Infrastructure Banks and Surface Transportation

From 2008 to 2011, governmental spending on surface transportation infrastructure—highways, mass transit, and passenger rail—totaled $200 billion a year. The federal government spent more than $50 billion a year—mostly in the form of grants to state and local entities, which then determined what projects to fund—and state and local governments spent more than $150 billion a year of their own funds.

If future government spending on surface transportation infrastructure matched those recent amounts, however, the condition of the highway and transit systems would probably deteriorate. To increase the funding available for infrastructure projects and to improve the selection process for those projects, some analysts and policymakers have suggested the creation of an “infrastructure bank.” In this report, CBO analyzes an illustrative federal infrastructure bank for transportation—one that is representative of those in many recent proposals.

How Would a Federal Infrastructure Bank Work?

An infrastructure bank, which would be federally funded and controlled, would select new, locally proposed construction projects for funding on the basis of a number of criteria, including their costs and benefits, and would provide financing for the projects through loans and loan guarantees. To repay the loans, projects financed through the infrastructure bank would have to include tolls, taxes, or other dedicated revenue streams. Financial assistance could be made to any consortium of partners with an eligible project. For example, a group of state and local entities could apply, as could a group of private, nongovernmental partners. The bank could provide the subsidy amounts needed to compensate private-sector investors for benefits that accrue to the general public and the economy at large.

The illustrative infrastructure bank in this analysis would focus on surface transportation projects. It would not provide financing for water or energy projects, even though some recent proposals have included them. Water and energy projects have certain characteristics that make them different from transportation projects—most notably, they have built-in ratepayers.

What Are Some Strengths and Weaknesses of Infrastructure Banks?

An infrastructure bank could play a limited role in enhancing investment in surface transportation projects by doing the following:

• Providing new federal subsidies (in the form of loans or loan guarantees) to a limited number of large projects, and
• Allowing the benefits of potential projects to be more readily compared in a competitive selection process.

A potential advantage of such a bank is that it could encourage sponsors of projects to charge users for the benefits they receive, which would mean that the subsidies to such projects could be a small percentage of total costs. A second potential advantage is that the selection process could overcome certain barriers to the financing of multijurisdictional or multimodal projects.

A key limitation of providing funding through a federal infrastructure bank is that only some surface transportation projects would be good candidates for such funding, because most projects do not involve tolls or other mechanisms to collect funds directly from project users or other beneficiaries. A second drawback is that the support offered for surface transportation by most proposed infrastructure banks would not differ substantially from the loans and loan guarantees already offered by the Department of Transportation through its Transportation Infrastructure Finance and Innovation Act program.