THE BIPARTISAN INFRASTRUCTURE FRAMEWORK OPENS THE DOOR TO WHAT IS NEEDED: PRIVATE FUNDING

The Bipartisan Infrastructure Framework received President Biden’s seal of approval after his meeting with the group of 10 senators from both parties who formulated it. It has the potential to be a great win for the American people. If the framework becomes a bill that passes Congress, $1.2 trillion in badly needed funds will be invested over the next eight years in the infrastructure we have been neglecting for decades.

There is no question that investment will have an impact. For every $100 billion invested in infrastructure, there is a 1.5x multiplier. The bipartisan framework is likely to add $1.8 trillion to GDP and generate 1 million new jobs. Coming as it does after decades of underfunding, neglect, and stymied efforts by previous administrations, the bipartisan framework is clearly a breakthrough. President Biden and his administration are to be commended, as are Republicans such as Senator Romney who brought the framework to realization.

As noteworthy as it is, though, it is only a start. The proposed $1.2 trillion funding level is less than in previous proposals, and far less than the $2.59 trillion in infrastructure spending that the leading expert group – the American Society of Civil Engineers – says is needed just to bring our existing infrastructure into a state of adequate repair, without starting any new projects.

Also left largely open is the question of how the framework is to be funded. That’s in part because the framework is simply that – a broad agreement. Many specifics will have to wait until formal legislation is developed. As a result of bipartisan compromise, several funding measures are not included. There is no provision for an increase in corporate taxes – a Republican sticking point – nor is there a gasoline tax – a Democratic non-starter. Most of the proposed funding comes through appropriations – especially the reallocation of already committed funds. Essentially, the framework pays for infrastructure by increasing the budget deficit.

But two funding mechanisms stand out, and merit attention. In fact, I have been calling for them for many years.

The first is the creation of an Infrastructure Finance Authority. A similar-sounding provision is included in the REPAIR Act reintroduced in April by another bipartisan group of senators. This sounds very much like the Infrastructure Bank that has been the subject of proposals stretching back to 2007. It has the potential to be an essential resource for infrastructure development – if it is given the right structure and the right scale.

What structure and scale? The bank should be structured as a government-sponsored entity (GSE). It should be of a size and scope to provide for long-term strategic infrastructure investment on a national scale and with a long-term time horizon. It should have $100 billion in equity capital and a $1 trillion balance sheet, sufficient to galvanize the capital markets and generate funding on a sustainable long-term basis.

The bank can also play additional critical roles: It can help remove structural barriers to infrastructure funding – there are a surprising number – and it can provide expertise in planning and project management that exceed what existing state and municipal authorities can accomplish.

But the main value of the bank is that it promises to liberate infrastructure funding from political pressures and appropriations cycles. Infrastructure projects have a long-term time horizon, and the infrastructure bank is a vehicle for long-term funding.

To the question of how to fund the bank, the Bipartisan Infrastructure Framework also has a compelling answer: Sell a portion of the Strategic Petroleum Reserve (SPR) and use the proceeds to fund the bank – with no impact on the federal budget. The SPR was created in the aftermath of the 1973 oil crisis to ensure the U.S. would not be faced with supply disruptions. This made sense when the U.S. was a net importer of crude, as it was in the 1970s. It does not today, when the U.S. is a net exporter. The U.S. now has a permanent strategic petroleum reserve thanks to its shale production. It need not rely on anyone else for its crude oil supply in times of crisis.

The administration should sell the existing crude oil reserves and privatize storage capacity. Those two actions could generate up to $60 billion in proceeds – a tremendous “leg up” in the bank’s capitalization and its ability to fund infrastructure at national scale.

The sale of the SPR is not the only way to fund the bank. The ultimate answer lies with the private sector.

The private sector is eager to invest in infrastructure, which is highly stable and produces attractive, predictable returns over a 20–30-year time horizon. U.S. pension funds had over $18 trillion in assets under management at the end of 2019. Add in overseas pension funds and that total climbs to $40 trillion. In addition, an Infrastructure IRA would allow individuals to invest up to $10,000 each year, earmarked for infrastructure. Such a dedicated IRA on the model of 529 Plans for education could make up to $300 billion of capital available each year. All of these private proceeds – together with direct federal funding – could be brought to bear through the Infrastructure Bank.

Funding vehicles such as these should be on the table as an infrastructure bill and a possible reconciliation measure are developed. The Bipartisan Infrastructure Framework is just a first step. Others can follow by reconciliation or other means and can broaden the definition of infrastructure as well. But the framework is a promising step – one that has the potential, after months of debate and decades of neglect, to set us on the path to the infrastructure that our economic prosperity and our international standing require – and deserve.

Sadek Wahba is a Senior Fellow at the Development Research Institute of New York University. He is also Chairman and Managing Partner of I Squared Capital, an independent multi-billion-dollar global infrastructure investment company. The views expressed in this paper do not necessarily reflect those of the organizations mentioned above.