There’s a lot to like about the concept in general, but that doesn’t mean policymakers should buy in.
President-elect Donald Trump may attempt to establish a national infrastructure bank, a key member of his transition team said last week. You may have heard this idea before: On the campaign trail, Trump repeatedly criticized Hillary Clinton’s proposed “i-bank” as being “controlled by politicians and bureaucrats in Washington” and bankrolled by a “$275 billion tax increase on American businesses.” Those are familiar conservative criticisms of the notion of a national infrastructure bank—the words alone (national! bank!) seem to make Republicans recoil, as Politico pointed out last year.
But it isn’t too surprising that Trump took a liking to the idea (and not just because he’s coming around to other liberal-backed policies). Far from a venue for federal hand-outs, an infrastructure bank is supposed to encourage public-private partnerships on projects selected for their ability to return on loans—in addition to meeting key national objectives. What the Trump team has articulated so far in the way of a plan suggests that this administration will lean heavily on private partners to fuel Trump’s much-talked-about $1 trillion spending bonanza.
But what exactly is an infrastructure bank? What would make a good one? And why does this idea keep getting trotted out, only to be left, time and again, on the showroom floor?
First, it’s not like a regular bank
If you’re imagining some marble-pillared edifice etched with pictures of dams and highways, disabuse yourself of the vision. A federal infrastructure bank would not be a physical institution. It’s just a new (well, sort of) variation on the way the federal government already helps finance infrastructure projects.
The bank’s primary function would be to lend money to help build infrastructure on the state and local level. That’s lend, not grant—the expectation would be that the feds eventually get their money back. To do this, the bank would take several billion dollars in seed capital (where from? perhaps by repatriating overseas income tax, another idea both Trump and Hillary Clinton proposed) and use that money to issue bonds, tax credits, and loan guarantees to state and local governments and their various private partners. Those parties would submit applications to get loans, which the feds would review and award based on the project’s merit. The federal backing of these loans would then, in theory, encourage private investors to throw in much larger—exponentially larger—wads of cash that would be required to fully fund a major project. And, voila: infrastructure! Over time, tolls, rate payments, and other usage fees would pay back the original loan, plus interest.
What makes it so alluring?
Federal administrators already use very similar financing tools to help state and local infrastructure projects. The Department of Transportation, for example, has the TIFIA program that hands out direct loans, loan guarantees, and lines of credit to qualifying road, transit, and walk-bike projects. The RRIF program does much the same thing for railroads. The federal government also authorizes state infrastructure banks to use revolving funds for water and energy improvements. These programs function essentially as an infrastructure bank would.
One crucial difference is that a national infrastructure bank would consider and finance all kinds of infrastructure: ground, air and rail transportation, ports, energy projects, water, telecommunications, and so on. Normally, a water treatment plant in Hoboken, New Jersey, wouldn’t be in competition for funding with a broadband expansion in Los Angeles, which wouldn’t be in competition with a streetcar in Detroit. But all of those types of projects could apply for loans from the infrastructure bank, which would make a decision on which ones to finance based on a number of factors.
Among those factors (though not necessarily always the most important one) would be a question of returns. Which project promises to pay back its federal loans? (This raises some concerns, addressed here later on.) The project could also be judged on some set of criteria determined in advance by the president and/or Congress. This is another key difference that i-bank boosters like to play up: Unlike other financing tools, which line up with the priorities of specific agencies, infrastructure banks could be used strategically to advance national policy objectives.
For example, if the president wants to double American exports, or improve Americans’ connections to economic opportunity, or upgrade every failing water system in the country, then an infrastructure bank could take that as guidance for selecting the projects it finances. Ideally, the bank would judge a project across multiple criteria, all at once—its social, environmental, and economic impacts.
What’s the drawback?
Why don’t we already have a national infrastructure bank? First, as with any financing scheme that requires federal decision-making, there is the concern that if the performance criteria are written too loosely, an bank could end up choosing boondoggles—projects that fail to deliver on rosy use projections and that need rescuing by the public sector. Or the feds running the bank might emphasize projects most likely to pay back loans. A big, congestion-inducing toll road might look good in this light. But that might not be the sort of project that lines up with national interests or serves the public well.
This is related to a final concern: Who would run the national infrastructure bank? Would there be a new, independent agency appointed to the task? Would there be a committee created across different agencies? Finding the right mix of administrators would be tough, given that the basic charge of an infrastructure bank is to consider all types of projects on the same playing field. You might need someone from the Department of Agriculture sitting with someone from Commerce next to someone from DOT. Some have proposed handing off bank duties to the Treasury—which might place undue weight on a project’s ability to pay off its loans quickly.
These are all reasons why many a transportation policy wonk has described the national infrastructure bank as the “next best idea for the past 25 years.” Bill Clinton promised to establish one. President Obama pushed for one repeatedly, without success, for years—even though the idea has also Republican proponents, including South Carolina Senator Lindsey Graham. The idea saw a revival in 2015, just as Congress was heading towards its last “highway cliff.” But opponents argued that an infrastructure bank was just another way to get stuff done with IOUs—and others probably just didn’t like the fact that Obama was associated with the concept.
Forks in the road
Still, if it was seeded adequately and guided by strategic policy objectives, a national infrastructure bank could serve a new and meaningful purpose, as an addition to the federal government’s existing suite of financing tools.
Now, whether that means Congress should rally to support a Trump-backed infrastructure bank—or any part of a Trumpian infrastructure plan—is a separate question. Prominent Democrats have announced their willingness to partner with Trump on his public works proposals. Yet Trump’s plan to privatize infrastructure projects, insofar as his advisors have explained it, is profoundly unviable. And it’s entirely unclear what the national objectives of Trump’s infrastructure build-out would be, beyond jobs, jobs, jobs.
The scrutiny must go deeper. In the Washington Post, Ronald A. Klain, a former assistant to President Obama, characterized Team Trump’s infrastructure proposal as “a tax-cut plan for utility-industry and construction-sector investors, and a massive corporate welfare plan for contractors;” the infrastructure bank, he warned, is just a deal-sweetener to win over liberals in Congress. Paul Krugman expressed similar fears in the New York Times, calling Trump’s plan a “scam” primed to rip off taxpayers and enrich cronies in the construction and utility industries. “It’s hard to see any reason for a roundabout, indirect method that would offer a few people extremely sweet deals … unless the inevitable corruption is a feature, not a bug,” he wrote. Trump may already be intertwining his business dealings with his presidential duties; it seems reasonable to expect more.
And then there’s Hitler. It’s hard not to notice the parallels between Trump’s rhetoric on new roads and airports and the way highway construction helped citizens acquiesce to Nazi rule in 1930s Germany. A startling comparison, maybe—but one that leaps to mind when you see those “alt-right” white nationalists that convened in Washington this past week and celebrated his victory.
What road are we headed down? Until Trump lays out the legislative details, who knows? Infrastructure bank or no, ordinary Americans and policymakers alike should be extremely wary of his promises—no matter how attractive they appear.