MuniLand

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:

Singing the passion song

Kathleen Kennedy Townsend, the former lieutenant governor of Maryland, writes passionately in The Atlantic about the need to create jobs in the United States, especially those linked to infrastructure. I welcome her opinion as we need more passionate voices drawing attention to the need to stop outsourcing American jobs. We will never recover if we make economic decisions solely on the the basis of manufacturing costs. Ms. Townsend says:

As a country we have to decide what our values are. Do we really want to be a nation that funds our spending spree through the Chinese, who then make our goods and do our work while we go into debt and remain unemployed? Work is more important than saving tax dollars. Jobs are critical. Work, not an unemployment check, is what makes people feel they are worth something.

I hope the combined forces of politicians, the unions, and the Chamber [of Commerce] will eventually overcome the resistance to the infrastructure bank. We need to create jobs, and we need to rebuild our roads, railways, sewage, and water systems. Most of all, we need to revive our sense of energy and excitement — the deep fulfillment that comes of making things we can touch and feel, things that really improve our lives.

“The American Revolution was a beginning, not a consummation.” ~Woodrow Wilson

Happy belated Independence Day to all! Step by step, the United States is transforming itself. It’s a good time to remember our founding principles:

Individual liberty
Personal responsibility
Constitutionally limited government
The rule of law

America’s Interstate Highway System celebrates 55 years

This is the best example of how public infrastructure can really anchor tremendous economic growth. We can learn from history and use this time of economic challenge to conceive of equally profound infrastructure goals. From Fastlane, the blog of U.S. Secretary of Transportation Ray LaHood:

As President Obama has said, to win the future, we must dream big and build big. One of the best examples of dreaming and building big in our nation’s history is America’s Interstate Highway System, which marks its 55th anniversary today.

On June 29, 1956, President Eisenhower signed the Federal-Aid Highway Act of 1956, which established a program for funding and building the new system. This legislation has been hailed by historians as one of the top ten bills in American history, surpassed only by the Civil Rights Act and Medicare, and the Interstate Highway System has been called the greatest public works project in history.

If you have been around Washington much, you know that a lot of what happens is often kabuki. What may appear to be a geisha girl coyly teasing a samurai is really a young man with heavy make-up and mincing steps. It’s beautiful deception.

I think a little DC kabuki maybe happening with the renewed chatter around an infrastructure bank funded with corporate overseas profits. Bloomberg reports:

The Senate’s No. 3 Democrat [Senator Charles Schumer of New York] said yesterday that his caucus is exploring the potential of using the short-term revenue a [overseas profit] repatriation holiday would generate to fund an infrastructure bank. The focus on infrastructure, he said, would “guarantee” job creation and address a key line of Democratic opposition.

Fiscally-stressed municipalities have leased roads, airports and statehouses to private entities. I’ve never seen a good compendium of how these privatizations worked for various stakeholders. But it is fair to assume that private investors are attracted because there are ways to increase margins and make profits. A 2008 New York Times article identified some of the approaches used by investors:

Private investors recoup their money by maximizing revenue — either making the infrastructure better to allow for more cars, for example, or by raising tolls. (Concession agreements dictate everything from toll increases to the amount of time dead animals can remain on the road before being cleared.)

There is a lot of cash sitting on the sidelines to take public assets private.

Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest — much of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas.

America is a high-energy society — that is, we consume a lot of energy. According to Wikipedia the United States has long been the world’s largest producer and consumer of electricity, with a global share in 2005 of at least 25%. This consumption is a primary driver of growth. Energy is our economic blood.

The Energy Information Administration tracks and maps our current and potential energy sources. California is a big importer and converter of petroleum, which you can see in the excellent map above via the purple marks. Dependence on imported oil is something we need to phase out for a number of economic, political and environmental reasons.

The other thing that the map shows is a vast swath of California that is ideally suited for solar power (see the yellow shading in the southeastern area). It’s bloody hot out there, and that heat can create electricity.

Our nation is in a serious economic crisis. Both political parties dance around each other with varying demands for cuts in entitlement programs, tax increases and a rise in the debt ceiling. It’s a doomsday prospect and the American people are feeling the chill of economic malaise.

The policy response thus far has mainly been to engage in deficit-spending, to give tax breaks, to broaden the social safety net and to print money. It sounds potentially inflationary to me.

It’s time for the political class to stop acting so small and embrace a way to rebuild our nation. It’s time to face the fact that we have a twentieth-century infrastructure at the beginning of the twenty-first century. But building new high-speed transit, offshore wind power, solar power arrays and new energy transmission grids is hugely expensive. Who will pay the cost?