Infrastructure bank financing

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Infrastructure Bank Financing is a mechanism that provides cash to build an infrastructure project such as roads, buildings, or power supplies. State and municipalities that borrow need to repay the borrowed cash with interest in the future. The funding used to repay the loans stems from taxes, fees, or other revenue sources.The funds that are paid back are reinvested in other projects.[1] Policies around a government funded infrastructure bank have led to some development of state infrastructure banks, however there are policy proposals for the development of a national infrastructure bank. A government funded infrastructure bank can be capitalized with seed money from taxpayer dollars. This capital would be used to supply loans. An infrastructure bank can be structured to offer financing in several ways. The seed money along with private funds can be used to issue bonds. Another option is for the bank to be a guarantor for the loans made by other lenders. In this scenario, the infrastructure bank would assume debt obligation if the borrower (ie., state, municipality) defaults on the loan. The infrastructure bank can also issue direct loans or provide grants. Grants do not need to be paid back. [2]


CONCEPT


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Goals
Conceptual Example

States and municipalities lack the public resources to finance infrastructure projects fully. The national government seeks to bridge the financing gap for these infrastructure projects. To accomplish this goal, the national government establishes a national infrastructure bank that will provide state and municipalities access to financing through loans.

Specific Example

In 2011, President Obama proposed a National Infrastructure Bank. Under this proposal, the bank was to be capitalized with a $10 billion appropriation from Congress. The bank would make loans at Treasury bond interest rates.The bank was responsible for identifying projects. These projects were required to fit certain requirements. The projects must first lack funding. Secondly, they had to be transportation, energy or water infrastructure projects. The projects had to be worth a minimum of $100 million. However, the minimum for rural projects was only $25 million. The bank would provide up to 50 percent of total funding. The private sector or local government was to match the loan. The repayment of the loan would stem from the project’s revenues. The bank was to be governed by a seven-person bipartisan board, where only four individuals could belong to the same party. The bank’s CEO was to be chosen by President Obama. [3]

Tradeoffs

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Tradeoffs of implementing this policy may include:

  1. Taxpayer money is used to capitalize the bank.
  2. The bank is limited in the amount of funding it can provide.
  3. Only projects that meet a minimum worth will be eligible for funding.
  4. Private lenders and local governments are relied upon to provide additional funding for projects.
  5. The bank governing structure and leadership must be bipartisan.
Compatibility Assessment

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If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Is the policy filling a financing gap that other government lending programs cannot fill?
  2. Are local governments discentivized from taking on projects that have higher total costs than benefits?
  3. Are infrastructure maintenance projects eligible for financing?
  4. Does this policy provide governments with lower interest rates than the ones they could get through other financing mechanisms?
  5. Is the bank's governance insulated from political bias?
Design

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Assuming that a jurisdiction has decided to adopt the policy, the following questions will need to be answered when determining how to implement this policy:

  1. How will local governments be disentivized from taking on projects that are financially unfeasible?
    1. State and local governments should have a financial stake in the success of the project. They should share an equal burden so that they take on only projects that have higher benefits than costs. Disincentivized from taking on projects that have higher total costs than benefits. [2]
  2. How will the bank allocate funding to projects?
    1. Allocate funding to projects that do not already have access to loans, loan guarantees, or standby lines of credits by the U.S. Department of Transportation’s lending programs. This is a way to avoid redundancy. [2]
    2. Direct funds towards maintenance projects should they provide a higher rate of return than new projects. This approach will address the deteriorating state of infrastructure and their needs. [2]
    3. Rather than to centralize project selection in Washington, grant greater decision making to states and localities instead because they manage and understand their transportation needs the most. [2]
  3. How will the bank be insulated from politics?
    1. There should be an even representation on the board. Members should not all have the same political affiliation. [2]
    2. Bank managers should not be politically appointed. [2]
    3. Measures to prevent bias project evaluations should be instituted.[2]
  4. How will projects attract financial investors?
    1. Unpredictable errors and bias forecast errors could be eliminated if analysts provide objective and accurate benefits-costs analysis. An overestimation of the benefits and underestimation of costs will be misleading to investors and all parties involved. [2]
    2. Rely on White House Office of Management and Budget /Congressional Budget Office forecasts that are most similar to private sector projections. [2]
  5. How can sufficient political will be formed for this policy?
    1. Bi-partisan support demonstrates political will across party lines. [4]
    2. The policy must treat cities, urban areas, and rural areas the same. Congressional representatives from rural areas must feel that their areas are be equally benefitting from the policy. [2]
    3. Direct funds towards maintenance projects should they provide a higher rate of return than new projects. This approach will address the deteriorating state of infrastructure and their needs.[2]
    4. The public should feel that a new government institution is trustworthy.[2]



ADOPTION


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PolicyGraphics
Adopters

This policy has not been adopted at the national level.



STAKEHOLDERS


Supporters

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Electeds - Local Legislators Assumption: Greater access to financing will lead to local development. [10]

Government Agencies - Economic Development Assumption: Investment in infrastructure can increase job growth. [10]

Associations - Building and Construction Assumption: New construction of infrastructure will bring more business to this sector.[10]

Labor Unions - Construction Workers Assumption: Investment in infrastructure will create construction jobs. [3]"

Opponents

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Electeds - Local Legislators Assumption: Decision making of financing projects will be centralized in Washington rather than localities. [2]

Electeds - National Legislators Assumption: The policy will lead to more bureaucracy, red tape, and spending. [11]

Advocates - Limited Government Assumption: The policy is an expansion of government and bureaucracy. [11]

Advocates - Fiscal Conservatives Assumption: Too many federal funds are being used to capitalize the bank. [11]


REFERENCES


Research

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Resources

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Footnotes
  1. https://bipartisanpolicy.org/blog/infrastructure-finance-faqs/. Kline, Sarah(2017)."Answering the Infrastructure Finance FAQs.
  2. 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 [1].Krol, Robert. (2017)."Can a Federal Public Infrastructure Bank Improve Highway Funding?"
  3. 3.0 3.1 [2]. Compton,Matt (2011). “Five Facts About a National Infrastructure Bank.” The White House Archives.
  4. [3].Mitchell, Josh. (2011). "Obama's Infrastructure Bank Faces Uphill Battle".
  5. [4]. Davis, Jeff. (2016)."A History of Infrastructure Bank Proposals".Eno Transportation Weekly
  6. [5]Vock,Daniel C. (2011)."Infrastructure Banks Explained: A Common State Tool Gets Mixed Marks".The Pew Charitable Trusts.
  7. [6].Christman, Anastasia. Riordan, Christine (2011)."State Infrastructure Banks: Old Idea Yields New Opportunities for Job Creation".National Employment Law Project.
  8. [7]. "State Infrastructure Bank". Florida Department of Transportation.
  9. [8]. Kinney, Jen (2016). "Inside 5 Tools Cities Can Use to Pay for Infrastructure". Next City.
  10. 10.0 10.1 10.2 [http://www.politico.com/agenda/story/2015/07/infrastucture-americas-roads-and-bridges-000155. Samuelsohn,Darren. (2015). “Bank of Asphalt.” Politico.
  11. 11.0 11.1 11.2 [9]. Laing, Keith (2011). “House Republicans: White House plan for infrastructure bank 'dead on arrival' . The Hill.
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