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.
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Comments:
Jun '12
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
Could this bank be a sidestep around the populist movement of banning earmarks?
Oct '10
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
From the ground up this is yet one more lousy statist idea.
I wouldn't trust those guys to run a lemonade stand without massive cost over runs, inferior grade lemons, grossly overpriced sugar, and employees making more than the average unionized civilian supermarket clerk.
But, hey... how else can we get the bullet train in California paid for? After all, the remaining few productive citizens there couldn't possible pull together that much dough.
May '10
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
A NIB prototype is essentially what the Obama White House did buy getting money into solar energy companies. I wonder how that's working out.
There is no upper limit on the cost of the bad ideas these guys come up with.
May '10
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
The only solid, quick-start infrastructure project of the last 20 years were 1) The Minneapolis 35w bridge re-build, and 2) the border fence that Michael Chertoff and GWB pushed along in 2007 and 2008, until Obama could stop it- by having explicit authority in the legislation for the Secretary to waive environmental reviews. And Bush and Chertoff had the guts to do just that, over the shrieks of the Left.
We need leadership in Washington to replace Salazar and The Vacuous Garment whiny coward.
Aug '10
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
An infrastructure bank is nothing more than a slush fund that incumbents can use to buy votes and funding from the crony capitalist community.
It always amazes me that the people on the left who kick and scream about crony capitalism absolutely refuse to see it when it is incubated by high-minded ideals or even just when it is created from policies pushed by their own side. I have no idea how anyone could look at something like a national infrastructure bank and fail to see just how it will be used by special interests to extract wealth from taxpayers.
Aug '11
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
I explained this foolish concept some time ago on Ricochet here. It's just another off book slush fund.
Sep '10
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
This seems like a way for politicians to increase Federal spending while hiding the costs from the public. Look at it this way: Were the government to simply fund these projects directly it would have to issue bonds to pay for the projects, thus increasing the federal debt--a consequence for which the politicians would be held to account by debt wary voters. But guarenteing the investments of private entities, the government still assumes all the risks that the project won't pay off, but without adding to the official debt.There's a sort of shadow debt of all the things the government has promised and risks the government has assumed. This debt is just as real as the outstanding bonds we've issued, but its hard to quantify. It might be as high as 100 trillion dollars.
Apr '11
Re: The CBO just poured cold water on Obama’s idea for a national infrastructure bank
It was, as ever, a great post from you, Doug.
The thing that amuses me about this is that the essential claim is "we don't have enough private equity in America, so we need the government to provide a sovereign PE fund." Not only does the claim, phrased like that, seem obviously absurd (America's PE sector is the finest in the world), but it also makes it difficult to complain about Romney's expanding and enhancing the sector in the past.