President Obama delivers his jobs speech to Congress.
Is an infrastructure bank a “Fannie and Freddie for roads and bridges,” or a silver bullet to fix the nation’s crumbling roads and bridges and create jobs?
Well, obviously the answer is somewhere in between, but look for rhetoric at both ends of the spectrum in the wake of President Obama’s “American Jobs Act” proposal unveiled last week, which includes a $10 billion national infrastructure bank.
Thursday night, President Obama outlined his job-creation proposal in an early-evening address to a joint session of Congress.
An “infrastructure bank” that would stimulate construction spending was a key factor in his plan, which also featured $50 billion in immediate investments for roads, rails and bridges. Also in the proposal were tax cuts for both employees and employers, a tax credit for business that hire people out of work, and money to prevent layoffs of local teachers and police. The White House put the price tag of Obama’s plan at $447 billion, with about $253 billion in tax cuts and $194 billion in federal spending.
Yet he didn’t go into a lot of details about how it was going to be paid for, other than calling for the newly formed supercommittee crafting a deficit-reduction package to add it to its list. Obama said he plans to send over a detailed proposal to the super committee a week from today.
The White House also wouldn’t say how many jobs they expect the package to create.
Mark Zandi, chief economist for Moody’s Analytics and one of the economists the White House asked to evaluate the proposal, said it would add 1.9 million jobs, reduce the unemployment rate by 1 percentage point, and add 2 percentage points to real GDP growth.
Of course, that’s if it were passed, and that’s a big “if.”
Infrastructure Bank ‘Wrong Direction’
The Obama administration hopes a national infrastructure bank, at a cost of $10 billion, could attract several times that in private capital.
Some Republicans like the idea of an infrastructure bank. Others are suspicious of how the funds would be spent.
Transportation and Infrastructure Committee Chairman John L. Mica (R-FL) said a national infrastructure bank is “moving in the wrong direction.”
“While the president reconfirmed that our highways are clogged and our skies are congested, his well-delivered address provided only one specific recommendation for building our nation’s infrastructure,” Mica said in a statement. “Unfortunately, a National Infrastructure Bank run by Washington bureaucrats requiring Washington approval and Washington red tape is moving in the wrong direction. A better plan to improve infrastructure is to empower our states, 33 of which already have state infrastructure banks.”
House Majority Leader Eric Cantor (R-Va.) said while he believes in infrastructure spending, he’s wary of an infrastructure bank. “I am one who agrees with the notion that an infrastructure bank is almost like creating a Fanny and Freddie for roads and bridges.” (Fannie Mae and Freddie Mac, of course, are the government-sponsored enterprises widely regarded to be part of the reason for the housing bubble whose bursting helped trigger the Great Recession.)
Another concern is that an infrastructure bank would not provide much immediate stimulus for the economy. Janet Kavinoky, executive director of transportation and infrastructure for the U.S. Chamber of Commerce, predicts it could take three years.
Needed Infrastructure Boost
Mica’s Democratic counterpart on the House transportation committee, West Virginia’s Nick Rahall, called for Republicans on the panel to be receptive to Obama’s proposals.
“The nation’s roads and bridges and water systems are needs that even Americans of vastly different political leanings agree deserve greater Federal investment – not less,” Rahall said in a statement. “After all, the jobs created by such investment are not Republican jobs or Democratic jobs – they are American jobs.”
“Later this month, our nation’s surface transportation programs will expire,” Rahall said. “We simply cannot afford to allow petty partisan bickering to prevent renewing these programs; that could jeopardize nearly 1 million private-sector jobs over the next year.”
Not all GOP members agreed with Mica and Cantor.
“The bank is a very good idea,” Rep. John Garamendi, D-California, told the San Francisco Chronicle. He explained that such a bank could borrow money at interest rates as low as 1% and then provide loan guarantees “to projects that have cash flow: bridges, light rail, communications such as fiber optic, sanitation, water systems; these all have cash flow and can be used to pay back a loan.” Shame he didn’t mention highways, but we’ll give him the benefit of the doubt.
Others have said one of the reasons to have a national infrastructure bank is to have an entity that can respond to national, regional and multimodal priorities for transportation, rather than the oft-criticized “pork barrel” practice of members of Congress earmarking projects for local districts.
Michael Likosky, senior fellow at New York University, told CNN Money that an infrastructure bank is the only way to generate the funding for needed infrastructure projects in this time of tight government spending.
“We have to grow the pie of capital,” Likosky said. “We’re going grow it with private capital and use the public money in a much more targeted way.”
It’s not the first time the idea of infrastructure investment has come up recently as a way to create jobs and help the economy, and not only by President Obama. The infrastructure bank would be modeled after the one proposed in legislation introduced in March by Sens. John Kerry, D-Mass., Kay Bailey Hutchinson, R-Texas, and Mark Warner, D-Va.
Kerry applauded the president’s plan in a statement, saying, “There’s almost $200 billion in private capital sitting on the sidelines that could be invested in our infrastructure, but it will take this bank to unlock private investment for bridges, roads, and rail.”
Obama pointed out that the idea for the infrastructure bank “came from a bill written by a Texas Republican and a Massachusetts Democrat. The idea for a big boost in construction is supported by America’s largest business organization and America’s largest labor organization. It’s the kind of proposal that’s been supported in the past by Democrats and Republicans alike. You should pass it right away.”
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