What’s the Problem With a National Infrastructure Bank? Capitalism (And Politics)

The idea of a National Infrastructure Bank has plenty going for it: It could streamline and  facilitate necessary projects, secure credit at low rates, and help leverage private funds to create the long-term investment that’s needed to see big projects through to completion.

Still, the concept isn’t without its problems. And the biggest problem, in fact, is right there in the name: Bank. If it’s a bank, then it needs to generate revenue, and therefore make investments that repay themselves. And of course, not all infrastructure projects worth funding are ones that will be rolling in profits. Ken Orski sums up the issue thusly:

[A]s [a recent]press conference and most NIB proposals have urged, the Bank would fund a broad range of public infrastructure projects, some of which, such as schools, public housing and mass transit facilities do not generate a revenue stream that could be used to repay the bank loans. Hence, the NIB would require periodic federal appropriations to cover grants for non-revenue producing projects. And indeed, in its FY 2011 budget request, the White House proposed to launch the bank with a small $4 billion appropriation. Of that amount, $2.2 billion would be for grants, which prompted one former member of the National Infrastructure Financing Commission to observe, that “institutions that give away money without requiring repayment are properly called ‘foundations’ not ‘banks.’” That could be the reason why the White House renamed the NIB in its FY 2011 budget request as the “National Infrastructure Innovation and Finance Fund” (NIIFF) — a clumsy but more accurate designation.

So basically what we’re talking about is a federal organization that injects large amounts of capital on an as-yet-to-be-determined basis, while still trying to convince investors that their money will be reserved for projects that could turn a profit. As Pa. Gov. Ed Rendell told us in a recent interview, there could be safeguards written into the legislation creating the bank to avoid a Fannie/Freddie repeat, and care could be taken with the type of people appointed to it — I.E. make sure every appointee has substantial experience in infrastructure development, such as state secretaries or former DOT employees. Still, the plan leaves plenty in the air as to how and whether necessary but non-profitable projects will be financed.

Then there’s the small matter of political power. As Orski puts it:

What is the likelihood that Congress would be willing to turn the power of decision over large-scale capital projects to a bureaucratic organization lodged in the Executive Branch? Probably not very great. Many lawmakers, including the powerful chairman of the Senate Finance Committee, Sen. Max Baucus (D-MT), believe that Congress must not abdicate its authority to decide how public capital should be spent. As one Senate aide remarked to us, one cannot “depoliticize” the project selection process, as NIB advocates would urge, because major public infrastructure investment decisions are inherently and fundamentally political in nature.

In other words, as it does with so many potentially good ideas, can Congress kill the National Infrastructure Bank even before it’s born?