Fool Me Twice (17 page)

Also, as Edwards and Peter Van Doren explained in December 2008, “the main problem with government infrastructure spending is the lack of efficiency.”

More roads and transit capacity may or may not make sense depending on whether the benefits exceed the costs. One sure way to find out is to have private provision and user charges. If users are not willing to pay the costs of extra or newer capacity, then calls for taxpayer involvement probably imply subsidy of some at the expense of others rather than efficiency.

Additionally, the U.S. would be bucking a global trend to shift infrastructure responsibility to the private sector in favor of centralizing more bureaucratic control. Edwards and Van Doren continued:

While America debates higher government spending on infrastructure, governments on every continent have sold off state-owned assets
to private investors in recent decades. Airports, railroads, energy utilities, and many other assets have been privatized. Heathrow airport in London is privately owned and operated. Air-traffic control services are fully private in Canada. In Italy and France, limited access highways are private concessions funded with toll revenue. In many areas, the U.S. is a laggard in the world on private infrastructure provision.
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So just when Europeans and Canadians—not to mention some of America's states—have been privatizing the infrastructure business, President Obama and progressive Democrats continue to push a national infrastructure bank.

The avalanche of waste—not to mention funds simply unaccounted for—already thrown away in the original “stimulus” bill pushed through by Obama and the Reid/Pelosi Democrats will take years to uncover. From the Chevy Volt and Solyndra to a $100 million train station renovation in Delaware named after Vice President Joe Biden—these are just the tip of the failed first “stimulus” iceberg. But the creation in a second Obama term of a national infrastructure bank—with taxpayer-funded capitalization at $60 billion just for starters—besides being a hideously inefficient way to address a legitimate problem, would concentrate ever more power in Washington while creating a giant cesspool for government cronyism and corruption.

Already, while on the 2008 campaign trail, Obama was pushing a National Infrastructure Bank. In a February 13, 2008, economic policy speech at the General Motors assembly plant in Janesville, Wisconsin, Obama said,

For our economy, our safety, and our workers, we have to rebuild America. I'm proposing a National Infrastructure Reinvestment Bank that will invest $60 billion over ten years. This investment will multiply into almost half a trillion dollars of additional infrastructure spending and generate nearly two million new jobs—many of them in the construction industry that's been hard hit by this housing crisis. The repairs will be determined not by politics, but by what will maximize our safety and homeland security; what will keep our environment clean and our economy strong.
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By the end of the first year of his presidency, with the enormous “stimulus” already passed, the leading progressive think tanks were already clamoring for more. A briefing paper of the Economic Policy Institute—
Street Smart—Reforming the Transportation Budget Process
—noted how many different versions of an infrastructure bank were being proposed, and their similarities. All the proposed NIBs, EPI found, would finance “transportation infrastructure, housing, energy, telecommunications, drinking water, wastewater, and other infrastructures.”
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All attempts, thus far, by progressive Democrats to pass National Infrastructure Bank legislation have failed. Their attempts to address the “infrastructure crisis” by creating a national infrastructure bank date back to at least the 1980s. Harvard economist Herman B. Leonard, in his 1986 study,
Checks Unbalanced
, described it this way:

Never the most exciting of subjects, infrastructure nonetheless claimed top billing in the public finance spotlight as deterioration in basic public service systems—highways, bridges, waterways, ports, mass transit, water, sewers—became increasingly obvious.
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At the time, there was “dim prospect for improvement,” in Leonard's judgment, as this came into collision with “tremendous fiscal pressure on federal, state, and local governments as grass roots movements to limit taxes and spending gained hearings at state and federal levels. The result was declining levels of public investment and rising levels of public attention, official oratory, and media comment.”
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A contemporary estimate of the national cost of infrastructure improvements came from economists Pat Choate and Susan Walter. Between $2.5 and $3 trillion would be required (as of the 1980s) “to prevent the further deterioration of public services.” And, as Leonard pointed out, (in the early 1980s) this was roughly equal to one year's gross national product. Leonard proposed “annual public investment levels … between 5 and 10 percent of the GNP.”
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But more accurate national estimates, Leonard admitted, were those prepared by the Congressional Budget Office—which “reflected a more conservative definition of what constituted ‘need' than did earlier figures.”
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Moreover, Leonard described well the overreach of national bank “solutions”:

Proposals for infrastructure banks generally agreed on financing but differed on everything else, like the degree of federal control that should be exercised in selecting projects and setting engineering standards. Little interest was shown in specifying the operational details of the banks' functions. The proposals were a reflex response to insufficient infrastructure spending, and they were intended to increase it sharply.
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This “reflex response” of a big, fix-it-all government infrastructure bank has now persisted over nearly four decades.

One of the leading progressive think tanks—the New America Foundation—set forth its vision of a federally capitalized and controlled national infrastructure bank in a June 2008 policy brief—
Financing America's Infrastructure: Putting Global Capital to Work
.
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While NAF's funding comes from a plethora of progressive funders and foundations, NAF claims its views are in the “radical center,” and its focus is on promoting “a New Deal for the 21st Century.”
²⁰

According to the NAF paper's authors, Heidi Crebo-Rediker and Douglas Rediker, the source of many of their ideas is legislation proposed by U.S. Rep. Rosa DeLauro's (D-CT) in 2007 to create a National Infrastructure Finance Enterprise.
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DeLauro is one of the (at present) seventy-five members of the Congressional Progressive Caucus; it was she who introduced the National Infrastructure Development Act of 2007 (H.R.3896). Supporters for a similar DeLauro bill, introduced in 2009, included the U.S. Chamber of Commerce, the SEIU, the AFL-CIO, and the Campaign for America's Future.
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Rediker/Crebo-Rediker's proposal would set up a “government-owned and-capitalized infrastructure financing entity,” that “would pool, package, and sell existing and future public infrastructure securities in the capital markets,” as well as “seek to develop an in-house capability to originate infrastructure loans and would be able to fund itself through the international capital markets.” But the capitalization they envision would be at
a far higher level than is proposed in the DeLauro bill. In fact, they added, the scope should extend beyond that of the National Infrastructure Bank then being proposed by then Senator Christopher J. Dodd (D-CT) and Sen. Chuck Hagel (R-NE).
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Dodd and Hagel had introduced the Senate version of the 2007 National Infrastructure Act of 2007.
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Then presidential candidates Barack Obama and Hillary Clinton were co-sponsors.
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The House version was introduced by Rep. Keith Ellison (D-MN) who is co-chair of the Congressional Progressive Caucus.
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The failed Dodd-Hagel bill would have provided for an independent government entity with a five-member board appointed by the president and confirmed by the Senate. The bank would have been financed with $60 billion in bonds used to leverage private capital. State and local sponsors would submit candidate projects—roads, bridges, mass transit systems, wastewater treatment facilities, and public housing—for the bank's sponsorship.
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Clearly, this projected bond-offering fell far short of the 1980s estimate of $2.5 to $3 trillion required “to prevent the further deterioration of public services.” Nor did it approach a $1.6 trillion national infrastructure deficit estimated in March 2008 by the American Society of Civil Engineers.
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So where would the trillions of needed dollars come from, based on a $60 billion stake of federal taxpayer dollars? The answer was to be: from private capital, “backed by the full faith and credit of the U.S. Government.” And this is where the “radical center” of the progressives would be backed by more “moderate” Democrats and Republicans, including Wall Street.

The source of Dodd and Hagel's bill was Wall Street finance wizard Felix Rohatyn, a trustee of the Center for Strategic and International Studies (CSIS), and co-chair, with former senator Warren Rudman, of the CSIS Commission on Public Infrastructure.
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Dodd (who retired from the Senate in January 2011) was then serving as chairman of the Senate Committee on Banking, Housing and Urban Affairs; he and Hagel were also members of the CSIS infrastructure commission. In 2009, shortly after Obama's inauguration, Dodd wrote that he, Hagel, Rohatyn, and Rudman had developed his “bipartisan idea … over the course of several years.”
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CSIS, for its part,
claimed the Dodd-Hagel legislation followed two CSIS reports released in 2005 and 2006 “that highlighted the urgent need for a national plan and investments to improve infrastructure needs across the nation.”
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Here is how CSIS described its proposed National Infrastructure Bank would work:
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It would be modeled after the Federal Deposit Insurance Corporation, which is led by a five-member board of directors appointed by the president and confirmed by the Senate. The NIB's board would create a bureaucracy, headed by an inspector general to oversee the NIB's daily operations and report to Congress.

Only infrastructure projects with a potential public “investment” (i.e., spending) of at least $75 million would receive NIB consideration. A project sponsor, or consortium of sponsors, would apply to the NIB, which would then use a “sliding scale” to evaluate them, based on criteria including: the type of infrastructure system or systems, project location, project cost, current and projected usage, non-federal revenue, regional or national significance, promotion of economic growth and community development, reduction in traffic congestion, environmental benefits, land use policies that promote smart growth, and mobility improvements.”

CSIS also explained how the government's “investment” would be leveraged in the private capital markets once a project were selected.

The NIB would develop a financing package backed “with full faith and credit from the government.” A financing package could include “direct subsidies, direct loan guarantees, long-term tax-credit general purpose bonds, and long-term tax-credit infrastructure project specific bonds.” The
initial
ceiling to issue bonds would be set at $60 billion. (But the NIB would not “displace existing formula grants and earmarks for infrastructure” as it “targets specifically large capacity-building projects that are not adequately served by current financing mechanisms.”)

Following a smaller-than-projected job growth report the previous week, President Obama told a July 11, 2011, news conference that the infrastructure bank he was proposing would be “relatively small.” But, he asked,

[C]ould we imagine a project where we're rebuilding roads, bridges and ports and schools and broadband lines and smart-grids and taking all those construction workers and putting them back to work right now?

I can imagine a very aggressive program like that I think the American people would rally around and that I think would be good for the economy not just next year or the year after, but for the next 20 or 30 years.
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Obama's “aggressive program” probably stemmed from a plan laid out by Sen. John Kerry (D-MA) in testimony of September 10, 2010, before the Senate Banking, Housing, and Urban Affairs Committee, where Kerry pushed hard for an infrastructure bank.
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A few days earlier, on September 6, Kerry had announced he was committed to National Infrastructure Bank legislation, proposing an entity similar to the European Investment Bank that “financed $350 billion in projects from just 2005 to 2009 across the European continent, helping modernize seaports, expand airports, build rail lines and reconfigure city centers.”
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Kerry's vision would have Uncle Sam emulate the world's “largest international non-sovereign lender and borrower.” The European Investment Bank's sphere of influence is worldwide, linked to 150 countries, from Southeast Europe; the Mediterranean partner countries; the African, Caribbean, and Pacific countries; Asia and Latin America; Central Asia; Russia; and other neighbors to the East.
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A not-for-profit institution, the EIB “raises the resources it needs to finance its lending activities by borrowing on the capital markets, mainly through public bond issues.” It can do so because of its AAA credit rating, which “enables it to obtain the best terms on the market.”
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