One big problem, three acts

With three bills currently in Congress – one in the House of Representatives, two in the Senate – aimed at solving the country’s infrastructure deficit through innovative funding options, it seems US lawmakers are finally realising that something needs to be done.

“Although Congress will stay polarised, they are increasingly going to find areas they can agree on; infrastructure is the first such area,” notes John Ryan, managing director of Greengate, a Washington DC-based financial advisory firm specialising in infrastructure and project finance. “And that really underscores the momentum of these bills.”

In January, Senator Michael Bennet, a Colorado Democrat, introduced the Partnership to Build America Act, a companion bill to the one previously introduced in the House of Representatives by Congressman John Delaney last May.

The concept of both bills is essentially the same. They both provide for the creation of a $50 billion infrastructure fund that would be capitalised up front through the sale of 50-year bonds.

To raise the capital, the Partnership to Build America Act includes an incentive for US corporations to repatriate a portion of their foreign earnings tax-free for every dollar they invest in the bonds. Both versions of the bill would provide loans or loan guarantees for projects in the transportation, energy, water/wastewater, communications, and education sectors.

However, the Senate and House versions also contain key differences.

“My biggest concern about Delaney’s bill is that it would only provide loans directly to government entities,” says Bob Poole, director of transportation policy and the Searle Freedom Trust Transportation Fellow at the Reason Foundation, a Washington DC-based public policy think tank.

“Given that part of his stated objective is to increase the use of P3s [public-private partnerships], that seemed like a strange way to go about doing it,” he says.

The Senate’s Partnership to Build America Act is viewed as more favourable for P3s because it allows loans to be made directly to P3 developers. It also increases the amount of capital that can be allocated to P3s to 35 percent compared with 25 percent in the Delaney bill.

Governance is another area of divergence between the two.

Whereas Delaney’s bill allows seven of the fund’s 11-member board of trustees to be appointed by the seven entities purchasing the largest amount of bonds, the Senate version provides for all nine members to be nominated by the Senate and the House.

Specifically, the Speaker and the Minority Leader of the House and the Majority and Minority Leader of the Senate will each submit a list of five nominees. The president will then choose two from each list and will be able to select the ninth member at will.

By not allowing private entities contributing to the fund to nominate board members, the Senate bill avoids any potential conflict of interest, a Senate Democratic aide told Infrastructure Investor.

Both bills have bipartisan support. The Senate version is even co-sponsored by Virginia Democrat Mark Warner, who last November introduced the Building and Renewing Infrastructure for Development and Growth in Employment (Bridge) Act.

While the Bridge Act also addresses the issue of financing infrastructure, its approach is fundamentally different from the other two bills.

The Warner bill, which is also narrower in scope – it excludes communications and schools – would create the Infrastructure Finance Authority that would receive an initial $10 billion in funding from the government. It would later become self-sustaining over time by establishing fees for loans and loan guarantees.

Whether a combined version of the Partnership to Build America Act and the Bridge Act become law, remains to be seen.

But, as Ryan points out: “There’s not one answer to such a big problem.”