The Problem With Having an Infrastructure Bank as a Jobs Program
Earlier this year, Stanton C. Hazelroth appeared before the House Ways and Means Committee to testify as the head of the California Infrastructure and Economic Development Bank, the country’s largest public infrastructure bank. Founded with seed funding of just $181 million in 1999, the bank has since financed more than $220 billion in projects.
Hazelroth went through his program’s successes, then brought up “an unusual financing request” from the mayor of Los Angeles, who had come to Washington earlier in the year looking not for a grant, but for a loan or loan guarantee. The mayor’s shovel-ready transportation projects would take thirty years to build on a pay-as-you-go plan, Hazelroth explained, but by borrowing the money, using a tax as security, the city could finish the project in a third of that time.
Hazelroth continued: “The initial reaction to the Mayor’s request was that such a program doesn’t exist. That is exactly my point here today. A national infrastructure bank is designed to respond to just this kind of need.”
This week, President Barack Obama proposed exactly this sort of bank, as part of a Labor Day push for jobs. The national infrastructure bank would “leverage private and state and local capital to invest in projects that are most critical to our economic progress,” the White House said. “This marks an important departure from the federal government’s traditional way of spending on infrastructure through earmarks and formula-based grants that are allocated more by geography and politics than demonstrated value.”
The idea for a national infrastructure bank has been around for decades, with proposals coming intermittently from legislators on both sides of the aisle. In 2007, for instance, Sens. Chris Dodd (D-Conn.) and Chuck Hagel (R-Neb.) proposed just such a bank, arguing that “current federal financing methods do not adequately distribute funding based on an infrastructure project’s size, location, cost, usage, or economic benefit to a region or the entire nation.”
It’s because of that lack of “adequate distribution” of funds that so many people want a national infrastructure bank. Right now, most infrastructure projects happen because individual politicians make them happen — appropriating, via old-fashioned pork-barrel politics, specific funds for specific bridges, highways or rail lines. (You can see examples of this in the distribution of stimulus funding, and federal funding more generally. Money does not naturally flow to states with the highest unemployment rates or greatest infrastructure needs.)
A national bank would have an appointed but politically sheltered board to grant funds to or loans for projects based on national concerns. And now is a particularly good time for that to happen. The United States desperately needs infrastructure improvements, even with the 2009 American Reinvestment and Recovery Act funding thousands of upgrade projects. Hundreds of thousands of construction workers are unemployed. The cost of construction has dropped. And interest rates are at record lows.
That said, Obama’s proposal is not much to go on — and you cannot divine how effective a bank would be without reading the fine print, says Adrian Moore of the Reason Foundation.
For one, it is not clear whether the bank would take the jobs situation into account when choosing which projects to fund. “Obama is couching this as a jobs program, and that worries me,” Moore says. “Let’s say we’ve got a bridge in Alaska that’s a complex project, a big bridge that goes across to an island. It’s going to create 7,000 jobs. And let’s say you’ve got a road in Los Angeles that is near a congested freeway and needs to be widened. That project is going to create 1,000 jobs.
“Under this proposal, the money is going to go to the Alaskan bridge, to make more jobs, even though the Los Angeles road is going to create more wealth in the longer term.”