It’s actually not a “new” idea. It’s an old, recycled one borrowed from corruptocrat Democrat Sen. Chris Dodd, who sponsored a bill to create a federally-operated “infrastructure bank” in 2007. President Obama tried to get $5 billion in funding for one in his 2010 budget and $4 billion is proposed for one in his 2011 budget. Democrat Rep. Rosa De Lauro is pushing a House version — and her expansive, pipe-dream plans tell you all you need to know about what a disastrous, costly slush fund this thing would inevitably grow into:
Ms. DeLauro’s plan would create an infrastructure bank that would be part of the United States Treasury, where it would attract money from institutional investors, then channel the funds to projects selected by a panel. The program, which would make loans much like the World Bank, would finance projects with the potential to transform whole regions, or even the national economy, the way the interstate highway system and the first transcontinental railway once did.
The outside investors would expect a competitive return on their money, so many of the completed projects would have to charge fees, taxes or tolls. In an interview, Ms. DeLauro said she would be “looking at a broader base,” meaning the bank would finance not just roads and rails, but also telecommunications, water, drainage, green energy and other large-scale works.
But if the projects did not raise enough money, the Treasury might get stuck paying back the investors, a prospect that gave pause to so-called deficit hawks like Mr. Tiberi. In an e-mail last week, he said he agreed the nation’s road and communications networks needed to be improved but was concerned about creating another company like Fannie Mae that might need a bailout.
Inside the White House, the idea for a transportation initiative, and in particular an infrastructure bank, is one that the White House chief of staff, Rahm Emanuel, has been promoting.
(Fun fact reminder: Rahm lived rent-free for five years in the D.C. basement of De Lauro and her Democratic pollster hubby Stanley Greenberg. But I digress.)
So, like Stimulus I, which was initially intended to put infrastructure spending first, but evolved into a multi-purpose slush fund that put infrastructure last, the “infrastructure bank” envisioned by progressives on Capitol Hill would be “looking at a broader base” to finance “green energy” and “other large-scale works” based on “social benefits” determined by a panel appointed by the president.
Moreover, this “bank” would be anything but a bank in the normal sense of the word. Ron Utt at Heritage exposed the farce in March:
This bank would be capitalized by federal appropriations to leverage a greater volume of debt borrowed under the full faith and credit of the federal government. In turn the bank would use these funds to finance eligible infrastructure projects. While these proposed entities—and similar ones that exist in the states from earlier legislation—are described as “banks,” they are no such thing.
The common meaning of a “bank” describes an entity that borrows money at one interest rate and lends it out to creditworthy borrowers at a somewhat higher interest rate to cover the borrowing, administrative, and bad debt costs incurred in the act of financial intermediation. In contrast, many of the federal infrastructure bank proposals (and those already in existence) follow only the borrowing part. Instead most allow the infrastructure bank to use borrowed funds to provide grants and subsidies to approved infrastructure projects. A grant, of course, is not paid back and does not require interest payments. So this raises an important question: How can the bank service its debt if it has no earnings?
Alert readers will recognize that this sounds alarmingly similar to the predicament of the federally sponsored lenders Fannie Mae and Freddie Mac when their earnings failed to cover debt costs, thereby necessitating a taxpayer bailout that now totals $126 billion. Oddly, such apparent parallels were acknowledged by Representative Rosa DeLauro (D–CT), sponsor of current infrastructure bank legislation, when she noted that her bank would be “an innovative public-private partnership like Fannie Mae.”
“Innovative” = another massive taxpayer sinkhole. Heaven help us.
More on the elastic “economic development” projects that will undoubtedly be funded under the guise of infrastructure spending, via Kevin Williamson at NRO. (h/t commenter Netfest)