Page 38 • September 14, 2011 • www.constructionequipmentguide.com • CONSTRUCTION EQUIPMENT GUIDE
Distribution of Infrastructure Funds Remains Uncertain SOLUTIONS from page 1
• American Infrastructure Financing Authority introduced by Sen. John Kerry (D–MA). It would be funded by a one-time appropriation of $10 billion for loans and loan guarantees to eligible infrastructure projects. It does not authorize borrowing of money, and would consider many different kinds of infrastructure projects. • The National Infrastructure Development Bank Act introduced by Rep. Rose DeLauro (D–CT). It would be capitalized by annual appropriations of $5 billion for five years, and would issue debt instruments that would not be guaranteed by the federal government. It would provide loans and loan guarantees on many different kinds of infrastructure projects. • National Infrastructure Bank proposed by President Obama in his FY 2012 budget would be funded by authorization of $5 billion per year in each of the next six years. It would function under the U.S. Department of Transportation. It would provide loans, loan guarantees, and grants for transportation projects. The proposals are more alike than they are different, but some differences are noted by critics. The administration’s NIB idea, for example, proposes to authorize distribution of funds in “loans, loan guarantees, and grants.” Grants, of course, are not paid back, which Sen. James Inhofe (R-OK) observed is not how a bank operates. “Institutions that give away money without requiring repayment are properly called ‘foundations,’ not ‘banks,’” publicly commented the senator, who is the ranking member of the Senate Environmental and Public Works Committee. “Banks don’t give out grants; they give out loans. There is also currently a mechanism for giving out federal transportation grants: It is called the highway bill. I don’t believe an infrastructure bank will increase total transportation investment; it will only take money away from what would otherwise go through the existing highway and transit programs.” The two congressional infrastructure bank bills are faulted by opponents for different reasons. The Kerry proposal relies on congressional appropriations for its
funding. Unlike banks, which borrow money at one interest rate and lend it at a higher rate, Kerry’s “bank” takes the money from the federal till and spends it, which is no different from any other stimulus appropriation. The DeLauro proposal would function more like a bank, acting as an intermediary in project funding, but it would not guarantee any third-party loans secured by contractors. That would seem to be a less risky use of tax dollars as seed money. However, opponents of the bill note that the “development bank” would operate very much like Fannie Mae and Freddie Mac did in the housing market, with disastrous results for the economy when the bubble burst. The debts of those agencies weren’t guaranteed either, but a $150 billion infusion of tax dollars subsequently was ordered up by Congress to bail them out. How to Distribute the Money Aside from questions about the structure of an NIB and sourcing of its funds, skeptics also question assurances that the funds would be distributed according to true national priorities and genuine local need. Randal O’Toole, a senior fellow at the Cato Institute, alludes to the Fannie Mae controversy in referring to the bank proposal as “Trannie Mae” and expresses confidence that it would “become one more source of pork and social engineering.” However, proponents say that will not be the case. Though an actual instrument to prioritize distribution has not been revealed, assurances are given that this time it will be different. “An infrastructure bank helps keep politics out of the equation,” U.S. Chamber of Commerce President Tom Donohue said in a statement of support. “Careful procedures have been established to ensure that projects that receive funds or loan guarantees are based on merit and are of national or regional significance.” Yet there appears to be no inorganic mechanism that will force the bank to actually operate clear of political influence. Robert Poole, director of transportation policy at the Reason Foundation
(which has generally endorsed the bank idea), questions whether “an entity beholden to the president and Congress would really be able to do that.” “As part of SAFETEA-LU, Congress actually created a program called Projects of National and Regional Significance,” Poole wrote when the infrastructure bank first was proposed by the Obama administration. “It appropriated $1.7 billion for the PNRS program, intended to fund a handful of projects of great benefit but with such high costs or benefits beyond the jurisdiction of a single state or region that those entities could or would not fund them. What happened? Members of Congress proceeded to earmark the entire $1.7 billion, parceling it out to 25 highway, railroad, intermodal, and transit projects.” Everyone involved in the discussion seems to value the idea of funding a project according to merit, rather than doing so because it is in the congressional district of an influential congressman or in a state a president needs to pull into his electoral vote column. Jim Kessler, vice president for policy in the Third Way organization, says, “A national infrastructure bank would make a critical contribution by supporting projects on merit and harnessing public and private capital to bridge the infrastructure gap.” Says James Corless, director of Transportation for America: “Because projects would compete based on merit, it would help to select the investments that do the most to advance our national goals, whatever the mode: rail, highway, ports or public transportation." So merit is the gold standard in evaluating projects. What gives skeptics pause is that, presumably merit always has been the standard in distributing public funds. Yet in recent years that standard clearly has been ignored, with bridges and roads to nowhere being funded and built. Kessler and Corless are part of a national coalition of organizations and political leaders endorsing and promoting the NIB. Among the members are such heavyweights as: Gov. Ed Rendell of Pennsylvania; Mayor Michael Bloomberg of New York City; Andrew Herrman, chairman of an
American Society of Civil Engineers report card on U.S. infrastructure; Stephen E. Sandherr, CEO of Associated General Contractors of America; Pete Ruane, president and CEO of American Road & Transportation Builders Association, and Mark H. Ayers, president of the Building and Construction Trades Department of the AFL-CIO. A Bipartisan Issue Coalition member Robert Puentes, senior fellow in the Brookings Institution’s Metropolitan Policy Program, believes the NIB is “no silver bullet, but if appropriately designed and with sufficient political autonomy, it could improve the efficiency and effectiveness of future federal infrastructure projects of national significance.” Puentes says such a result is possible because the issue of efficient funding is a bipartisan issue. “I don’t want to be naive,” he says, “but the key elements of a national infrastructure bank span political ideologies.” He cites such overriding principles as the need for a better project selection process and more accountability for funds expended, as well as the need to maintain existing infrastructure and deliver projects more efficiently. “These are not Republican or Democratic issues. So substantively, there is nothing that should prevent action,” Puentes says. Some observers believe infrastructure banks are a federal-state issue. That’s the position of U.S. Rep. John Mica (R-FL), chairman of the House Transportation and Infrastructure Committee, who prefers that states establish infrastructure banks. “That way they won’t have to come to Washington to get approval.” In fact, 33 states already operate such banks, using revolving loans and loan guarantees to fund priority projects. Some of the state infrastructure banks, or SIBs, use federal transportation money to capitalize their accounts; others fastidiously avoid commingling federal money in an SIB so that federal regulations on expending the funds don’t come into play. Other issues surround the NIB proposal. One is the impact of union labor on project costs, which
critics say is not addressed in NIB legislation. American Banker, the 176-year-old industry publication for the financial and banking community, offered the view last November that project labor agreements requiring union labor undercut the NIB premise of getting the most project for the money. “Proponents argue that the NIB will include charter limitations to safeguard that funds get directed to infrastructure projects with the highest (public) returns, but that’s never worked,” declared Kevin Villani, a guest columnist and former chief economist at Freddie Mac. “Federal government policy entrenches rather than bypasses the labor cost problem.” Villani noted that the $867 billion stimulus bill was “not designed in the spirit of FDR’s public works projects to get the ‘most jobs for the buck.’ DavisBacon Act hiring requirements and project labor agreements maintain the artificially high union wage rates for private-sector employees, and spend the ‘most bucks for the job.’” It is relevant to note that Associated Builders and Contractors has taken no position on the infrastructure bank. Rather, it is focusing its lobbying efforts in 2011 on eliminating the aforementioned public labor agreements. One premise of NIB supporters is that its board of directors somehow would come together and agree on what constitutes true priorities in infrastructure work. Certainly no such agreement exists widely today. A constituency in Congress along with the president is pushing for funding mass transit projects, for example, while another congressional contingent prefers to maintain existing highway networks and build new ones. With only a finite pool of money available to spend, who is to say where the true priority lies? The DeLauro infrastructure proposal in the House has a softer focus on infrastructure priorities. Her bankers would evaluate projects according to such yardsticks as job creation, reduction in carbon emissions, pollution reductions, and training for low-income workers, to name some. Consequently, the “merits” of, say, a transportation project might end up having see SOLUTIONS page 40