Draft Legislation for the National Infrastructure Bank
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THE NATIONAL INFRASTRUCTURE BANK
Overview of Draft Legislation proposed by the Coalition for a National Infrastructure Bank
November 30, 2019
Our nation’s spending on infrastructure has fallen to its lowest level in 70 years, to 2.5% of our nation’s GDP. That’s half the comparable level in Europe, and 1/3 the level in China. As a result, productivity, investment, and manufacturing have collapsed, and we are losing our world-wide competitive edge.
The American Society of Civil Engineers (ASCE) estimates, in its 2017 report, that $4.6 trillion is needed just to repair the nation’s infrastructure, of which $2.1 trillion is currently NOT funded in the following areas: Roads, bridges, freight corridors, and mass transit; Electricity grids; Schools; Dams, levees, waterways, and ports; Airports; Rail; Drinking water and wastewater; Public parks and recreation; and Hazardous and solid waste. In addition, we need a High Speed Rail network linked to improved urban transit networks, Complete Broadband access, Affordable Housing, a Renewable Energy Super-Grid, and Major Water Projects to combat flooding and bring water to dry regions. All of these require the latest technologies for optimal efficiency and minimum environmental impact.
Infrastructure development needs careful planning, and a reliable source of long-term funding, in order to succeed. That’s just not possible under a system of uncertain annual appropriations (unreliable funding for The Eisenhower Highway Trust Fund is a case in point), and politicians’ short–term horizons of from 2 to 4 years. Moreover, the Federal budget is in financial disarray – with total revenues available for discretionary spending having fallen from 65% in 1960, to 11% in 2019, and expected to decline further to 8% by 2029. So it is most unlikely that adequate infrastructure financing will ever come from the Federal Budget.
We propose a separate institution from the Budget, set up by government as a government-sponsored, lending, deposit-money bank, and capitalized with existing Treasuries held by the public sector. That’s the same approach that was used four times before in our nation’s history, starting with the First Bank of the United States created in 1791 by Treasury Secretary Alexander Hamilton, and ending with FDR’s Reconstruction Finance Corporation (RFC). The National Infrastructure Bank (NIB) would provide up to $4 trillion in loans for approved infrastructure projects, for which $500 billion in capitalization would be raised from the private sector. In total, except for a very small appropriation from Congress to get started, the NIB will be budget neutral, create no new Federal debt, and require no new Federal taxes. As such, it is configured to attract maximum political support from both Republicans and Democrats in Congress.
This is how it would work (also see attached Flowchart):
- The NIB would be capitalized by purchasing up to $500 billion in existing Treasury bonds held by the private sector (e.g., in pension and other savings funds), in exchange for an equivalent in shares of preferred stock in the NIB. The exchange would take place via a sales contract with the NIB/Federal Government that guarantees a preferred stock dividend of 2% more than private- holders currently earn on their Treasuries. The contract would form a binding obligation to provide the incremental 2%, or about $10 billion per year, from the Budget. While temporarily appearing as mandatory spending under the Budget, the $10 billion per year would ultimately be returned as a dividend paid to government, from the NIB’s earnings stream (see next bullet).
- The NIB will provide up to $4 trillion in infrastructure loans. Using standard commercial bank accounting procedures, the NIB will create a deposit in the borrower’s name, equal to the loan amount, as each loan is approved and made. The NIB will charge interest on the loans equal to the benchmark Treasury bond rate (about 2% per year, at today’s historically low rates) plus points to reflect the borrower’s credit quality. At those interest rates, the NIB should be earning at least $80 billion per year, out of which it will pay operating expenses and interest on deposits held at the NIB, and will set aside loan loss provisions. What is left over should be more than enough to return $10 billion per year back to the Budget, as a dividend payment to government.
- It is expected that borrowers from the NIB will be state and local governments, because they own 87% of the nation’s public infrastructure. No further privatization of public infrastructure – beyond what has already taken place (e.g., at ports, airports, and other places that normally collect user fees) – would result from NIB loan operations. State and local governments are in a good position to service their loans out of current revenues, as they have restructured their debt, revenues have recovered, and bond ratings improved, all since the 2008 Recession. Infrastructure projects will be vetted according to their cost cost-benefit analysis, and a set of specific criteria set out in the draft bill.
- Preliminary estimates suggest that, for every $1 spent on a public infrastructure project, anywhere from $3-7 is returned back to the economy.
- Careful planning – to maximize economic growth and “dig up the road only once” – would be facilitated by Regional Planning Accelerator Groups with state and local government participation, and technical assistance coordinated by the NIB.
NIB operations will have a profound, positive impact on the American economy. They are expected to create up to 25 million new jobs, at Davis-Bacon wages, grow the economy faster, and make it more productive. That’s what happened during the period of the last Infrastructure Bank, the RFC, from 1933-57, when growth averaged 5.5% per year, Total Factor Productivity maxed out at 3.4% per year during the 1940s, and unskilled wages and Federal income tax receipts rose dramatically. Similar results are replicable even today: a 2014 study by the University of Maryland estimated that, compared to today’s stagnant economic growth averaging 1.8% per year, the economy would ultimately grow faster by 2.9% per year, and real disposible income would increase by 3.4% faster, than without such investments. The net effect of the NIB would be to raise Federal, state, and local revenues, thus lowering the National Debt as a percent of GDP, and ensure – other things being equal – that infrastructure loans are guaranteed to be repaid.
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Download PDF Legislation (60 pages)
Coalition for a National Infrastructure Bank
P.O. Box 1029
Leesburg, VA 20177
info@nibcoalition.com