September 8, 2011

President’s Infrastructure Bank Missing Key Component for Success

Jason J. Fichtner

Former Senior Research Fellow

The president will deliver his long-awaited proposals for creating jobs tonight, including the idea of an infrastructure bank. An infrastructure bank, if created correctly, could be a positive move for long-term investment in the economy. However, the idea being proposed is missing a key component for success of any bank: making loans that are required to be paid back with interest.

The infrastructure-bank model that is being promoted by President Obama is all smoke and mirrors. It continues to funnel taxpayer dollars to projects in a vain attempt to stimulate the economy in the short term without accounting for long-term costs and benefits. The infrastructure bank proposed by the president only consists of tax credits, direct subsidies, and loan guarantees that will shift the burden of risk onto federal taxpayers.

The problem with the current plan is that it’s not a bank. There’s no profit motive to direct investment decisions, and the funding is not sustainable – it relies on Congressional appropriations.

If an infrastructure bank were to be done correctly, it would have to make loans that borrowers would have to pay back with interest. This way “the bank” would presumably only make loans and fund projects that have a reasonable chance of getting paid back and making a profit – in order to reinvest the money into other worthwhile projects. If this were done, the bank would presumably be self-financing, reducing the risk to taxpayers.