President Obama’s 2012 budget will include provisions for a national Infrastructure Bank. In comments provided at the US Treasury blog, Treasury Secretary Geithner said that the bank would leverage private money to “…support projects that produce significant returns on our investment.”
The structure of the infrastructure bank, based on the blog post, appears to include a combination of federal money with private equity that will be used to finance very large infrastructure projects. Water and wastewater projects are not mentioned anywhere in the blog post, but it remains to be seen if the bank would actually exclude such projects. Specifically mentioned in the post were large transportation projects including rail, air traffic control, and ports.
The blog post does not go on to describe what the Secretary means by “significant returns” but as we’ve been saying for some time, when private money gets involved in infrastructure, you can bet that the cost of financing will go up, not down. The Secretary claims that the bank will allow investment in critical infrastructure without increasing the nation’s debt. That’s probably true, but only from the federal perspective. The bank would allow the federal government to spend less of its own money on infrastructure, but would pass the higher cost of financing (from private equity invested in the bank) to pass through to state and local governments. So, while the bank would seem to offer some relief at the federal level, the higher overall cost would get transferred to taxpayers closer to the actual projects.
It’s not a zero sum game though – at least not for taxpayers. Federal tax rates are not likely to decrease and, meanwhile, the increased financing costs would be passed on to lower levels of government where additional revenue would have to be generated to repay the loans. Increases to state and local taxes and user fees would be a natural result (of supporting increased debt).