Once the Congress and the Obama administration finish their negotiations on the debt ceiling, attention will turn to plans for reducing unemployment. The lack of jobs for Americans is the most crippling element of the recession. There seems to be a growing bipartisan consensus for the federal government to alleviate this problem through the establishment of an “infrastructure bank.” U.S. Senator Kerry has introduced Senate Resolution 652 to create the American Infrastructure Financing Authority. Here is what the legislation says:
- Establishment of AIFA- The American Infrastructure Financing Authority is established as a wholly owned Government corporation.
- General Authority of AIFA- AIFA shall provide direct loans and loan guarantees to facilitate infrastructure projects that are both economically viable and of regional or national significance, and shall have such other authority, as provided in this Act.
The legislation authorizes the AIFA to receive $30 billion in “start-up” funds from the federal government. Its role is to review proposals; determine which ones benefit the public and which ones are pork-barrel projects; and finance the ones that are worthwhile. These projects must be large-scale; the minimum size is $100 million, although rural projects will be considered that cost as little as $25 million. AIFA would be overseen by a panel of seven members appointed by the President and confirmed by the Senate.
In terms of generating jobs, the spending authorized for the AIFA is relatively small. From the bill:
- (2) MAXIMUM ANNUAL LOAN AND LOAN GUARANTEE VOLUME- The aggregate amount of direct loans and loan guarantees made by AIFA in any single fiscal year may not exceed–
- (A) during the first 2 fiscal years of the operations of AIFA, $10,000,000,000;
- (B) during fiscal years 3 through 9 of the operations of AIFA, $20,000,000,000; or
- (C) during any fiscal year thereafter, $50,000,000,000.
$10 billion in annual expenditures won’t create that many jobs unless it is in the form of loan guarantees. If the purpose of the AIFA is to create a new form of government sponsored entity (GSE) to guarantee infrastructure loans, then it is probably adequately funded.
But if the government is merely guaranteeing the construction of infrastructure, the question of ownership still lingers. Wall Street would certainly like to own it, and private investors are lining up to invest in public infrastructure. Businessweek said the following in May 2007:
In the past year, banks and private investment firms have fallen in love with public infrastructure. They’re smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate—and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they’re beginning to consider infrastructure a brand new asset class in itself.
Now a slew of Wall Street firms—Goldman, Morgan Stanley, the Carlyle Group, Citigroup, and many others—is piling into infrastructure, following the lead of pioneers like Australia’s Macquarie Group. Rob Collins, head of infrastructure mergers and acquisitions at Morgan Stanley, estimates that 30 funds are being raised around the world that could wield as much as $500 billion in buying power for U.S. assets.
Wall Street might be chomping at the bit to own these assets, but the public overwhelmingly wants government ownership of infrastructure. Here are some poll results from a survey conducted by the ITT concerning water infrastructure. Only 6% of respondents wanted private ownership and responsibility for shared assets.
The need for jobs and infrastructure improvement in America is critical. Let’s hope that Congress, when it turns its attention towards job creation, develops new ideas that simply don’t transfer ownership of the nation’s vital shared resources to private hands.
Tennessee Valley Authority: About TVA
NYT Op-Ed: Why America Needs an Infrastructure Bank
Barron’s: Banking on Infrastructure