On Labor Day, President Obama proposed a National Infrastructure Bank. It would use federal money as honey to attract much larger amounts of co-investment by state and local governments and the private sector. I recently published a book, Obama's Bank: Financing a Durable New Deal (Cambridge University Press 2010), on the Obama approach.
Although leveraging has gotten a bad name recently, it is also the cornerstone of the American Dream. As Supreme Court Justice Oliver Wendell Holmes was fond of saying -- "Leverage is Everything." We just need to make sure that we don't get the wrong end of the stick.
If members of Congress vote on their policy preferences instead of politics, the National Infrastructure Bank will enjoy broad-based bipartisan support in the New Year.
These leveraging projects are, after all, the centerpiece of even Rick Perry's Texas economy, and were championed by the Bush Administration's Department of Transportation.
Congresswoman DeLauro is also a longtime champion of an Infrastructure Bank. Senator Kerry was on Morning Joe the other day explaining the idea's merits to Mika Brzezinski and Joe Scarborough.
We frequently hear Governors Rendell and Schwarzenegger along with Mayor Bloomberg describing how this is a necessity for American competitiveness as the co-chairs of the bi-partisan Building Americas Future.
It has broad-base support from labor unions such as the SEIU and AFL-CIO. The US Chamber of Commerce supports it, as do leading investors such as Ambassador Felix Rohatyn, now at Lazard, who used similar approaches to save New York City in the 1970s from debt crisis and has described his support for an Infrastructure Bank to Charlie Rose. Bernard Schwartz, Chairman and CEO of BLS Investments and philanthropist, also supports it.
In the new year, as this broadly supported idea is debated in Congress, attention will undoubtedly be paid to its cost-effectiveness and also whether it should be a transportation-based bank or broadly multi-sectored.
I'd like to propose here five ways that a National Infrastructure Bank can get the most bang for the least buck. The Infrastructure Bank should:
1) Include non-fee based advice for state and city officials to assess and structure public-private-partnership deals. This advice should include expertise in finance and contracts, policy consultation on legislation and administrative action, etc. Experience shows that states and cities that have the most expertise in P3s get the best deals from private investors. It is the single most effective way of reducing the cost of projects to taxpayers. It can prevent cost overruns and also inflated checks to financial institutions.
2) Provide Feasibility Studies to states and cities in areas that government officials are unfamiliar. For instance, many officials do not have experience assessing whether its best to carry out a much needed project through a public-private-partnership or traditional means. What happens is either a guestimate or else reliance upon outside advisers without sufficient government expertise to judge whether they're doing their job. Helping states and cities decide the cheapest and best way of getting what they need paid for can save much money.
3) Set up a database with information and analysis that the federal government's experts have vetted which include commentaries, datasets, guides, libraries, market profiles, and other key pieces of material on the marketplace and also the successes and shortcomings of projects to-date, including how challenges have been addressed.
4) Provide promotional activities for states and cities to help catalyzed deals and attract the right sort of suitors. This means setting up targeted investment roadshows, facilitating overseas contacts, identifying opportunities, etc. We already do this through through the Department of Commerce and other agencies. However, we are now competing directly with countries around the world for infrastructure dollars. We should be more targeted in our approach, focusing on what we want and the terms that are acceptable.
5) Catalyze a public discussion about what we get from infrastructure investments -- jobs, economic growth, cheaper costs for businesses to ship goods and power their factories, etc. Right now, the biggest stifler of investment into infrastructure is our own reluctance as a nation to make it a priority. This is a leadership problem. But, it also requires a national conversation about what we actually get from it and how to go about making it happen. Politics and too many distracting and insular media debates about the supposed successes and failures of the stimulus act, government, and the private sector get in the way.