The Wall Street Journal
August 31, 2011
A Fannie Mae for 'infrastructure.
Here's a novel idea: Have Congress create a "bank" that could borrow huge sums with only a small federal outlay and would be independent of any political interference. If you believe in this miracle, you probably thought Fannie Mae was a private company that wouldn't cost taxpayers a dime.
We're referring to Washington's latest marketing tool to sell spending to a skeptical public, a new federal "infrastructure bank." For the low, low price of $30 billion or so, President Obama says Congress can conjure hundreds of billions in new "grants and loans" to rebuild "roads, bridges, and ports and broadband lines and smart grids."
He says the bank would put "all those construction workers" back to work and "be good for the economy not just for next year or the year after that, but for the next 20 or 30 years." In a cats and dogs living together moment, the Chamber of Commerce and the AFL-CIO are both in favor. Since both unions and construction companies would be beneficiaries, this alone ought to give taxpayers pause.
This is the Fannie Mae model applied to public works. The new bank would be a government-sponsored enterprise, or GSE, whether or not anyone admits it. The bank would have an implicit subsidy for its debt because it is backed by the government. And the debt it issued would be "off-budget," which means it wouldn't show up in annual outlays. When she first proposed the concept in 2008, Connecticut Democrat Rosa DeLauro explicitly described the bank as a "public private partnership like Fannie Mae."
Such an outfit will inevitably be politicized, as similar examples have been all over the world. Japan's postal bank has been used for decades to finance public works. Japan's roads and bridges are grand but its economy has grown little in 20 years. Agribanks, regional development banks, Brazil's BNDES national bank have all become vehicles for the political allocation of credit.
Ms. DeLauro's bill admits as much, stating that the bank must take into account the "economic, environmental, social benefits and costs" of the projects seeking financial assistance. Among the considerations: responsible employment practices, use of renewable energy, reduction in carbon emissions, poverty and inequality reduction, training for low-income workers and public health benefits.
No one disputes that American public works need improving, and government has been spending huge sums to do so. As the nearby table shows, between 2001 and 2011 federal "public physical capital investment outlays" more than doubled to $330 billion from $142 billion. Every major area of infrastructure--transportation, Army Corps of Engineers, energy--is up by at least 75% in a decade.
The scandal is that we buy so little brick and mortar with all this money. Earmarking has wasted billions and is an inevitable byproduct of a system that collects federal taxes and allows Congressmen to send it back to their districts. The bank is supposed to eliminate earmarking, but the Members will surely find a way to influence the bank's lending too.
Taxpayers also get less for their money because federal projects must follow Davis-Bacon Act rules that require "prevailing wages." This law has come to mean de facto union wages on all public projects, inflating costs by 10% to 30%, depending on the project and location. Democrats and Republicans both refuse to relax Davis-Bacon rules, and the infrastructure bank would require them. The bank would also divert dollars to the mass transit lobby, which favors rail projects that serve a tiny fraction of commuters.
Instead of a Washington-centric bank that picks winners and losers, Congress would be wise to move in the opposite direction: devolving most public-works decisions to the state and local levels so users decide whether they want to finance a new school, bridge or water system. The feds can focus on maintaining the interstate highway system and then let states and localities choose what to fund. Arizona Rep. Jeff Flake and others have bills that would let states opt out of the federal highway program in return for getting back the federal gas tax money that its residents send to Washington.
GOP Congressman John Mica of Florida, Chairman of the House Transportation and Infrastructure Committee, is no fan of a federal infrastructure bank. He says he wants more state and local control of funds because "that way they won't have to come to Washington to get approval."
Mr. Mica is dealing with a reality that eludes many in both parties: With a $1.28 trillion deficit, Uncle Sam can't afford to keep serving as paymaster to states and localities. The infrastructure bank is merely a new gimmick to maintain the old system.