The CBO just poured cold water on Obama’s idea for a national infrastructure bank
President Obama has criticized congressional Republicans for opposing his idea to create a national “infrastructure bank” to finance highway and rail construction. The WaPo describes how the whole thing 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. … 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.
But a new report from the Congressional Budget Office seems skeptical of the idea in practice, at least as it concerns surface transportation projects: “At least initially, however, an infrastructure bank would probably generate neither significant new revenues for surface transportation nor significant new interest from private-sector investors, when considered as a share of current investment in surface transportation infrastructure.”
Among the problems, according to CBO: a) most current highway spending is for projects too small to meet the minimum size requirements commonly proposed for an infrastructure bank; and b) an NIB might merely shift projects from being funded by state governments to the federal government, resulting in no net increase in investment.
But the biggest drawback is that while NIB proponents like the Obama White House sell it as some kind of non-political, technocratic institution that would pick projects on merit, that goal probably wouldn’t survive the NIB’s first contact with political reality in Washington. The CBO:
Proponents of an infrastructure bank envision an independent federal entity that would select projects on the basis of technical rather than political factors. Although establishing an infrastructure bank outside of DOT might change some of the forces affecting its decisionmaking or its organizational efficacy, any entity created and funded by the Congress would be subject to similar political pressures and federal administrative procedures.
A national infrastructure bank might turn into a crony capitalist’s delight and a pork barreler’s dream come true.
In a great article in The New Atlantis, Adam White — who recently did a podcast with AEI — takes a hard, historical look at infrastructure banks and sees Obamacrat proposals as suffering from several flaws that have plagued these:
First, infrastructure bank proposals rarely offer any advance indication of exactly which projects, or which kind of projects, would actually be supported. … By not defining in advance the types of projects that would be funded and the public good that would be achieved, the administration’s proposal would only exacerbate the public’s traditional suspicion that government-supported infrastructure is just pork barrel, intended more to benefit the well-connected than the national interest.
Also, since an infrastructure bank would rely heavily on private industry to drive the process, it might be susceptible to the problems that pervaded the nineteenth-century railroad programs. Then, as today, policymakers presumed that public-private partnership would deliver the best of both worlds: the expertise of private enterprise in identifying and carrying out the best possible projects, and the resources of the federal government in supporting those projects. But for railroads, as Carter Goodrich observed, “mixed enterprise came close to representing simply the private control of public investment,” especially when project promoters were able to secure government financial backing without first taking on a substantial financial stake of their own.
Finally, an infrastructure bank would do nothing to transform today’s regulatory landscape, which offers too many opportunities for environmental activists and others to tie up even environmentally sound projects in interminable litigation … None of the major infrastructure bank proposals seriously grapples with the problem of regulation.
An NIB might be made to work, but it seems as if current proposals aren’t quite there yet.