastructure bank but on a smaller scale. It would only be authorised $2 billion in 2010 from the federal government and another $5 billion in 2011, according to Congress’s concurrent resolution on the budget for fiscal year 2010.
The budget resolution is not a final appropriation of funds toward the national infrastructure bank. That will come in the appropriations bill that Congress is currently working on and aiming to complete before the end of its 2009 fiscal year on 30 September, 2009.
The appropriate size of such a financing entity has been a hot topic of debate over the last few years, as several previous infrastructure bank proposals have been criticised for not being big enough to make a meaningful impact on the nation’s estimated $2.2 trillion infrastructure financing gap.
In 2007, US Senators Chris Dodd and Chuck Hagel introduced the National Infrastructure Bank Act, which would finance itself by issuing $60 billion of long-term bonds. That same year, Senators Ron Wyden and John Thune introduced the Build America Bonds Act, which would have created a non-federal, multi-state entity financed with $50 billion of one-time bond issues.
Others have criticised these proposals for doubling-up on existing programs without adding anything new to the government's existing toolkit of infrastructure financing. That toolkit already includes the Transportation Infrastructure Finance and Innovation Act (TIFIA) – the US government’s infrastructure credit program – and Private Activity Bonds, a form of tax-exempt financing for infrastructure projects.
“The federal government is prone to spread the bureaucracy and crate new things, but I'm wondering how much benefit we would get from taking existing programs to leverage new things,” said Lois Scott, president of Scott Balice Strategies, a financial advisory firm with a focus on public-private partnerships.
“I think this a positive step but it is not the ultimate solution,” she added.
Another idea for an infrastructure bank comes from Building America’s Future, an infrastructure advocacy group founded two years ago by Pennsylvania Governor Ed Rendell, California Governor Arnold Schwarzenegger and New York City Mayor Michael Bloomberg.
Their plan envisions an independent organisation that funds public-, private- and nonprofit-sector infrastructure projects based on an objective ranking of the social benefits they provide. It would be funded with $13.5 billion from the US Treasury and enable $48 billion of projects, according to a December draft of the legislation obtained by InfrastructureInvestor.
Kerry O’Hare, policy director for Building America’s Future, told InfrastructureInvestor earlier this week her organisation’s plan for a national infrastructure bank is still the same as the plan envisioned in the December draft.