US P3 Forum 2011: Politicians Pitch NIB, but P3 Industry is Still Skeptical

By Vince Calio

The US P3 industry liked the idea of a National Infrastructure Bank (NIB), but expressed doubts as it heard pitches from Obama Administration officials and Congressional representatives over the four proposals for a bank that have been submitted. That was the sentiment during the two-day Seventh Annual US P3 Infrastructure Forum organized by InfraAmericas in New York City last week.

Heidi Crebo-Redicker, International Finance and Economics Chief for the Senate Foreign Relations Committee, said during one of the panel discussions that the federal government's goal is to create a NIB that will act as a stable, flexible and self-sustaining infrastructure investment bank.

'Not a Politicized Process'
She also assured audience members that the creation of the NIB would not be a politicized process, as both Democrats and Republicans in Congress agreed that states on their own cannot afford to pay the estimated USD2.2 trillion price tag to fund all needed infrastructure projects in the US.

The Senate has two proposals, including one authored by Senators John Kerry (D-MA), Kay Bailey Hutchison (R-TX) and Mark Warner (D-VA) called the Building and Upgrading Infrastructure for Long-Term Development (BUILD) Act, which would create the American Infrastructure Financing Agency (AIFA). The Obama Administration also plans to propose the creation of a NIB in next year's budget. The Obama NIB would create an independent entity in the US Department of Transportation (US DOT) and could receive up to USD30bn in funding.

Strong Credit Quality
Crebo-Redicker added that the NIB would be run by professionals with strong credit skills and, among others, make subordinated loans that carry limited spreads. "This will be self-sustaining, and it won't be in the business of giving grants. The credit quality of the loans will create the self-sustainability."

She emphasized that the purpose of the NIB would be to complement, not compete, with banks seeking to give out loans and issue bonds for infrastructure. She also said that the NIB should not be subject to appropriations. "The NIB will be a sound bank structure that will be run by professionals with strong credit skills and use a prudent credit system, so that it will not be an institution like Fannie [Mae] or Freddie [Mac]."

Still Wary After Bailout
In 2009, the federal government bailed out both Federal home loan institutions in a move that cost US taxpayers USD317bn. The bailout was part of the USD700bn bailout of US investment banks that had over-leveraged themselves in the sub-prime mortgage market, as well as the creation of the Troubled Asset Relief Program (TARP).

Crebo-Redicker told InfraAmericas that the new bank would have built in safe-guards against another taxpayer funded bail out, adding that it would be subject to an annual audit by an independent risk management firm, and that all of its portfolio must be investment grade within five years of its creation.

Separate from TIFIA
Both Crebo-Redicker and Regina S. McElroy, Director of the Office of Innovative Program Delivery within the Federal Highway Administration, said that the NIB would serve to compliment the TIFIA program, and that the NIB would serve as a "one-stop shop" for states and municipalities seeking federal money for infrastructure projects.

One panelist said that the NIB would serve a broader range of projects, including non-surface transportation projects, and use the language in the TIFIA program when selecting projects to fund.
McElroy said during her presentation that TIFIA will benefit. Currently, Congress is considering a proposal that would increase loans, loan guarantees and lines of credit to 49% of eligible project costs from 33%. McElroy also added that TIFIA will focus more heavily on its TIGER grant program. Under draft reauthorization legislation, issued May 25, and known as Moving Ahead for Progress in the 21st Century, or MAP-21, the TIFIA program would be funded at USD1bn per year.

P3 Industry is Doubtful
One delegate said that a NIB could provide the funding needed to finally push through deals, but had doubts. "It's very hard to believe that the creation of a bank that size will not be politicized," said one audience member, who also pointed out that banks were privatized specifically because the First Bank of the US, chartered in 1791, was going bankrupt. "I don't think that the Republicans will go for another national bank."

Another delegate said that the panelists did not draw a clear enough distinction between a NIB and the TIFIA program. "I still have the same question that I had [before the beginning of the panel discussion]. What will be the difference between the NIB and TIFIA?"

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