The US needs an infrastructure bank that models the World Bank
The infrastructure bill that reached the Senate floor on July 28 was missing a key provision — an infrastructure bank.
But that omission may turn out to be a good thing — if it opens the way to the creation of an infrastructure bank in the form we actually need.
The Infrastructure Financing Authority (IFA) that was included in the Bipartisan Infrastructure Framework but was removed from the final proposal, was close to being that — but unfortunately, no cigar. It was the right idea but the wrong execution. The IFA was certainly a welcome concept and had the support of both Democrats and Republicans. Ironically, its removal was more the result of political maneuvering than a decision on the merits — Democrats reportedly traded it for a wage provision they wanted to protect.
This should not be the end of the story. An infrastructure bank should be reintroduced in an amendment as the final bill takes shape, but not as originally proposed. Instead, Congress should seize the opportunity to create an institution independent of government, separate from the appropriations cycle, and capable of bringing large-scale, permanent, long-term funding to bear. That is the way to jumpstart our infrastructure and launch a new era of American productivity.
The Infrastructure Financing Authority could not have achieved these goals. As proposed, the IFA would have been a limited, government-dominated institution, with Congress directly controlling board membership, management structure and compensation. It would have had limited ability to raise and distribute funds — restricted to investment-grade projects, which the capital markets already fund — and would have had no permanent capital base. Instead, it would have been entirely dependent on congressional appropriations — a politically uncertain funding stream with a short-term perspective, mismatched to the long-term nature of infrastructure projects.
In other words, the IFA would have been a structure- and scope-limited extension of the federal government — not a fully capable financial institution, not a center of innovation and not a magnet for diverse private-sector expertise and experience.
Can we do better? We can and we must. To scrap the bank would be a terrible mistake. To build it the right way is critical for the long-term success of any infrastructure plan.
Here is why a better solution is needed. Our infrastructure is in crisis because of chronic underinvestment. For decades, the U.S. has invested less than 2 percent of GDP in infrastructure — compared to China’s 8 percent. Republicans and Democrats want the U.S. to compete with China. The way to start is by investing in our domestic infrastructure for the long term, not just for the coming few years, however large the current bill may be.
The funding shortfall is significant not just in contrast to China but on its own terms as well. The leading independent expert group — the American Society of Civil Engineers (ASCE) — estimates that we are currently investing $2.59 trillion less than the amount needed just to bring our existing core infrastructure into an adequate state of repair – that is, without starting any new projects. And if we are serious about climate change, we will need to invest to make our infrastructure greener. That will add significantly to the cost.
The way to close the funding gap is to bring private-sector investment to bear. That should be the infrastructure bank’s mission. And the mission should determine its structure.
Rather than being directly controlled by Congress, the infrastructure bank should be not a government-controlled, but a government-sponsored institution. It should extend alternative forms of lending (senior, junior and mezzanine debt financing), and should provide guarantees as well as direct equity investments, exactly like any other development finance institution — The World Bank, for example. The analogy is disturbingly apt — our infrastructure sector is in need of long-term development help, similar to Europe when it needed a Marshall Plan in the aftermath of WWII.
To provide for long-term strategic infrastructure investment on a national scale, the bank should have $100 billion in equity capital and a $1 trillion balance sheet. That amount can galvanize capital markets and generate funding on a sustainable, long-term basis.
The bank can also play critical roles by removing structural barriers such as arcane procurement processes that have considerably slowed down the execution of infrastructure projects and utilizing planning and project management resources that exceed what existing state and municipal resources can accomplish.
This is the form the infrastructure bank should take. By committing to it, Congress could provide for much more effective infrastructure planning and significantly close the funding gap without any tax increase or increase in the budget deficit. Our infrastructure crisis demands long-term permanent funding solutions. The infrastructure bank is the way to do it.
Sadek Wahba is a senior fellow at the Development Research Institute of New York University. He is also chairman and managing partner of I Squared Capital, an independent multi-billion-dollar global infrastructure investment company. The views expressed in this paper do not necessarily reflect those of the organizations mentioned above.
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