A US infrastructure bank: an unneeded luxury, or fixing the roof while the sun is shining?

With another push underway in favor of creating a US infrastructure bank, P3 Bulletin takes a look at whether the industry wants a new tool when it hasn’t yet used all the ones it's got

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Since 2007, a US infrastructure bank has almost routinely been put forward in the legislature, in one form or another, sometimes getting the backing of sitting presidents.

It was even originally planned to be part of the Bipartisan Infrastructure Bill, but the concept was axed near midnight as a bipartisan accord couldn’t be reached on its structure. 

Now, a new bipartisan push by federal Congressmen Daniel Webster and Colin Allred, has seen a bill introduced to the House of Representatives that would seek to deliver a new bank - in a version that’s new in more ways than one.

According to Webster and Allred (both of whom are members of the Transportation & Infrastructure Committee) the new concept would be to create a federally chartered bank, privately owned, privately managed and privately funded, and which will work to encourage private investment.

“America’s infrastructure is long overdue for critical repairs and needed advancements,” said Webster. “This bank will work with state and local partners to facilitate private infrastructure investments, creating a much-needed mechanism for projects to access necessary funding.”

But the question still remains whether there is a real need for a new bank, particularly when the US has no dearth of private capital itching to be deployed into infrastructure and there are multiple federal programs to point them in the wanted direction.

Some in the industry remain unconvinced: “I think we already have a series of infrastructure banks that exist,” says Jim Ziglar, principal at consultancy Rebel, pointing to a raft of well known acronyms, including TIFIA, WIFIA, RIFF, DoE loan guarantees, USDA programs, and others - not to mention the municipal bond market.

“In my view, the reason you put together an infrastructure bank is [that] there is a market failure in the private markets that you can’t really meet on the financing side of things and you don't want to meet with grants - there just isn't an argument that we have a financial market failure in the US”.

As an advisor on some of the aforementioned programs, Ziglar is not an anti-federal actor: he’s keen to look at the role that federal dollars can play on a larger level and whether that money could be spent even more effectively. 

“At the end of the day, we are subsidizing some projects that probably could have raised money through the private markets - do we need to do that? It does help deliver more infrastructure, but should we look at putting grants into projects that are of regional and national significance but there is a market failure because you can’t, for example, get the four states to agree on how to come together?”

Another area where some form of federal structure might help - albeit that structure wouldn’t necessarily have to be in the form of a bank - would be to help accelerate projects through the long and sometimes tortuous approval processes, especially if a scheme is deemed to be of national importance.

This idea of an infrastructure bank as an unblocker is one that is often put forward. It is something that is being done in Canada and the UK, in both cases using government money as a way to pump prime greater private investment and give confidence - particularly in newer, more risky markets, that investors are not on the hook for the whole scheme if things go wrong. This is something that the industry does acknowledge could be useful.

“An infrastructure bank could have an important part to play,” says Aman Randhawa, principal at QIC. “The financing is not an issue, there is plenty of financing available; it’s the funding.”

He points to the Fargo-Moorhead Flood Diversion project that was led by the US Army Corps of Engineers. It is funded by a sales tax and grant money, which saw the private sector wrestle with the credit rating of those taxes. “If an infrabank could come in and provide some extra cushion in there, it could have made the deal a lot easier,” he explains.

 “The question of funding still remains. The federal government can provide more funding support, if the projects get funded they are generating some credit or revenue support by themselves that takes care of a lot of things.”

According to the plans in the current legislation, the bank would provide loans and loan guarantees to get projects moving, and, importantly, it “may provide implementation advisory assistance, directly or indirectly, to infrastructure projects”. This is an often sought out role, and one that the UK’s version is also pioneering, helping to support and advise local authorities on major infrastructure projects in transit and green infrastructure.

Again, all of these moves would be useful, but the question still remains: is it needed?

“If the initiative comes, we would welcome it,” says Nicolas Rubio, Meridiam partner and its CEO Americas. “But today with PABs and TIFIA/WIFIA, programs for digital connectivity, and tax credits for energy, these are not yet being used in full. Another financial tool is always welcome but we should first use what we have.”

Many agree that the promise of IIJA and its long-term funding, including its scaling up of programs like WIFIA, are yet to really come into their own - and moves such as the regional accelerators are still building their presence as key project pipeline generators.

Webster does say, however, that the bank would aim to be a “compliment, not a replacement” for programs such as these, aiming to work with authorities to pursue all federal support and then “infuse private capital to address our critical infrastructure needs”.

Nonetheless, not everyone is convinced. “If you look at what the IIJA did, it increased the availability of TIFIA, USDOT PAB allocation. [These are] financing tools which provide a financial benefit to states and local authorities to apply for and to help fund their projects,” says another major P3 equity investor.

Furthermore, programs like TIFIA and PABs are aimed at the actual decision-makers on projects, which a country-wide infrastructure bank wouldn’t hit.

“At the end of the day, the decision sits at the state and local level for the procurement of projects,” he says, adding that the Build America Bureau “is focussing on the most effective tools that it has around those financing solutions”.

One of those at the forefront of upskilling public authorities is Qingbin Cui, professor at the University of Maryland, who is helping the Build America Bureau’s regional accelerator and other programs. He suggests that, as interest rates continue to rise and the pools of cheap capital seen over the past decade potentially begin to dry up, the little used tool of capitlizing a TIFIA loan to fund a state infrastructure bank could be activated.

This is something that has been authorised since the FAST Act of 2015, but which hasn’t been applied for yet.

“Before the pandemic, the mortgage was low, people didn't need to consider the TIFIA loan capitalization,” says Cui. “But right now, the interest rates can be up to 7%. A 2% capitalized loan from TIFIA is a very attractive option.

“That's an opportunity that local states haven't really leveraged yet,” he says, adding that some state authorities, such as in Louisiana, are keen to make a move like this. “I expect more states to be doing just that. Many states see the needs, they haven't been aware of all the tools available to them.”

Cui, like many others, is part of the outreach to improve this knowledge case, and put every tool on the table for authorities to bolster infrastructure options. After all, the IIJA only has a 10-year lifespan, so while some in the industry may be ambivalent to the need for an infrastructure bank right now when federal dollars are plentiful, there is a need to think about what comes next.

“There is a good interest in an infrastructure bank,” says Cui. “People want to have a sustainable infrastructure investment vehicle that can continue to provide funding for infrastructure, rather than just a one time legislation that funds certain big projects.

“Infrastructure is so important, we can’t live without a sustainable funding mechanism to maintain, and even enhance its future.”

Perhaps, an infrastructure bank would be something of a luxury right now, particularly when there is absolutely no financing problem in the country and plenty of grants are avaliable. But, in the long term, this movement towards infrastructure banks could be looked back on as fixing the roof while the sun is shining. Should economic dark clouds gather, having another market actor that can provide a sustainable structure through which projects can be unstuck, pipelines can be started, and expertise and support can flow could prove useful.