As Washington struggles to balance economic development with budgetary austerity, some lawmakers are coalescing behind plans to attract private funds for investment in major infrastructure projects with a minimum of public money involved.
Two bills focus on infrastructure-a priority of the president and, in rare concert, the business and labor communities as well. The proposals approach public project financing from different directions: investments and bond underwriting. But both rely on investors to fill the gap government can't, a big shift from the situation in 2009, when government funding was used to stimulate the economy as the private sector faltered.
Sens. John Kerry, D-Mass., Mark Warner, D-Va., and Kay Bailey Hutchison, R-Texas, announced legislation called the BUILD Act on Tuesday. Flanked by U.S. Chamber of Commerce President Tom Donohue and AFL-CIO President Richard Trumka, the lawmakers proposed creating a national infrastructure bank, the American Infrastructure Financing Authority, to provide loans and guarantees for major construction projects.
Meanwhile, Sen. Ron Wyden, D-Ore., hopes to introduce a bill within the next few weeks that would modify the expired Build America Bonds program, which created a class of subsidized municipal bonds. Wyden's plan to authorize Transportation and Regional Infrastructure Project (TRIP) bonds is being scored on its cost by the Joint Tax Committee as he seeks out allies on both sides of the aisle.
Both plans rely on private money to finance the bulk of large-scale public projects that would range from construction and improvement of highways, waterways, and bridges to rail and energy-grid upgrades. All of those are much needed, say proponents, who quote American Society of Civil Engineers estimates that projected infrastructure spending will fall $2.2 trillion short of what's needed to keep things in adequate condition over the next five years.
Infrastructure investments are job creators in the short-term-someone has to build all that stuff and provide the machines and raw materials required to do it-that also create long-term opportunities for economic growth. Kerry's office estimates that the economy loses $80 billion a year because of blackouts on overloaded power grids and traffic-related slowdowns.
These investments are one of the few issues on which business and labor increasingly see eye-to-eye. Trumka and Donohue, no close friends, frequently lobby for more attention to the issue.
The looming challenge, with House Republicans aiming to make deep and increasingly draconian cuts and Congress as a whole leery of large-scale spending projects, will be to find the money for these efforts.
The Obama administration's fiscal 2012 budget proposes a $556 billion highway plan, but does not specify a mechanism to fund it. The most obvious method would be an increase in the gas tax, but few lawmakers are likely to have the stomach for that with oil prices rising. House Republicans are setting their sights much lower, spending perhaps half of what the White House seeks.
With investment uncertain, public-private partnerships are the next alternative. To foster those, the Kerry-Hutchison bill's AIFA would be modeled on the Export-Import Bank, which provides loans to foreign entities to purchase American goods. AIFA would provide loans and guarantees for large energy, transportation, and water projects.
The Ex-Im Bank has been profitable for years, and lawmakers believe an infrastructure bank would eventually become self-sustaining after an initial tranche of $10 billion in public funding. Supporters say the bank could spur $320 billion to $640 billion in investment over the next decade, insisting that it would be governed by market discipline and, after its initial funding, wouldn't burden the federal balance sheet.
Wyden's proposal, meanwhile, is modeled after the bonds pioneered under the Recovery Act. The program would allow municipalities to issue bonds that return some of the states' interest payments as a tax credit, which would lower the cost of borrowing at a time when states are in desperate fiscal straits. The advantage over traditional tax-exempt municipal bonds is that these bonds would be taxable, which makes them appealing to a broad array of pension funds and other institutional investors that don't care about tax-exempt interest.
Although the original Build America Bonds were popular with municipalities and investors, Republicans criticized the program as lacking oversight, offering little to help to rural communities, and even as a form of bailout program. Wyden's office has worked to answer their concerns; his bill proposes more stringent management authorities and limits on what kind of projects could be funded through TRIP bonds.