Fool Me Twice

by Aaron Klein

  Rediker/Crebo-Rediker’s proposal would set up a “government-owned and-capitalized infrastructure financing entity,” that “would pool, package, and sell existing and future public infrastructure securities in the capital markets,” as well as “seek to develop an in-house capability to originate infrastructure loans and would be able to fund itself through the international capital markets.” But the capitalization they envision would be at a far higher level than is proposed in the DeLauro bill. In fact, they added, the scope should extend beyond that of the National Infrastructure Bank then being proposed by then Senator Christopher J. Dodd (D-CT) and Sen. Chuck Hagel (R-NE).23 Dodd and Hagel had introduced the Senate version of the 2007 National Infrastructure Act of 2007.24 Then presidential candidates Barack Obama and Hillary Clinton were co-sponsors.25 The House version was introduced by Rep. Keith Ellison (D-MN) who is co-chair of the Congressional Progressive Caucus.26

  The failed Dodd-Hagel bill would have provided for an independent government entity with a five-member board appointed by the president and confirmed by the Senate. The bank would have been financed with $60 billion in bonds used to leverage private capital. State and local sponsors would submit candidate projects—roads, bridges, mass transit systems, wastewater treatment facilities, and public housing—for the bank’s sponsorship.27 Clearly, this projected bond-offering fell far short of the 1980s estimate of $2.5 to $3 trillion required “to prevent the further deterioration of public services.” Nor did it approach a $1.6 trillion national infrastructure deficit estimated in March 2008 by the American Society of Civil Engineers.28

  THE “RADICAL CENTER” PARTNERS WITH WALL STREET

  So where would the trillions of needed dollars come from, based on a $60 billion stake of federal taxpayer dollars? The answer was to be: from private capital, “backed by the full faith and credit of the U.S. Government.” And this is where the “radical center” of the progressives would be backed by more “moderate” Democrats and Republicans, including Wall Street.

  The source of Dodd and Hagel’s bill was Wall Street finance wizard Felix Rohatyn, a trustee of the Center for Strategic and International Studies (CSIS), and co-chair, with former senator Warren Rudman, of the CSIS Commission on Public Infrastructure.29 Dodd (who retired from the Senate in January 2011) was then serving as chairman of the Senate Committee on Banking, Housing and Urban Affairs; he and Hagel were also members of the CSIS infrastructure commission. In 2009, shortly after Obama’s inauguration, Dodd wrote that he, Hagel, Rohatyn, and Rudman had developed his “bipartisan idea … over the course of several years.”30 CSIS, for its part, claimed the Dodd-Hagel legislation followed two CSIS reports released in 2005 and 2006 “that highlighted the urgent need for a national plan and investments to improve infrastructure needs across the nation.”31

  Here is how CSIS described its proposed National Infrastructure Bank would work:32 It would be modeled after the Federal Deposit Insurance Corporation, which is led by a five-member board of directors appointed by the president and confirmed by the Senate. The NIB’s board would create a bureaucracy, headed by an inspector general to oversee the NIB’s daily operations and report to Congress.

  Only infrastructure projects with a potential public “investment” (i.e., spending) of at least $75 million would receive NIB consideration. A project sponsor, or consortium of sponsors, would apply to the NIB, which would then use a “sliding scale” to evaluate them, based on criteria including: the type of infrastructure system or systems, project location, project cost, current and projected usage, non-federal revenue, regional or national significance, promotion of economic growth and community development, reduction in traffic congestion, environmental benefits, land use policies that promote smart growth, and mobility improvements.”

  CSIS also explained how the government’s “investment” would be leveraged in the private capital markets once a project were selected.

  The NIB would develop a financing package backed “with full faith and credit from the government.” A financing package could include “direct subsidies, direct loan guarantees, long-term tax-credit general purpose bonds, and long-term tax-credit infrastructure project specific bonds.” The initial ceiling to issue bonds would be set at $60 billion. (But the NIB would not “displace existing formula grants and earmarks for infrastructure” as it “targets specifically large capacity-building projects that are not adequately served by current financing mechanisms.”)

  Following a smaller-than-projected job growth report the previous week, President Obama told a July 11, 2011, news conference that the infrastructure bank he was proposing would be “relatively small.” But, he asked,

  [C]ould we imagine a project where we’re rebuilding roads, bridges and ports and schools and broadband lines and smart-grids and taking all those construction workers and putting them back to work right now?

  I can imagine a very aggressive program like that I think the American people would rally around and that I think would be good for the economy not just next year or the year after, but for the next 20 or 30 years.33

  Obama’s “aggressive program” probably stemmed from a plan laid out by Sen. John Kerry (D-MA) in testimony of September 10, 2010, before the Senate Banking, Housing, and Urban Affairs Committee, where Kerry pushed hard for an infrastructure bank.34 A few days earlier, on September 6, Kerry had announced he was committed to National Infrastructure Bank legislation, proposing an entity similar to the European Investment Bank that “financed $350 billion in projects from just 2005 to 2009 across the European continent, helping modernize seaports, expand airports, build rail lines and reconfigure city centers.”35

  Kerry’s vision would have Uncle Sam emulate the world’s “largest international non-sovereign lender and borrower.” The European Investment Bank’s sphere of influence is worldwide, linked to 150 countries, from Southeast Europe; the Mediterranean partner countries; the African, Caribbean, and Pacific countries; Asia and Latin America; Central Asia; Russia; and other neighbors to the East.36 A not-for-profit institution, the EIB “raises the resources it needs to finance its lending activities by borrowing on the capital markets, mainly through public bond issues.” It can do so because of its AAA credit rating, which “enables it to obtain the best terms on the market.”37

  (But the United States no longer holds an AAA credit rating, which now makes it more expensive for us to raise capital. On August 5, 2011, the Standard and Poor’s downgraded Washington’s credit for the first time in history (to AA+), in what was described as a “sharply worded critique of the American political system.” S&P found that the Obama administration’s proposed $2.1 trillion in budget savings, following its virtually unrestrained spending spree, “fell short of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.” S&P determined Obama’s mounting national debt had “made the U.S. government’s ability to manage its finances ‘less stable, less effective and less predictable.’”38)

  Since his original proposal for a national infrastructure bank had not sold, by mid-March, 2011, Kerry simply re-branded it.39 (Kerry had tried to call his earlier infrastructure bank bill “bipartisan,” although it had the backing of but a single Republican, Sen. John Thune of South Dakota.) Kerry introduced his new legislation, dubbed the BUILD Act, at a March 15 press conference, with a supporting cast including Sen. Kay Bailey Hutchison (R-TX) (ranking member of the Commerce, Science, and Transportation Committee), and Thomas J. Donohue (president and CEO, U.S. Chamber of Commerce). Also present was AFL-CIO president Richard Trumka.40 Besides the better bipartisan atmospherics, Kerry was now saying he wanted to establish an American Infrastructure Financing Authority (AIFA). Replete with rhetorical boosterism about his “bold solution,” the American Infrastructure Financing Authority to be set up by Kerry’s BUILD Act was nothing more than a national infrastructure bank by another name.41 According to The Hill, citing Obama’s transportation secretary, Ray L
aHood, Kerry’s newly branded national infrastructure bank would “receive $30 billion over six years as part of a proposed comprehensive six-year, $556 billion plan.”42

  This half-a-trillion-dollar scheme, according to Kerry, would also be “independent of the political process.” AIFA would “fund the most important and most economically viable projects across the country, our states, and our communities.” It would also be “fiscally responsible,” after receiving its initial funding from the government. Later, Kerry’s team claimed, AIFA would become self-sustaining. It would be able to rely on the private sector, as AIFA could never provide more than 50 percent of a project’s costs, “and in many cases would provide much less, just enough to bring in private investment.”43

  Kerry claimed his plan for AIFA would closely follow the Export-Import Bank model. The Export-Import Bank of the United States finances and insures purchases of U.S. goods by foreign customers who are either unable or unwilling to accept credit risk. The purpose is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers.44 But Timothy P. Carney, author of Obamanomics and The Big Ripoff, labeled Kerry’s AIFA a “corporate welfare slush fund” and a “prime example of unaccountability.” As to parallels with the Ex-Im Bank:

  The agency is independent of any cabinet department, and it hands out loans and loan guarantees basically at its own discretion. Congress typically gives [the Export-Import Bank] lengthy reauthorizations, thus minimizing congressional oversight. In recent years, Ex-Im was moved off-budget, meaning it funds itself with the repayments from old loans and the fees from new ones. So it’s kind of like Fannie Mae was, before its exposure became real and the taxpayers had to come in and bail it out.45

  THE NEW BANK: GOVERNMENT–WALL STREET CRONYISM

  A meeting between U.S. Treasury officials, bankers, pension funds, and hedge fund managers was convened on June 28, 2011, by NYU professor Michael Likosky “to discuss how such a bank [i.e., NIB] might work.”46 As a program on National Public Radio put it, the group discussed how greedy Wall Street capitalists “can help the government launch a national infrastructure bank.”47 Likosky—who calls the plan “Obama’s bank”—is a leading academic cheerleader for the Kerry plan, an “expert on public-private partnerships,” and the author of Obama’s Bank: Financing a Durable New Deal.48

  An opposite take on the virtues of the scheme (September 2010) comes from Glen Ford of The Black Agenda Report:

  The so-called infrastructure bank masquerades as the beginning of an industrial policy to reverse the export of jobs from the United States. Obama is spinning the scheme as his variation on Franklin Roosevelt’s New Deal, when the federal government directly created millions of jobs and invested public monies in a vast, new infrastructure, much of which we are still using, today.

  But in reality, the president’s proposed bank bears no resemblance to the New Deal of the 1930s. Rather, it is yet another ploy to create a new windfall for the private bankers on Wall Street—a public-private scam. The scheme would transfer billions in public funds to a new banking entity, to attract the mega-bankers, whose investments would be guaranteed by the U.S. government. The Obama bank would then lend these monies to selected projects, overseen by a board heavily weighted with representatives of those same Wall Street firms and their corporate allies.

  [ … ]

  Essentially, the same Wall Street players that have relentlessly and methodically de-industrialized the United States for the past 30 years would direct the economic makeover of the country, all the while earning interest on the borrowed funds. That’s not a New Deal, that’s a license for yet more no-risk self-dealing by Wall Street, guaranteed by the full faith and credit of the United States. It is a travesty and a swindle.49

  In order to sell this grand new crony capitalism scheme, Obama and the progressives touted it as the solution to an emergency (the jobs emergency) just as they had “never let a good crisis go to waste”—in Rahm Emanuel’s memorable turn of phrase—in ramming through the “stimulus” package, and then ObamaCare. Obama’s flim flam was already in full swing at the September 2010 Laborfest in Milwaukee, when he pitched his bank scheme as a jobs plan to union workers and their families. Obama “called for a push to build or repair 150,000 miles of roads, 4,000 miles of railway and 150 miles of runway—and an update to the air traffic control systems,” ABC News’ Jake Tapper reported.50 Obama told several thousand union members:

  “We used to have the best infrastructure in the world and we can have it again. We want to change the way Washington spends your tax dollars; we want to reform the way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas, and we want competition and innovation that gives us the best bang for the buck,” he said, adding “this is a plan that will be fully paid for, it will not add to the deficit over time—we’re going to work with Congress to see to that.”51

  Progressives in Congress were soon on board this monumental “change [in] the way Washington spends your tax dollars.” Congressional Progressive Caucus co-chairs, Reps. Raúl Grijalva (D-AZ) and Keith Ellison (D-MI), pushed Obama to “champion sweeping investments in the nation’s crumbling infrastructure as a way to create jobs and jolt the sluggish economy.” In September 2011, they wrote to Obama with a plea for “bold action” that required “federal emergency jobs legislation.” In particular, Grijalva and Ellison urged Obama to promote an estimated $2.2 trillion “investment” in a national infrastructure bank, which they described as a “public-private partnership designed to fund the nation’s aging roads, bridges, railways and other vital structures.” The proposal was included in the Make It in America agenda progressive Democrats had pushed all year.52

  In fact, a whole host of infrastructure bank bills was introduced in Congress that year (2011). In addition to the aforementioned acts, Obama’s defeated American Jobs Act had called for the creation of an American Infrastructure Financing Authority.53 The Rebuild America Jobs Act, introduced October 31 by Sen. Amy Klobuchar (D-MN), included plans for an AIFA.54 The Act for the 99% (discussed in our chapter on the New WPA) would create the National Infrastructure Development Bank Act of 2011, intended to provide “$25 billion in seed money in the next five years.”55 Sen. Sherrod Brown (D-OH) introduced the National Infrastructure Bank Act of 2011 on September 13, and Rep. Marcia L. Fudge (D-OH) introduced a bill by the same name on October 25.

  In his September 8, 2011, jobs speech, Obama gave Kerry and Hutchinson credit for their contribution in respect of the infrastructure bank contained in his proposed American Jobs Act.56 In his pitch for the act, Obama called for $80 billion in spending on “new building projects, from school modernization to roads and bridges.”57 Notably missing from Obama’s speech was any reference to “green energy” or the environment, one of the main pillars of the Progressive agenda. But, as Sen. Barbara Mikulski (D-MD) put it, though the president’s speech had neglected “the bipartisan topic of energy efficiency,” the infrastructure bank in Obama’s plan could well be used to finance green projects. Mikulski claimed it would be “a major step forward in improving the environment.”58

  For the record, the details of the newly branded American Infrastructure Financing Authority creation are fairly straightforward: It would be incorporated at the first meeting of a seven-member board of directors appointed by the president. No more than four members would come from one political party. The chairman and three voting members would serve four-year terms; the other three members would serve two-year terms. The president would also appoint a non-voting chief executive officer to run the AIFA for a term of six years.59 Capitalized with an initial $10 billion, AIFA would provide direct loans and loan guarantees to “facilitate infrastructure projects,” as well as to “leverage private and public capital and to invest in a broad range of infrastructure projects of national and regional significance, without earmarks or political influence.”60

  There would also be ample opportunities for “back-room
deals” and abuse. For example, a meeting quorum would be five voting board members, and, by a majority vote, could be closed to the public “if, during the meeting to be closed, there is likely to be disclosed proprietary or sensitive information regarding an infrastructure project under consideration for assistance.” So it would be fairly easy to avoid transparency and/or a situation could easily arise where the “bi-partisan” quorum could be, say, four Democrats and one Republican. And while minutes of each meeting would be prepared, in some circumstances said minutes would not be made available for up to one full year from the date of the meeting, “with any necessary redactions to protect any proprietary or sensitive information.” So any discussions and decisions made at such meetings would remain secret long after votes were cast and funds were allocated.

  In short, we would have an un-transparent, Big Government–Big Finance star chamber allocating tens of billions of dollars (of taxpayers’ money the U.S. does not have and cannot afford). Such a national infrastructure bank, by any name, would “effectively centralize another key area of our economy, namely infrastructure, into a government-run enterprise that mostly benefits the private capital of the global elite,” Patrick Wood wrote in the August Corporation’s Forecast and Review (September 2010).61

  Can you say crony-capitalism? No wonder Obama and the progressives are working overtime to get some kind of New Deal scheme for a national infrastructure bank enacted.