Despite Wide Support, Plan Still Stuck

With support from the president, members of both parties in both houses of Congress, think tanks and financial institutions, creation of a national infrastructure bank might seem like a slam dunk.

Yet the proposals never seem to gain traction.

The benefits of such a bank look obvious to supporters in a country sorely lacking funds to restore infrastructure in disrepair. There are billions of dollars in private capital waiting to be invested in public-private partnerships, according to Toby Ritner, president of the Council of Development Finance Agencies.

“From a banking, from a private capital, from an investment standpoint, this is a tool that could possibly work to get that capital off the shelf and into the communities,” he said.

“We’re in so deep and the problems are so severe that the economy needs an infrastructure bank,” said Timothy Frost, a public finance and development professional who was formerly a managing director at Smith Barney and a director at the European Bank for Reconstruction and Development. He says the U.S. needs a credible and functioning public-private partnership model that is successful in other parts of the world.

But President Obama’s latest proposal for an American Infrastructure Financing Authority — in his American Jobs Act of 2011 — was declared dead by House Republicans along with other provisions they deemed to be “stimulus.”

Sens. John Kerry, D-Mass., and Kay Bailey Hutchison, R-Texas, proposed the Building and Upgrading Infrastructure for Long-Term Development, or BUILD, Act, to create an infrastructure financing authority. Obama’s proposal is essentially a copy of it. The heads of the U.S. Chamber of Commerce and the AFL-CIO supported it.

Sens. Jay Rockefeller, D-W. Va., and Frank Lautenberg, D-N.J., also introduced a bill for an infrastructure investment fund. And Rep. Rosa DeLauro, D-Conn., introduced her infrastructure bank bill with the AFL-CIO, the Chamber, construction companies and investment banker Felix Rohatyn backing her.

Despite that strong support, when it came to developing frameworks for their long-term bills, the leaders of the House Transportation Committee and the Senate Environment and Public Works Committee failed to include an infrastructure bank.

Some market participants are just opposed to the idea. “A lot of people in public finance see any change as an attack on pure tax-free bond financing,” Frost said.

There are also opponents who believe creating a federal infrastructure bank would be like creating a new Fannie Mae and Freddie Mac, with the risk of a similar financial disaster for the government.

But the Obama and BUILD bank plans are not like Fannie or Freddie, according to Tom Osborne, head of UBS Americas Infrastructure Banking.

First of all, “they don’t have private shareholders,” he said. “The other major difference [is that neither] looks to leverage up.” They would use their initial capital as the basis for loans and not be allowed to borrow more, he said.

Some draw an analogy to Solyndra. The U.S. Department of Energy granted a $535 million loan guarantee to the company, which abruptly filed for bankruptcy earlier this month.

“This isn’t a Solyndra situation,” Ritner contended. “People aren’t putting business plans forward, they’re putting capital projects forward. You’re not hoping a technology develops. You know how to build a road.”

In addition, lawmakers are busy worrying about getting basic ongoing funding for transportation programs from Congress. Legislators haven’t been able to agree on a long-term transportation bill since the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users expired in 2009.

The House and Senate committees have until the end of March to resolve differences between the six-year, $230 billion plan by Rep. John Mica, R-Fla., and the two-year, $109 billion bipartisan plan by Sen. Barbara Boxer, D-Calif., and Rep. James Inhofe, R-Okla.

So far there is no huge upsurge in demand for an infrastructure bank from the intended state and local beneficiaries.

“There are a lot of skeptics out there about a national infrastructure bank” and they’re asking, “Do we need a new entity?” said Bryan Grote, a principal at Mercator Advisors. “That is important for project sponsors, especially if you’re trying to figure out where to go for federal assistance and what are the hoops you have to jump through.”

The potential investors have similar questions. Grote was the first head of the Transportation Infrastructure Finance and Innovation Act program, the existence of which raises questions about duplication.

TIFIA provides loans and loan guarantees to help finance state and local projects. Some officials ask why a new infrastructure bank is needed when the plans in Congress would expand TIFIA’s funding from $122 million a year to $1 billion.

UBS’ Osborne sees a peaceful coexistence. An infrastructure bank expands to other sectors and focuses on nationally and regionally important projects.

“It gives a boost to what TIFIA already does,” he said. Osborne doesn’t see an infrastructure bank as an either/or proposition with TIFIA, tax-exempt bonds, or other federal credit assistance. He views them all as “completely complementary.”

Frost sees creating a bank as depoliticizing the process through political means. “The market needs to know that the money is going to be there, not subject to annual appropriations and with clear criteria for project approval,” he said.

D.J. Gribbin, a managing director for Macquarie Capital, still sees hope for establishing an infrastructure bank in the not-remote future. “The good news is the choices really have collapsed down,” to the Obama-Kerry-Hutchison ideas, he said. “It hasn’t steeped as long as you would normally steep before it passes into law” and there is the debt-reduction super committee adding to uncertainty, he said. But rolling into an election year without job growth, prospects could change.

Grote sees an evolution. If Congress is going to supersize TIFIA, it’s going to need a much bigger loan evaluation and processing organization.

“Maybe that de facto becomes the first window to open in this infrastructure bank and maybe over time it evolves to cover other sectors,” he said. “I’m not sure you’re ever going to get the infrastructure bank pop out of a legislative vehicle — presto, there it is in its final form we all look at it and agree that’s the new infrastructure bank.”

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