The Senate’s latest twist: The American Infrastructure Fund
A bipartisan group of eleven U.S. Senators, led by Colorado Democrat Michael Bennet, has filed legislation to create the American Infrastructure Fund. Senate bill 1957 would:
Provide bond guarantees and make loans to states, local governments, and infrastructure providers for investments in certain infrastructure projects, and provide equity investments in such projects, and for other purposes.
The trade industry association Sifma describes the legislation:
On January 17, a group of 11 U.S. Senators joined 50 House members to support a proposed national infrastructure bank funded with $50 billion of taxable bonds with a one percent interest rate. The Partnership to Build America Act (S. 1957), in line with the H.R. 2084, filed in the House in May by Rep. John Delaney, D-Md., aims to help state and local governments finance initiatives to build or repair roads, bridges, highways, ports, schools, and other infrastructure projects.
This legislation feels like an evolved version of Democrat Virginia Senator Mark Warner’s BRIDGE Act legislation from November, 2013. Warner’s bill began with a $10 billion investment that would be structured as an independent government entity (think Fannie and Freddie) and relies on a government appropriation for initial funding. Loans and guarantees made under the BRIDGE Act would carry an interest rate comparable to U.S. Treasuries and capped maturities of 35 years.
Bennet’s legislation ups the initial money for the infrastructure fund to $50 billion and gets seed money by selling bonds at a 1 percent interest rate to U.S. corporations that are repatriating overseas profits. From Sifma again:
S. 1957 establishes a $50 billion infrastructure fund that would leverage the $50 billion of bond proceeds to provide up to $750 billion of loans and financing authority for state and local governments. The bill allows U.S. companies to purchase bonds through the fund by allowing them to exclude a certain portion of their overseas earnings from taxation. The amount they are permitted to repatriate for each dollar of bond purchases would be determined by a competitive auction.
Like Warner’s bill, Bennet’s legislation includes an emphasis on public private partnership (P3). Bennet’s bill requires that 25 percent of projects financed through the AIF must be P3s. There has never been economic validation for passing public assets to private investors via P3s. Hopefully Bennet’s bill won’t accelerate the transfer of public assets from the 99 percent to the 1 percent of America’s wealthy without doing a complete economic analysis on this approach.
[House legislation sponsor Representative] Delaney stated that at least 25 percent of the projects financed through the proposed infrastructure bank must be public-private partnerships, with at least 20 percent of a private-public partnership project’s financing coming from private capital.
Requiring a set percentage of the funded projects to be P3s without requiring economic analysis is poor lawmaking. This part of the bill should be adjusted.
If the tax benefits for corporations that repatriate their overseas profits through an American Infrastructure Fund were good, there would be potential for an increasing amount of capital with which to fund public infrastructure and create jobs. From Sifma again:
‘Over 50 years, the American Infrastructure Fund could finance $2 trillion worth of infrastructure and create more than 3 million jobs,’ Delaney said. The House bill has 50 co-sponsors with 25 Republicans and 25 Democrats.
U.S. infrastructure needs trillions of dollars of funding over the coming decades. Getting a federal mechanism in place to fund this work should be a high priority.