The National Infrastructure Bank idea gains adherents

Published 20 September 2010

The U.S. aging infrastructure will eventually constrain economic growth; government alone can no longer finance all of the nation’s infrastructure requirements; a national infrastructure bank (NIB) could fill the gap; the NIB could attract private funds to co-invest in projects that pass rigorous cost-benefit tests, and that generate revenues through user fees or revenue guarantees from state and local governments; investors could choose which projects meet their investment criteria, and, in return, share in project risks that today fall solely on taxpayers

By now many people, including former Federal Reserve chair Alan Greenspan, argue that the stimulus spending was not administered as effectively as it might have been. For such an enormous amount of spending, more jobs were expected to be created. Some, including President Obama, have proposed  more stimulus spending, any further expenditures must be more effective.

Daniel Indiviglio writes in that the question is even less whether more infrastructure jobs might be good for the economy than whether the government can be trusted to administer the associated spending. Felix Rohatyn, special advisor to the CEO of Lazard Frères & Co., suggests, in a Wall Street Journal op-ed, something that might help: why not create a national infrastructure bank? (it is not an entirely new idea; see “Why the U.S. needs an infrastructure bank,” 18 January 2010 HSNW; and “National Infrastructure Bank idea gains momentum,” 27 March 2008 HSNW).


Indiviglio notes that at first, this might sound like a wacky socialist concept — a bank created to spend taxpayer money on infrastructure projects. It is a pretty practical proposal, though. Its purpose would be to circumvent politics so that taxpayer money could be more effectively spent on projects, instead of squandered as it so often is by Congress. This is how Rohatyn explains it:

A national infrastructure bank could begin to reverse federal policies that treat infrastructure as a way to give states and localities resources for projects that meet local political objectives rather than national economic ones. The bank would evaluate prospective infrastructure projects on consistent terms. It would be able to negotiate with state or local sponsors of a project what their cost shares should be. The bank also could help groups of states come together for regional projects such as high-speed rail and better freight management. Such consolidation would improve project selection.

This is an important point. “If Rep. Smithers of some state wants his vote contingent on his district getting a $125 million bridge to nowhere that will mostly pad the pockets of his biggest political supporters, then he often will get it,” Indiviglio writes. “But if there was a bank in place to evaluate projects in terms of their economic effectiveness, then such pork barrel spending will be harder to get through.”


A national infrastructure bank could change the way federal funds are spent on infrastructure. For example, instead of creating a $100 billion