You Can Bank on It

June 9th, 2011

Inspired by A way past the jobs jam (Fareed Zakaria,Washington Post6/09/11).

 

US infrastructure ranks 23rd in the world, down from 6 ten years ago,

And if we don’t fix it now, further down is the only place that we’ll go.

 

Plus, a big infrastructure program would provide the necessary economic boost

To allow construction sector unemployment to be significantly reduced.

 

If we don’t want our economy to continue to tank,

Then we need to create a new infrastructure bank.

 

Here’s my idea to create one (it won’t cost the taxpayer one dime).

I just hope we can get it started in time.

***

I agreed with Zakaria about an infrastructure bank to make investment decisions based on economic analysis, and agree about the possible benefits of mechanisms to allow private sector participation. However, those mechanisms must be structured to ensure that those private sector participants do not just appropriate an unfair share of the economic benefits of public investments. Also, there is not entity in the world that can borrow money as cheaply as the US government, which argues for greater public investment in order to minimize cost and maximize the economic benefits.

As Zakaria points out, the way we finance transportation infrastructure in the U.S. is downright socialistic when compared to European countries, which rely much more heavily on private financing and tolls. Now tolls aren’t bad in and of themselves. In fact, when used in conjunction with congestion pricing, they encourage more efficient use of transport resources.

So, here’s my idea. The infrastructure bank (let’s call it the Build America Infrastructure Bank, or BAIB) would be created as a wholly-owned government corporation (like the Government National Mortgage Association). Its off-budget operating status would remove the pernicious temptation to allow surpluses to accumulate while revenues are used to mask deficit spending in other areas (this feature should therefore appeal to Republicans). It could raise its initial capital (say $1 trillion) in one (or a combination of) several ways:

1)      Treasury bills
2)      Bond sales by participating states
3)      Joint funding by states and the federal government
4)      Direct sale of bonds (“BAIBees”) to the public, either with or without the “full faith and credit” backing of the U.S. government.

 

One interesting feature of options (2) and (3) is that its bonds could then conceivably be established as tax-exempt from state, local, and federal taxes. Under options (2) and (4), none of the funds raised would count towards the federal debt ceiling. (Note that bonds guaranteed by Ginnie Mae pay higher interest than Treasuries even though they also enjoy full-faith-and-credit backing, in part because the income is taxable by state and local governments, but if that additional cost is the only way to make BAIB work, then I guess it’s worth it.)

Once funded, the bank would review and invest in transportation and other infrastructure projects (including both repairs and new projects), and would repay investors with a combination of the following revenue sources:

1)      Income from investment portfolio for funds awaiting investment (limitations on what those investments could be would be established by the law creating BAIB);
2)      Gas tax revenue, in the form of either (a) the current (or preferably, increased) gas tax implemented by the Highway Trust Fund, which would be folded into BAIB, or (b) a new additional gas tax levied by law, collected by HTF on behalf of BAIB;
3)      A portion of state gas taxes, for which no federal legislation would be required (just agreement by the participating states);
4)      A share of airport taxes, to be collected by the FAA;
5)      Congestion pricing-based tolls and road usage fees for both highways and local roads, collected electronically so as not to impede traffic; broad application of these charges would allow off-peak baseline charges to remain extremely low (e.g., a penny a mile, which alone would raise about $40 billion and cost the average driver about $10/month); fees could also be collected through odometer readings during annual inspections, or self-reported with penalties for under-reporting);
6)      A carbon tax, both to provide revenue and encourage use of low-carbon transport; and
7)      A share of local property tax revenue attributable to the increased property values which BAIB investments would bring.

 

Revenue sources would be structured so as to make the fund self-sustaining, so that no taxpayer subsidies would be required at any point. If a combination of these sources is used, some could be added at a later date, such that the bank’s creation would not be delayed.

While $40 billion doesn’t sound like much, half that amount would cover payment on a trillion in U.S. Treasuries. And $10 per month? Before you get up in arms about that, imagine how much a private company that owned all the streets and highways in the country would charge you to build and maintain those roads (cable companies charge $30/month for basic cable, and their costs are a lot lower). Isn’t rebuilding our infrastructure (and creating millions of jobs in the process) worth it?

Well, what do you think? Leave a comment to let me know.

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3 Responses to “You Can Bank on It”

  1. Newsericks » Blog Archive » Bring Back Big (or: Better than Boehner, More Robust than Reid, More Meaningful than McConnell, and More Comprehensive than Coburn) Says:

    […] markets. Ideally, these measures would be combined with a parallel measure to create and fund an infrastructure bank to take necessary infrastructure spending off-budget, and the lock-boxification of the Social […]

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    […] contention is no less true today than it was then, and it is certainly true in the broad sense that a strong national defense […]

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    […] NDRP tax could also be combined with my “Where’s My Bail-Out” consumer debt program and “You Can Bank on It” infrastructure bank, reducing or eliminating the actual cash flow impact on most taxpayers.The […]

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