Obama's Infrastructure Bank Faces Uphill Battle in Face of Sequestration

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Published February 21, 2013

| FOXBusiness

With the clock counting down to the automatic spending cuts set to hit on March 1, the White House is outlining details of the president’s infrastructure plan aimed at spurring job creation.

President Barack Obama outlined the $50 billion infrastructure stimulus proposal in his State of the Union address last week, saying the initiative will create new jobs while fixing the country’s crumbling roads and bridges and updating the energy sector.

“Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and Internet; high-tech schools and self-healing power grids,” he said.

The three-part plan includes “Fix it First”, which calls for investing $50 billion in transportation infrastructure, the creation of a national infrastructure bank and removing red tape that often bogs down infrastructure projects.

But experts worry the president’s timing to push a new spending project is poor given that it comes in the face of the $85 billion sequestration. 

“It’s very unlikely that this will go anywhere with Congress,” says Greg Daco, economist with IHS Global Insight. “The Republicans are opposed to anything that has the stigma of stimulus attached to it.”

Robert Puentes, senior fellow with the Brookings Institution’s Metropolitan Policy Program, agrees that getting these proposals off the ground will be tough -- especially the infrastructure bank. “Not only does it need legislation, it needs capitalization and the money to go along with it -- both are in short supply in Washington.”

The president’s plan is nothing new; numerous presidents have launched similar projects with varied success. During his first term, Obama pushed to establish an infrastructure bank to fund transportation improvement with government-backed loans. 

Some experts expressed dismay that the idea always gets shelved, and likely will be again.

“It’s been the next great idea for a long time,” says Puentes. “We don’t really have an entity on a national level that is truly funding and executing national projects. The way we are set up right now has the states and cities making the decisions with federal money and that can be inefficient.”

The national infrastructure bank would subsidized bonds for infrastructure projects to attract private investors and would operate as an independent agency and not tied to political influences.

“This is a niche that needs to be filled, there is an intense push to de-politicize infrastructure project selection…the U.S. is a laggard when it comes to private investment with infrastructures,” Puentes says.

Getting the private sector involved is key to the success of the bank, experts say, as well as pushing the right projects that are going to attract investors and help spur economic growth. Historically, projects like repairing roads and bridges were funded by the federal government and often got slowed down with red tape.  

“Many things that start out as infrastructure project need to be funded by government because they don’t make sense for a private enterprise to take on,” says Mitch Free, CEO of online manufacturing marketplace MFG.com. 

He says projects like interstate highways and air-traffic control had to use government funding because there was no clear commercial return making shareholder approval impossible. “Joining the government and private sectors allows the commercial sector to have skin in the game and have the government mitigate the risk that is inherent.”

However, the focus shouldn’t be to completely privatize projects, Puentes warns.

“The goal needs to be getting the public and private sectors to work together. There is money out there. Sovereign wealth funds and pension funds have declared interest in investing in infrastructure in the past, we need to make it easier for them to do that.”

 

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