CBO, GAO Reports Call for New Funding Options

The Congressional Budget Office and the General Accountability Office analyzed options for funding the nation's infrastructure needs in reports issued yesterday.

The reports were released at a joint hearing by the House Transportation and Infrastructure Committee and House Budget Committee, during which lawmakers considered financing options for transportation and other infrastructure needs that continue to grow substantially across the nation.

"There is a growing awareness that, at the current level of investment, we are falling further and further behind in meeting our physical infrastructure needs," committee chairman James L. Oberstar, D-Minn., said in his opening statement. "Here, in one of the richest nations on earth, our infrastructure is literally crumbling around us - collapsing, in some cases."

"If we are going to compete in a global economy, we had better start investing in our infrastructure," said Rep. Mike Simpson, R-Idaho. "We need a plan."

Several lawmakers have proposed legislation that would create infrastructure banks that would be able to issue tax-credit bonds to help state and local governments finance infrastructure projects. Tax-credit bonds are taxable bonds which allow investors to receive a tax credit against their federal income tax liability instead of a cash interest payment.

Sens. Christopher Dodd, D-Conn., and Chuck Hagel, R-Neb., have proposed S. 1926, the National Infrastructure Bank Act, which would create an infrastructure bank that would be able to issue up to $60 billion of taxable tax-credit bonds to help states and their public authorities to finance mass transit, roads, bridges, drinking and wastewater systems and other infrastructure projects..

Rep. Rosa DeLauro, D-Conn, is sponsoring HR 3896, the National Infrastructure Development Act of 2007, which would establish the National Infrastructure Development Corporation and a subsidiary, the National Infrastructure Insurance Corp. Initially, each would be federal corporations, but the bill would give the NIDC five years to develop a plan to convert both entities to government-sponsored enterprises.

Rep. Ron Wyden, D-Ore., is lead sponsor of S. 2021, the Build America Bonds bill, which would establish a nonprofit entity authorized to issue up to $50 billion of taxable tax-credit bonds over six years to finance improvements to transportation infrastructure projects.

The CBO said that to an extent an infrastructure bank or corporation funds projects that are supported by user fees, rather than by tax dollars, it is possible that inefficient demands would be reduced and that market discipline would improve project selection and management. However, the report said, the federal government already supports projects that rely on user fees through various spending programs and tax expenditures, and that policymakers can choose to increase such support without creating special entities.

Both the CBO and GAO reports suggested that tax-exempt bonds is a costly way for the federal government to finance infrastructure relative to other kinds of financing.

"Although bonds can provide up-front capital for infrastructure projects, they can be more expensive for the federal government than traditional federal grants," the GAO said. "This higher expense results in part because the government must compensate the investors for risks they assumed through an adequate return on their investment."

GAO managing director Patricia Dalton said a "rigorous analysis" of projects through a capital planning approach is needed to establish projects and financing needs.

 

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