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Banking on Our Future: Bankrolling our crumbling infrastructure through a National Infrastructure Bank

While physical infrastructure may not be the most riveting topic for a presidential debate or the campaign trail, the integrity of a nation’s bridges, roads, rails, electrical grids, dams, and canals is essential to any modern economy. Without these critical infrastructure foundations, the US economy simply would not function. Infrastructure spending is also stimulative: The Congressional Budget Office estimates that every dollar spent on infrastructure results in an economic gain of $2.20. Furthermore, the US Council of Economic Advisors claims that a one-billion-dollar investment in infrastructure would support up to 13,000 jobs for a year.

Yet for all its value and importance, US infrastructure is currently in a state of disrepair. In a 2017 report, the American Society of Civil Engineers graded the condition of US infrastructure at an embarrassing D+, and the US Government Accountability Office found that nearly 25 percent of bridges nation-wide are deficient. Water and energy systems are also under severe stress, as evidenced by the recent failure of Texas’s power grid during a winter storm, and “increasing power outages are costing the economy billions of dollars.” Experts estimate that an investment of $1 to $4.5 trillion is needed by 2025 to bring the current system into a state of good repair. Trying to save money by neglecting aging infrastructure is costing the United States billions of dollars in lost economic productivity.

The US government’s current approach to infrastructure is fundamentally flawed. The federal government currently entrusts most infrastructure-related projects to state and municipal governments; only 25 percent of infrastructure investment originates from the national level. Delegating so much responsibility to local leaders is problematic. Budgets are smaller, political favors may be more commonplace, and incentive to cooperate and invest in infrastructure across state lines is minimal. Politicians from both sides of the aisle agree that increased investment in infrastructure is needed. Thus, the question is not whether we should invest, but how. As the United States continues to battle Covid-19 and considers methods of rebuilding the economy, Congress should prioritize creating a National Infrastructure Bank (NIB). An NIB has the potential to bring the quality of US infrastructure up to the level of its peer nations while combating the unemployment crisis and paving the way for decades of increased economic prosperity.

The creation of an NIB is not a novel idea; in fact, it was backed by the Obama administration in 2009. With $10 billion in initial seed funding from Congress, Obama’s NIB would have given loans to support transportation, energy, and water infrastructure projects that often lack funding but offer a clear benefit to taxpayers. Such loans would be matched by investments from the private sector or local governments, and many projects would generate their own revenue to ensure repayment of the loan. The board of the bank would also examine potential projects through a rigorous cost-benefit analysis and evaluate the distributional impact of each project. This federalized approach has worked well in the past: The Hoover Dam and the Federal Highway Act, for example, were both successful largely due to federal backing. Additionally, most infrastructure involves economies of scale and generates positive externalities that often go unaccounted for by state or municipal governments. An NIB’s centralized decision-making process would address the fragmented state-municipal approach to infrastructure investment, ensuring that taxpayer dollars are utilized efficiently.

Beyond allowing for private co-investment and improving the efficiency of capital allocation, a National Infrastructure Bank’s impact on job creation would pay dividends for decades to come. A 2014 study at the University of Maryland found that an $80 billion investment in infrastructure would create 1.7 million jobs within three years, 90 percent of which the Treasury Department estimates would be filled by middle-class individuals. Further inspection reveals that the jobs created would disproportionately benefit those affected by previous economic downturns, as “the average unemployment rate among those who would be put to work by additional investment in infrastructure is over 15 percent, more than one and one-half times the national unemployment rate.”

Such gains in job creation would have a significant long-term impact on poverty alleviation and income equality, especially in rural areas. Improved transportation infrastructure would also reduce the fixed costs of employment, further reducing the barriers to work. Currently, the average American family spends more than $8,600 on transportation every year, and “for the 90 percent of Americans who are not among the top decile in income, transportation costs absorb one out of every six dollars of income.” An NIB is a fantastic way to raise the spending power of lower and middle class Americans, while also expanding the workforce.

Given the bipartisan nature of infrastructure investment, one might assume the proposal to create an NIB would pass with minimal resistance. However, former president Obama’s efforts to create an NIB were derailed by a myriad of factors, particularly his administration’s hyper-focus on the Affordable Care Act.

Now, in the midst of the Covid-19 pandemic, President Biden is in an advantageous political position to create an NIB as the labor market is in turmoil and businesses are shuttering. The employment-population ratio, the number of people employed over the total working-age population, fell dramatically in the beginning of the pandemic by approximately 10 percentage points. While employment has recovered somewhat, it is still far below pre-pandemic levels. Many businesses have also shut their doors: In New York City, recent estimates place the share of small businesses permanently closed at as many as a third. The mass closure of businesses and the subsequent loss of jobs may yield what economists call an “L-shaped” recovery, which involves persistent unemployment and stagnant economic growth. While the federal government has provided some assistance, continued hardship shows that relief isn’t functioning as intended and that many Americans desperately need an additional economic boost. With the Democrats in control of both houses of Congress, President Biden can leverage the national enthusiasm for increased stimulus to finally implement an NIB.

While an NIB is not a silver bullet, it can play a serious role in reviving the US economy. Its modest start-up fees pale in comparison to the trillions currently being spent on stimulus, and its multiplier effect would generate surplus economic benefit for every dollar spent. These benefits would then be distributed across society, impacting everyone from low-income families to C-suite executives. By creating and supporting millions of jobs, an NIB would help pave the way for post-pandemic economic growth.