No Love for Infrastructure Bank

SEP 14, 2011 6:49pm ET
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WASHINGTON — Transportation industry and government groups have not found a lot to like in President Obama’s American Jobs Act, and they are particularly unhappy about the proposed infrastructure bank.

The jobs bill would create the American Infrastructure Financing Authority as a wholly owned government corporation that would “provide direct loans and loan guarantees to facilitate investment in economically viable infrastructure projects of regional or national significance,” according to administration officials.

The bank would be run by a chief executive officer and a seven-member board of directors, all of whom would be appointed by the president and confirmed by the Senate. But one problem infrastructure advocates see with the AIFA is timing.

“You can’t start up the bank and create jobs tomorrow,” said Janet Kavinoky, executive director of transportation and infrastructure for the U.S. Chamber of Commerce. “It’s more akin to creating a startup in a garage somewhere with a big vision — in this case, transforming how big infrastructure projects are developed by lowering the cost of capital and transferring risk — and knowing that the real growth may not happen for three to five years.”

The bank would be capitalized with a $10 billion congressional appropriation for its first two years. Loans would go to projects of at least $100 million, or $25 million in rural areas. The loan or loan guarantee could finance no more than 50% of the project’s cost. The base interest rate on a direct loan would be at least the rate on Treasury debt with a similar maturity.

AIFA loans or guarantees could run as long as 35 years in order to be a “patient partner side by side with state, local, and private co-investors,” the administration said in a description of the bank. “The repayment would have to come in whole or part from tolls, user fees, or other dedicated revenue sources.”

American Trucking Associations president Bill Graves was skeptical.

“We’ve long advocated that roads and bridges should be paid for primarily by their users, through the most direct taxes possible: fuel taxes,” he said. “Allowing private capital to take their cut as part of an infrastructure bank, or by taxing other sectors to pay for roads and bridges, takes us further away from this core principle.”

Obama’s infrastructure bank is not just for transportation. Its loans could be used to finance highways, roads, bridges, mass transit, inland waterways, commercial ports, airports, air traffic control systems, passenger and freight rail, wastewater treatment facilities, storm-water management systems, dams, solid-waste disposal facilities, levees, power transmission and distribution, storing energy, and energy-efficiency enhancements for buildings.

This may worry transportation advocates, but New York University professor Michael Likosky said it could offer useful flexibility for states and localities. He cited Mobile County, Ala., where the German company ThyssenKrupp has built a new steel mill that is also attracting suppliers.

“Mobile County could increase their capacity really quickly,” he said. “They could grow into a much larger site of investment and production by building out more water transportation and energy.”

The AIFA might help with that, but few market participants and political analysts expect Congress to approve it or the rest of infrastructure provisions in the bill. Republican leaders have already rejected it as more stimulus spending.

Obama avoided the S-word in his speech to Congress, but aside from that, Ken Orski, publisher of Innovation News Briefs, said it is almost an exact replica of the infrastructure program from his fiscal 2012 budget.

“The same reasons that led Congress to ignore the administration’s FY 2012 transportation budget request will likely cause the lawmakers to reject the new transportation initiative,” Orski said. “They are skeptical that a fresh infusion of funds will succeed.”

Road builders would rather not have the money. “The country doesn’t need another stimulus like the last one,” Pete Ruane, CEO of the American Road and Transportation Builders Association, wrote in an op-ed in the Washington Times.

The last time, he said, “establishing the transportation construction industry as the poster child and media backdrop for the job-creating power of the $825 billion 'stimulus’ left us holding the bag with our credibility damaged because the investment was too little.”

Rather than the jobs bill, stakeholders want a six-year transportation bill from Congress. And rather than a bank, they want the $1 billion in annual grants from the Transportation Infrastructure Finance and Innovation Act contained in both the House and Senate long-term bills.

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