THE AVENUE MARCH 16, 2011
It was refreshing to hear the bipartisan remarks about the latest proposal to create a national infrastructure bank. This version--from Sens. Kerry, Hutchison, and Warner--called the American Infrastructure Financing Authority is not terribly dissimilar from the myriad other proposals that have kicking around for 20 years or so.
It’s a merit-driven approach for advancing a range of infrastructure projects that have the highest return on investment and support a 21st century economy. It would have to balance the rate-of-return policies of a bank with the policy goals of a federal agency. It would lend money (loans, loan guarantees, and lines of credit) after some type of benefit/cost analysis. To qualify for funding, projects would transcend state and local boundaries and have regional or national significance.
The sponsors were careful to point out that the $10 billion up-front investment is not ‘free’ money and would have to be paid back. Nor, they said, is it a complete solution to the problems of how the federal government funds infrastructure, especially transportation, today.
So what’s different about the AIFA?
For one thing, this proposal is operating in an environment of severe fiscal stress. There’s a lot of focus on how the initial $10 billion capitalization would be paid back. Whether that comes out of the general treasury is still to be determined. But the budgetary and debt impact of the federal investment through the AIFA also depends heavily on its governance structure.
An infrastructure bank could be housed within a federal agency, established as a government-owned corporation (like Amtrak), or as a shareholder-owned corporation (like Fannie Mae). The governance structure matters because it means there’s a trade-off between the independence such an entity would need and the costs of borrowing it would incur. Within a federal agency, it could draw upon the Treasury’s low interest rates to finance its activities. If it is a shareholder-owned entity, it would incur higher costs of borrowing, so loans going to recipients would charge higher interest rates.
The AIFA sponsors said very clearly that no stock will be issued, and it will be not for profit, and it will have a revenue stream. The trick will be to make sure it is also independent and able to make decisions on projects based on their merits, rather than political logrolling.