Sep 11
13
Is the Infrastructure Bank a Real Solution for the Infrastructure Gap?
So much has been said about our nation’s failing water infrastructure that another blog post would hardly do the topic justice. We’ve done plenty of them here already (here, for example). There have been many who have done well to help us identify the problem, and the problem is an imminently solvable one. We know how to fix things in this country. From dams, to roads, to pipes, to electric grids, to orbiting telescopes, we’ve built and fixed them all, and we can do it again. Our infrastructure problems are not a problem of “how?”.
The biggest problem with infrastructure – the 500 lb gorilla in the room – is the problem of “how much?” In this sense, there has also been much work on trying to get our arms around just how much money is needed. The American Society of Civil Engineers, EPA, GAO, and many others have taken a stab at it. All of those estimates run to the hundreds of billions. One of the best reports on the issue of “how much” comes from the US Conference of Mayors; they predict a four-fold increase in local spending on the issue in the next twenty years.
At some point, the question of “how much?” became one more defined by a supposed lack of access to financing sources. Enter President Obama’s not-so-new idea for a national infrastructure bank. It’s not such a new idea because it’s been debated around Washington for some years, but it gained prominence again when it appeared as a component of the President’s jobs bill introduced last week in his speech before a joint session of Congress. The bank structure proposed now is essentially the same as it has been proposed before: it would provide financing for approved infrastructure projects with a combination of public and private funds with more private money involved than public.
It’s worth mentioning that it remains unclear as to exactly what kinds of projects would be funded through the bank. As originally proposed by Senators Hagel and Dodd in 2007, the bank would provide financing for a wide array of infrastructure projects. The most often advertised projects were in the energy and transportation areas, but water and wastewater projects were not mentioned specifically. Regardless of how much money the bank has to invest, it also needs to be noted that what’s being proposed is a bank, not a grant making agency. Using the bank’s financing will involve repayment and it remains to be seen at what kind of terms the bank could actually provide.
At its best, the infrastructure bank provides another financing mechanism but does little if anything at all to bridge the gap between the “how?” and the “how much?” decisions that are faced by the local governments who actually have the responsibility for maintaining much of the infrastructure in question. Although many rural systems do lack access to capital markets, most local governments already have access to cheap municipal bond financing, state revolving loan programs, and other financing sources. Yet, even with all that access to financing, the infrastructure gap remains and grows. Can access to financing really be the problem here?
Local governments and, more accurately, their constituents, are the ones who have to repay all these loans. For water and wastewater projects, the loans are repaid primarily through the rates and fees charged for the service. It should be no surprise that local residents don’t like paying more for things, just check the daily news to find dozens of examples. The infrastructure gap hasn’t been addressed not because access to financing is a problem, but because local willingness and/or ability to repay the debt remains a difficult practical and political hurdle for most local governments. On a practical level, growth of personal income has been declining since around the 1980′s while the rate of inflation on infrastructure construction projects has soared – we’ve lost ground there. The political issues are obvious in light of the practical.
It’s not that an infrastructure bank doesn’t have some benefits. It does. However, the prevailing thought that the introduction of a bank will somehow cure what ails our infrastructure is overly optimistic. Local governments hoping that a national infrastructure bank will be the solution would do well to think again. Handling the difficult balance between local funding needs and the burdens it places on people is not so easily solved. A long-term strategy for addressing these needs that includes a strong form of financial planning is at the heart of solving the real problem of “how much?”. Where the financing comes from is a far less important question.
