Job-creation proposals are flying out of the White House like popcorn these days. Democrats in Congress need all the help they can get to retain power after the Nov. 2 elections. And President Obama is trying desperately to take the chill out of a frosty economy.
Of all the ideas that Mr. Obama has lately adopted to boost employment, one deserves a serious debate during the election campaign and on Capitol Hill: creation of an investment bank to raise private capital for the building of public roads, rail, and other transportation infrastructure.
Oddly, despite the political timing of Obama’s proposal just weeks before the election, such a bank would help remove some pork-barrel politics that now influence the construction of highways and mass transit. Projects would be decided on their merits by an independent board within an infrastructure bank – and for one simple reason. The bank would need to pay back its investors.
The concept isn’t new. Such private-public banks have long operated in other countries. They rely on seed money from government to attract private capital in the granting of loans for big projects that can spur economic growth or that can earn money from user fees.
Such a bank in the US would have a stronger incentive than Congress does now to make sure that a highway or a rail system is well maintained over time.
“It will change the way Washington spends your tax dollars,” the president said during a Labor Day speech, “reforming the haphazard and patchwork way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas and more on competition and innovation that gives us the best bang for the buck.”
Obama was behind the idea when he was a senator, and a number of prominent Republicans have backed it. It gained traction earlier this year as Obama asked Congress to make a $4 billion down payment in creating such a bank.
Most spending on highways is now a local or state matter, and should stay that way. Washington participates to the tune of about $50 billion a year, mainly by imposing a gasoline tax whose revenue goes into the Federal Highway Trust Fund.
As with many ideas, the success of a national infrastructure bank depends on the details. Its board, for instance, would need to be truly independent. The bank’s scope would need to be limited to transportation, water, and other public utilities that demand regional or national planning.
Most of all, taxpayers would need to be protected from a major default of the bank. It cannot become like Fannie Mae and Freddie Mac, two government-sponsored enterprises that fell because they engaged in risky mortgages that forced a government takeover.
If set up in a way that prevents political meddling by Congress, then such a bank should exist. Rightly structured, the bank would boost to the economy through a better focus on infrastructure with high public benefit.
Tapping private capital and relying on a market strategy to build up transportation is one idea that shouldn’t be lost in coming weeks as the US engages in a grand debate on the economy and jobs.