Most Americans got their first exposure to infrastructure banks earlier this month when President Bill Clinton praised Chicago’s new multibillion-dollar trust fund in his speech at the National Democratic Convention. Come late 2013, Americans likely will hear even more, as Congress looks to leverage private dollars amid shrinking highway funding in the next surface transportation bill.
The strengthening of state infrastructure banks, which provide low-interest loans to state transportation agencies, could help attract the abundant private capital available, said Robert Puentes, a senior fellow at the Brookings Institution. Despite all the talk of public-private partnerships, the U.S. has had a mixed record of attracting the private sector. That could change if more states created infrastructure banks and those with existing institutions made more use of them, according to a recent Brookings-Rockefeller Project on State and Metropolitan Innovation study.
Although state infrastructure banks have provided loan guarantees and revolving loans for more than 1,000 projects since the 1990s, the majority of the initiatives were in the 100 largest metropolitan areas, which invested about $6.8 billion, the study found. That leaves plenty of potential for smaller cities and rural areas, which often need financing for export agriculture-driven projects. The Republicans failed to include a recapitalization of state infrastructure banks in the latest transportation bill, which funds highway construction through September 2014.
“I think recapitalizing may or may not be a bad idea,” said Puentes, who co-authored the report. “Getting states to put their own skin in the game instead of just capitalizing federal funds could send a strong signal to private partners.”
While state infrastructure banks focus on surface projects, a national infrastructure bank could take on multistate freight projects for various modes, he said. But Republicans and Democrats disagree about whether such an institution is needed. Republicans in November rejected President Barack Obama’s proposal to set aside $10 billion to create a national infrastructure bank, saying it would take too long for the institution to come on line and would only add to the federal bureaucracy. Opponents also argue the federal Transportation Infrastructure and Innovation program already does the job. Bipartisan support helped boost TIFIA financing over the next two fiscal years to $1.7 billion through the recent transportation bill.
Despite the beefing up of TIFIA, the financing arm can’t support the necessary level of lending, according to the Center for American Progress. The left-leaning think tank argues a national infrastructure bank could help boost multiregional projects, streamline federal lending and divert more money to better projects. In the meantime, the Obama administration is using a myriad of tools — including TIFIA and Garvey Bonds, tax-exempt bonds based on expected fuel tax revenue — to act as a virtual national infrastructure bank, Puentes said.