American Jobs Act Would Create an Infrastructure Bank

President Obama’s American Jobs Act (the Act) includes many measures to revive a stalling economy, including a proposal to create a public bank—the American Infrastructure Financing Authority—that would invest in infrastructure. Designed to entice private investors, an infrastructure bank would be a key government entity for low-cost financing for infrastructure projects.

Even if the Act does not pass in its complete form, the infrastructure bank still merits the attention as an individual proposal because funding is not keeping up with the need for fixing our crumbling infrastructure. For instance, U.S. infrastructure fell from first to fifteenth place in the World Economic Forum’s economic competitiveness ranking since 2005.

I mentioned last week that 1) record-low interest rates on federal treasuries make now an especially cost-effective time to borrow and invest in infrastructure and 2) the unemployment rate in the construction sector has been in the double-digits for nearly three years. The infrastructure bank would lead to increased infrastructure investment, which in turn would spur competitiveness and economic growth through job creation and congestion relief.

Under President Obama’s proposal, the infrastructure bank would be headed by a Chief Executive Officer and a Board of Directors. These officials would select which public works to finance based on an analysis of the project’s economic, financial, technical, environmental, and public costs and benefits. The analysis would also consider revenue sources for the loan repayment, such as user fees and tolls.

Loans would be limited to projects with a price tag of at least $100 million in urban and suburban areas and $25 million in rural parts of the country. Financing for each project would be limited to 50 percent of the project’s total cost, and the loans could be financed for a period of up to 35 years. The financing would be available for transportation and other types of infrastructure projects, including highways, mass transit, rail, airports and dams, among others.

Some stakeholders object to private financing for public-works projects for different reasons, including the concern that the infrastructure bank may become a vehicle to create privatized public assets. To address these concerns, policymakers should ensure that the infrastructure bank properly balances taxpayer protection with investor returns and delivers benefits that are broadly shared among a wide array of citizens and stakeholders.

Moreover, it is beneficial to move beyond public-only financing of infrastructure in order to increase the total funding for critical infrastructure, speed up infrastructure projects, and improve the overall societal benefits that flow from such investments. The U.S. needs to invest in roads, highways, rails and other infrastructure if it is to remain economically competitive.