CSCMP's Supply Chain Quarterly
October 24, 2018

Don't bank on federal money for infrastructure improvements

President Obama's proposal for an infrastructure bank is unlikely to become a reality, but a new approach to funding is still needed.

In case you missed the news, in early September, President Obama proposed the creation of a US $50 billion infrastructure bank to make loans for worthy infrastructure projects. This bank would be governed by an independent board but backed by taxpayer dollars. The United States does indeed need to upgrade its transportation network, including highways, railroad trackage, seaports, and airports. But the Obama administration's proposal is unlikely to achieve that objective. It simply is not feasible in the current political and economic climate.

If you have a "worthy infrastructure project," I wouldn't start filling out a funding application just yet because the bank proposal raises a number of questions. For starters, if a state or local government were to borrow from the infrastructure bank to widen and resurface a highway, how would it pay back the money? One way, perhaps, would be to impose tolls and use that revenue to repay the loan, but that scheme would encounter opposition from taxpayers who already pay gasoline taxes to maintain currently "free" highways.

Moreover, under the plan, money apparently could be loaned to a private entity but that also raises thorny issues. If, for example, a U.S. railroad sought a loan, then citizens would almost certainly question why a private entity should receive a taxpayer-subsidized loan. Couldn't the railroad raise money from Wall Street through the issuance of stock, or simply borrow the money from a private lender to address its capital needs?

Given the national backlash against bailing out banks and automakers and the growing opposition to increasing the federal budget deficit, it's unlikely that Congress will support the establishment of an infrastructure bank. Furthermore, if the Republicans—pushed by the Tea Party movement to limit the role of government—do gain control of the House of Representatives, then the measure would stand no chance of passage.

That's why I believe that the best solution (for highway and intermodal projects at least) remains changing the way money from the highway trust fund is distributed. Admittedly, that fund is not collecting enough money to meet all U.S. infrastructure needs, but it still is big enough to fund some necessary projects. I would suggest that the highway fund be split into two segments: Half of it would be doled out by an independent board to meet national infrastructure needs while the other half would be awarded by Congress, just as it is handled now.

This idea faces its own hurdles. Federal legislators delight in obtaining funding for projects in their districts; getting Congress to give up half of the highway trust fund to an independent body would prove extremely difficult. Still, getting the House and Senate to change how they apportion highway trust dollars would stand a far better chance of passage than the creation of an infrastructure bank in these tightfisted times.

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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