One of the key aspects of President Obama’s jobs plan is an idea that’s been knocking around Washington for some time: a national infrastructure bank that would leverage private investment to fund new roads, bridges, mass transit and other public-works endeavors. Here’s how it would work.
The proposal, modeled after a bipartisan bill in the Senate, would take $10 billion in start-up money and identify transportation, water or energy projects that lack funding. Eligible projects would need to be worth at least $100 million and provide “a clear public benefit.” The bank would then work with private investors to finance the project through cheap long-term loans or loan guarantees, with the government picking up no more than half the tab — ideally, much less — for any given project.
Critics have deemed the idea risky for taxpayers, and those voices will no doubt get louder after the collapse of Solyndra, a California-based solar manufacturer that received a $535 million loan guarantee from the Energy Department only to go bankrupt in August.
Administration officials have, in turn, tried to allay fears about taxpayer losses by noting that the loans would only go toward projects that have “a dedicated revenue stream,” such as toll roads, to repay the loans. The bank would be managed by an independent seven-member board, with no more than four members from either party.
The logic behind the bank isn’t hard to grasp. In recent years, reams of white papers have come out describing how much of the nation’s transportation, water and energy infrastructure is in shambles. A 2010 Government Accountability Office report, for one, found that a quarter of the country’s 600,000 bridges are either “structurally deficient” or inadequate to today’s traffic needs.
Most U.S. infrastructure is funded through either federal outlays or state and local municipal bonds. The country lacks a central source of low-cost financing for big construction projects, akin to the European Investment Bank.
The private sector chips in just 6 percent of infrastructure funding, although supporters of the bank say that number could be higher. Last year, Robert Wolf, chairman and chief executive of UBS Americas, told the Senate Banking Committee that there was more than $180 billion of private-equity and pension-fund capital available for infrastructure investments.
The White House estimates that its infrastructure bank could ultimately backstop about $100 billion to $200 billion in construction. That would, in theory, boost the overall size and impact of its jobs bill, which nominally costs $447 billion.
But that depends on how quickly the money flows. Sen. John F. Kerry (D-Mass.), who has backed a bank bill in the Senate, has said “We have projects all across America that are ready to go tomorrow.” Yet other supporters, including the Chamber of Commerce, sound more cautious, saying it could take a few years for the pipeline of projects to get going.