WASHINGTON - A legislative proposal to establish a system of metropolitan infrastructure banks included in the $450 billion multi-year transportation bill making its way through the House is drawing questions about the banks' utility, whether they would be redundant, and if there would be a market for bonds issued to capitalize them.

The proposal is included in the 775-page bill drafted by House Transportation and Infrastructure Committee chairman James L. Oberstar, D-Minn., and approved last week by the highways and transit subcommittee.

The banks would complement already-existing state infrastructure banks and a national infrastructure bank that House members expect to be added to the bill.

But the potential creation of a national bank, in addition to their state counterparts - which have become less popular over the years, partly due to federal strings attached to the funds - led some to question the necessity of creating banks specifically for cities.

Pennsylvania Gov. Ed Rendell stopped short of giving his unequivocal support for the plan during an interview last week. Rendell, who leads the Building America's Future initiative with California Gov. Arnold Schwarzenegger and New York City Mayor Michael Bloomberg, spoke last week at an event here promoting the creation of a national infrastructure bank.

Rendell does agree with Oberstar that "some money should go directly to cities. Whether they need infrastructure banks, I don't know," he said, adding that "sometimes you can have too much of a good thing."

The proposal would allow metropolitan areas to work with the U.S. transportation secretary to set up federally assisted metropolitan infrastructure banks that would be administered and capitalized by metropolitan planning organizations. But the bill also would allow MPOs to capitalize the banks with a percentage of the annual federal funding they would receive under a separate program proposed by the bill. Federal funds would be considered grants to the banks.

"Treasury backing is to make the thing viable," said Jack Basso, financial director for the American Association of State Highway and Transportation Officials.

The banks would provide loans and other forms of credit assistance to public and private entities for transportation projects. The loans could be subordinated to other debt used to finance the project. Interest rates from the bank would have to be "at or below" market rates, the bill said.

The bank would be required to keep an investment-grade rating on its debt or have enough debt insurance to maintain its viability, the bill said.

Income generated from the loans would have to be made available for future loans and invested in Treasury notes, bank deposits, or other financing instruments approved by the transportation secretary.

But if the metropolitan areas would need to issue bonds to help capitalize their banks, they might have to search longer for buyers than a national infrastructure bank would, sources said.

"Markets like centralization, so that would be a concern I have," Basso said, although he noted that a market did develop for other metropolitan-heavy programs like qualified zone academy bonds.

The bill also would continue the current provisions that allow states to set up their own infrastructure banks, capitalized partly with federal funds. The Transportation Committee expects to add a national infrastructure bank section to the bill at some point in the future, according to a spokesman.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.