It seems like every year that a bill gets introduced into Congress to create a Federal Infrastructure Bank. The bill in 2023 was introduced by Representative Daniel Webster of Florida, and it’s likely that a similar bill will be introduced again this year.
The purpose of a Federal Infrastructure Bank would be for the federal government to formally attract private capital to mix with government capital to build needed infrastructure projects. The bank would be empowered to make federal loans to fund a portion of infrastructure projects. The federal loans would help to stretch more traditional funding provided by municipal bonds, with the added goal of trying to attract some funding from traditional bank loans, private equity, insurance companies, and pension funds.
People might think that since we just had a large federal infusion of federal infrastructure dollars this isn’t needed – but they would be wrong. I saw estimates before the pandemic that our infrastructure deficit was between $4 and $6 trillion. The Infrastructure, Investment, and Jobs Act covered a nice piece of this deficit in tackling infrastructure like broadband networks, roads, bridges, and renewed factories. After considering the inflation of the past few years, the chances are that the infrastructure deficit, meaning the amount of needed new infrastructure, is still more than $4 trillion.
The IIJA covered the most critical roads and bridges, but there is still a huge number of roads and bridges that need attention. The IIJA didn’t spend nearly enough money to address aging water systems. The IIJA only allocated a pittance towards modernizing our electric grids and power generation. We need new investment to modernize ports and railroads. To the extent that it is considered as infrastructure, we are woefully behind in providing affordable housing for low-income households.
The concept of a Federal Infrastructure Bank is that local, state, and federal governments should not have to fund all of our infrastructure needs. Government alone does not have the capacity to fund the needed capital. Annual allocations from Congress and all of the municipal bonds available will not close the infrastructure deficit.
There are several reasons why having a Federal Infrastructure Bank is a great idea. The primary reason is to use low federal interest rates to attract private funding. But perhaps even more important is that having a federal bank in the funding mix can entice private capital to get projects started. In the financing world, the first seed money to get a project started is called development capital, and we are woefully underfunded in this area for infrastructure projects. Private capital might be a lot more willing to tackle the original engineering and business plan development needed to get a project off the ground if they know that federal loans can help fund a project.
Another planned role of a Federal Infrastructure Bank is to foster the creation of public-private partnerships. A federal bank could help to bring together a coalition of partners needed to get an infrastructure project off the ground.
A final good reason for the idea is that bringing private capital into infrastructure projects lowers costs. It’s a running joke in this country how government-operated infrastructure projects go over budget. This happens a lot less to privately funded projects because private management is highly motivated to solve roadblocks to keep projects on schedule and budget. Attracting commercial funding to infrastructure projects also means bringing in a commercial mindset.
Many other countries have figured this out, and we don’t have to look any further away than Canada to see a federal infrastructure bank in action. But we all know examples even closer to home. A Federal Infrastructure Bank would play the same role for large projects that economic development agencies play at the local level. These entities work to match government and private funding to enable needed local infrastructure projects.
It’s pretty unbelievable that we haven’t tried this idea. The IIJA tackled a decent chunk of the needed infrastructure investments needed in the country, but we are far from done. This is also one of the safest ideas around because it mostly involves floating low-interest rate federal loans – and there is a great history of such loans being repaid. We used this idea to build electric cooperatives, and we should have extended the concept to the rest of our infrastructure needs. It’s never too late to try.
It would be nice if something like this existed to keep key bits of open source infrastructure from falling through the cracks.
long term archival? ie, library of congress for code type of a thing?
Most economists (and many political conservatives and libertarians) would have us “monetize” more of our public goods (even if we give money or vouchers to the buyers of them). Using a loan instead of a grant is one way to do that (revenue bonds instead of general obligation bonds is another; so is charging fees for items often provided without charge — parking, road use, and even education). Also, as you point out, oversight is often higher when the party providing funds is trying to get paid back. The danger I see is that the standards to be a borrower are often set much higher than to be a grantee — always seemed to me to be a bit ironic, since the odds of getting money back from a grant is by definition zero.