America's infrastructure is crumbling. But Felix G. Rohatyn and Everett Ehrlich's proposal for a National Infrastructure Bank could rebuild our country's public works. It is exactly the sort of innovative recommendation that our country needs.
The New York Review of Books' most recent issue has a great article called "A New Bank to Save Our Infrastructure," by Everett Ehrlich and Felix G. Rohatyn. It is exactly the sort of thinking we love here at Breakthrough--an innovative recommendation that involves creating an institution that would use public investment to direct private capital towards infrastructure projects. The article opens:
"These are rare times of ferment in one of the most neglected fields of public policy--the nation's infrastructure, or what used to be known as public works, including roads, mass transit, bridges, ports and airports, flood control systems, and much else. We have been confronted with spectacular and tragic evidence of the inadequacy of these facilities in the failure of the levees in New Orleans and in the collapse of the I-35 bridge in Minneapolis. More generally, a recent report by the American Society of Civil Engineers concludes that America's infrastructure overall is close to 'failing' and deserves a grade of 'D.'"
Two of Ehrlich and Rohatyn's main arguments for this "National Infrastructure Bank" are that it would a) replace the inefficient and wasteful way that federal funds are allocated to infrastructure that exists currently and b) be much more effective at driving private capital into this sector of infrastructure investment.
Ehrlich and Rohatyn explain the basic operation of the bank towards the beginning of their piece:
"The central idea of the CSIS commission proposal is to establish a National Infrastructure Bank, an institution that would be similar to the World Bank, a private investment bank, or any other entity that evaluates project proposals and assembles a portfolio of investments to pay for them. Traditionally, public financial institutions such as the one we propose are created to correct problems in capital markets, whether they be the failure of markets to fund projects that support development in the world's poorest nations or their undue pessimism regarding the long-term solvency of a particular city or state government. This is not the case here. State and local governments generally can borrow for infrastructure purposes in line with their ability to service debt and the strength of their credit ratings. The issue here is not the efficiency of capital markets but rather the efficiency with which federal programs work and spend funds. The purpose of the National Infrastructure Bank would be to use federal resources more effectively and to raise additional funding. We propose this bank because we believe that markets for capital do work and can be harnessed to solve the critical shortfall in funding infrastructure.
The bank would replace the various "modal" programs for highways, airports, mass transit, water projects, and other infrastructure, streamlining them and folding them together into a new entity with a new culture and purpose. Any project seeking federal participation over a set dollar threshold would have to be submitted to this bank. (Smaller projects would be left to states, cities, and towns, perhaps with an accompanying federal grant to be used at the discretion of the state or local government.) Rather than receiving grants through pre-set federal formulas or privileged congressional payments, states, cities, or other levels of government would come to the bank with proposals they wished to pursue. These proposals--for, say,a new or improved highway, a subway, expanded airport, or harbor improvements--would outline the investment that state and local governments would be willing to make, what the users of the project would be expected to pay, and what support was wanted from the federal government."
Also, they explain, since this would essentially be an investment bank for public works, it would face oversight and solvency tests from the market daily, eliminating many problems of governmental waste or political pandering:
"Moreover, selling the loans it makes to private investors would require the bank to convince those investors that its projects are tenable and capable of producing tangible benefits--in short, the bank's project selections would face a market test every day, as a deep and liquid market for its securities was formed...
...The bank's securities, whatever they may be, should not benefit from a promise of the government's full faith and credit (as has been enjoyed and abused by Fannie Mae and Freddie Mac). Only close scrutiny by investors can provide the kinds of discipline needed to ensure the bank's long-term success. If the bank wishes to support a proposed project--whether by writing a check, insuring a local bond, providing other credit guarantees, or lending its own money--its securities should each be carefully exposed and specifically targeted, allowing participating investors to evaluate the assets they buy."
This sort of cutting-edge solution to problems facing our country--a solution that involves using federal investment to direct capital flow towards projects that would have public benefit and also renew the economy--is exactly more of what we need. A National Infrastructure Bank Act of 2007 has been introduced to the Senate by Democrat Chris Dodd of Connecticut and Republican Chuck Hagel of Nebraska, and there is a companion bill floating around the House. Let's hope that more solutions of this kind begin to surface and pick up traction, and lead to a renewed and strengthened America for a new century of prosperity, security and opportunity for all of her citizens.
