National Infrastructure Bank
What could a U.S. National Infrastructure Bank provide?
Establishing a U.S. infrastructure bank could draw more private equity and debt capital into infrastructure development. A federal infrastructure bank could help establish procurement protocols and standards for public/private partnerships, facilitating the bidding process.
If patterned on the European Investment Bank model, a U.S. version could “bring stability and long-term capital [15- to 25-year loans at low rates] to projects that require both,” and equity investors and commercial lenders “can get more comfortable before they dive in.”
The infrastructure bank proposal vetting process would also help introduce merit-based, competitive decision-making and provide a mechanism for funding major, cross-sector and multijurisdictional projects.
But a U.S. infrastructure bank would be no silver bullet—in the end, infrastructure loans must be secured by some revenue stream—tolls, fees, increased rates, or taxes.
The European Investment Bank Model Established in 1958, the European Investment Bank (EIB) finances $64 billion in projects annually across the continent, helping modernize seaports, expand airports, build rail lines, and reconfigure city centers. Few EIB projects have ever defaulted— borrowers repay EIB loans, allowing the bank to continually relend the money. That’s arguably not a bad model for the United States, especially considering daunting funding constraints. Following the EIB model, a U.S. entity could carefully underwrite long-term loans (up to 40 or 50 years) and base decisions on a competitive, merit-based process.
Private capital will almost surely follow infrastructure bank investments, jump-starting more public/ private partnerships and augmenting funding sources.
Rather than attempting to finance entire projects, the bank acts as a catalyst to attract other capital sources including local and national governments, public authorities, private banks and other financial institutions. Project investments are typically capped at 50% of total investment cost, but loans can increase to 75% for certain trans-European ventures. For funding, projects must be viable in four fundamental areas: economic, technical, environmental and financial.
By setting guidelines and providing loan guarantees infrastructure projects, EIB helps lower risk for other investors. Loan guarantees focus on carrying projects through ramp-up stages when revenues may not cover operating costs.
The bank favors projects which will take pressure off constricted road systems and limit greenhouse gases—passenger and freight railways, inland waterways, maritime projects, urban transit, and intermodal hubs. Road projects can get support if they have “high economic value” for reducing severe congestion and link into other transport modes. EIB also focuses on water supply and sewage treatment, championing EU goals of ensuring “good status” water quality by 2015 in rivers and along coasts. The bank also promotes and supports a recent EU initiative to encourage city living and discourage suburbanization by helping create vibrant infill neighborhoods out of former industrial sites and redevelopment areas under public ownership.
By helping finance and spearhead major cross border projects, the EIB fosters cooperation among EU member states and enables programs which individual countries might not undertake otherwise.
