Hagel-Dodd bill to fix infrastructure a limited vision of the task

At least one candidate and one almost-was candidate for president in 2008 believe that the United States cannot afford — through federal funding — to pay for desperately needed repairs to 160,000 bridges nationwide and other just-as-critical infrastructure needs. They want to privatize much of it, although they label the effort a “partnership.”

Sen. Christopher Dodd (D-Conn.) and Sen. Chuck Hagel (R-Neb.) appeared on CNN’s The Situation Room Thursday to push their National Infrastructure Bank Act of 2007 proposal. The bill leans heavily on research conducted by the Center for Strategic and International Studies, resulting in the center’s “Guiding Principles for Strengthening America’s Infrastructure.”

Sens. Dodd and Hagel told host Wolf Blitzer that the nation’s infrastructure issues are so dire that the federal government cannot financially resolve them on its own.

That isn’t necessarily true. What they propose is a political choice. The federal government, through presidential and congressional leadership, has sufficient ability to do resolve infrastructure issues if it chooses to.

From their CNN interview [emphasis added]:

DODD: … What we’re trying to do, Chuck and I, is not only identify the problem, but how do you come up with a unique and special kind of way to fund a lot of this? Because, frankly, through the appropriation process and earmarking, you can’t begin to deal…
HAGEL: Well, the first thing that we must address, like any problem, Wolf, is accepting the reality of what’s out there. And that is going to require tens of billions, really hundreds of billions of dollars, in funding.

And what we have come up with is an idea that’s pretty novel. And that is, knowing and realizing that the federal government can’t possibly find all the funding required, is to really leverage private- sector moneys with public-sector credit, and through this infrastructure bank and through tax credit, longtime — and long-term bonds.

And we think it makes sense. We worked with the Wall Street people over the last two years on this. We know we’re going to have to find the funding to address these big issues. And it’s not just bridges and roads. It’s water systems. It’s — it’s every element of our infrastructure. [See full transcript of interview.]

In an earlier S&R post, Sam Smith argues that the cost of needed repairs to the nation’s bridges, estimated at $188 billion, could be paid for by what is currently being spent on the war in Iraq. That war was — is — a political choice. For the economists among us, that war represents opportunity cost. Money being spent (and American children’s lives being lost) on chasing terrorists in the wrong country for five years could pay to repair bridges and much more. That’s a choice. And it’s not just President Bush’s choice. Past administrations going back to President Nixon made choices as well that left the nation’s infrastructure in the life-theatening, economy-costing condition it’s in today.

Sens. Hagel and Dodd want to bring in private money and pair it with public money to fix everything. Their bill, according to their joint press release, would “create an independent national bank that would identify, evaluate and help finance infrastructure projects of substantial regional and national significance. Infrastructure projects under the Bank’s jurisdiction would include publicly-owned mass transit systems, roads, bridges, drinking water and wastewater systems, and housing properties.”

Admittedly, the infrastructure is woeful. Say Sens. Dodd and Hagel:

According to the American Society of Civil Engineers, the current condition of our nation’s major infrastructure system earns a grade point average of D. The average age of drinking water and wastewater systems range in age from 50 to 100 years in age. According to the Texas Transportation Institute, the average traveler is delayed 51.5 hours in the nation’s 20 largest metropolitan areas. The delays range from 93 hours in Los Angeles to 14 hours in Pittsburgh. Combined these delays waste 1.78 billion gallons of fuel each year and waste almost $50.3 billion in congestion costs.

But this is their proposed solution: “a new system through which the federal government can finance infrastructure projects by leveraging private and public capital to fund large projects that are vital to our country.” [emphasis added]

Egads, no. Defeat this bill. Don’t add another bureaucracy to a federal government that has proved it cannot, at the moment, address even emergency relief and aid in time of crisis (FEMA? Katrina?). Make the political choice to fix the federal government’s ability to tackle public problems. Don’t erode public control over public infrastructure, as is happening through the increasing sales of public works, such as toll roads, bridges and airports, originally built with public money.

As the BusinessWeek story points out, public works privatization has become big business, emerging as an “asset class” with investment banks touting new “infrastructure funds.” Says BW: “Investors can’t get in fast enough. They recently deluged Goldman Sachs with $6.5 billion for its new infrastructure fund, more than twice the $3 billion it was seeking. ”

And the CSIS study? Included as study principals besides Sens. Dodd and Hagel were:

• Kenneth M. Duberstein, whose resumé includes chief of staff for President Reagan, trustee emeritus at the conservative think tank The Hudson Institute, vice president of governmental relations firm Timmons & Company (which earned $65,468,000 in lobbying fees from 1998-2006), and principal of The Duberstein Group, which took in $17,047,750 in lobbying fees from 1998-2004.

• Felix G. Rohatyn, who has been managing director of investment bank Lazard Frères (and who restructured New York City’s debt in the ’70s to resolve its fiscal woes) and an adviser to global investment bank Lehman Brothers, whose holding arm was fined $500,000 as a settlement for ”failing to reasonably supervise trading” in a stock at the close of trading on Dec. 11, 2002; fined $400,000 for the “submission of inaccurate monthly reports of short positions in securities listed on the NYSE”; fined $2.5 million by the SEC in August 2003 for failing to supervise a rogue stock broker; and was one of 10 Wall Street Firms — Salomon Smith Barney, Merrill Lynch, Credit Suisse First Boston, Morgan Stanley, Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Lehman Brothers, US Bancorp Piper Jaffray, UBS Warburg (UBS Paine Webber) — ordered to pay out at least $1.4 billion in fines and undertake business reforms in April 2003. Lehman’s share was $80 million.

• Frederick Whittemore, advisory director of financial services and investment asset management firm Morgan Stanley, which in December 2002 was fined $1.65 million and in April 2003 agreed to a separate $125 million securities fraud settlement; which received “the biggest fine [$25 million] in the history of the New York Stock Exchange for failing to send out prospectuses out to people who bought securities”; which settled for $15 million in February 2006 a charge of failing to save e-mails; which in August 2005 paid $1.5 million in fines and $4.6 million in restitution to investors for the violations; and which was fined $10 million in June 2006 for a “systemic breakdown” in how the firm controlled inside information.

• Governors Rick Perry of Texas, Tom Vilsack of Iowa and Arnold Schwarzenegger of California, former Nebraska Sen. Bob Kerrey and former New Hampshire Sen. Warren Rudman.

• John C. Whitehead of the Lower Manhattan Development Council, a joint New York state-New York City corporation charged with oversight of Lower Manhattan’s recovery from the Sept. 11, 2001, terrorist attacks, an enterprise that has not been without financial, artistic and political controversy.

The report these kind folks wrote contains this critical line: Resources for infrastructure investments should be more closely aligned with the benefits experienced by the users who enjoy them. And this one: Users should pay a greater portion of infrastructure costs; the extent to which users are prepared to pay for the services they use is ultimately the best test of project viability. And this code phrase: user cost recovery.

Think back 25 years to the Reagan administration. User fees. Revenue enhancements. These were tax hikes linguistically disguised. If the Dodd-Hagel bill has been hatched through the work of a think tank committee that quacks like a fiscally conservative duck, then the bill must be a fiscally conservative duck. This study, and the resulting bill, is based on a narrowly framed ideology. It should not be.

The public infrastructure of the United States should remain a public responsibility. That bloodstream of roads, bridges, waterways, water systems et al. is a common enterprise to “promote the general welfare” as ordained in the preamble of the Constitution. We all use it; we all should shoulder the burden of paying for it.

I can’t think of a costlier or more boondoggle-prone enterprise than a public-private partnership that gets to decide what gets fixed first, by whom and how paid for. The federal government isn’t perfect, but wiser political choices ought to be made by the people we elect to best serve the public’s interest. The Dodd-Hagel bill is not that best choice.

This bill also presumes that the only issues at hand are financial. A public works effort of this magnitude should address, among others, environmental, social justice and dislocation, and federal-state relationship issues. Rebuilding how the nation gets goods and services and people from here to there is chance to undo mistakes made long ago and to redefine what kind of nation this is.

Will this effort to repair our infrastructure be one of exploitation or stewardship? Will it be principled by money or people? Will it leave the nation stale or vibrant? Will it demean us as selfish or teach us to be generous? Will the leadership of this effort stress a corporate or cooperative mindset? Will it be driven by ideology or vision?

The repairs of the nation’s infrastructure will become a telling test of our government, of our concept of ourselves as citizens and the extent to which moneyed special interests control both.

xpost: 5th Estate

11 replies »

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  2. I know you mean those questions at the end to be rhetorical, but the answer to them tells us what we need to think – and agitate about:

    Will this effort to repair our infrastructure be one of exploitation or stewardship? Exploitation. This is the “Iraqing” of America’s infrastructure. It’ll be all about sweetheart deals and asshole buddies making each other rich…

    Will it be principled by money or people? This is facetious, right, Denny? $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

    Will it leave the nation stale or vibrant? It’ll turn us into just another country where bribery of officials is required to do anything….

    Will it demean us as selfish or teach us to be generous? We are already selfish – that’s why getting people to pony up taxes is so unpleasant for pols. If we can rise above that – no, wait – hahahahahahahahahah….

    Will the leadership of this effort stress a corporate or cooperative mindset? Are you kidding me? In a country where Calvin Coolidge’s “The business of America is business” isn’t a quote – it’s a religious tenet…?

    Will it be driven by ideology or vision? Uh, didn’t you already answer this one, Denny?

    They must be stopped NOW. This is the corporatocracy on our doorstep. But given the social/political intelligence of most “citizens,” I despair of our doing it….

  3. So, you actually think if we leave Iraq and Afghanistan, all the money from that would be approved to go to rebuilding the country’s infastructure? Are you being sarcastic when you imply that? There is no possible way Congress would ever approve the amount of money needed for such a project because they would have no clue where to find the money. Why don’t you just ask for a 75% income tax? Yes, the plan leads to slightly bigger government, but leaving this one to the states, or even just giving them the money to do as they see fit, c’mon, can we really believe they could get the job done?

  4. Like I said, JPM, this is about political choices.

    President Kennedy made the political choice to commit the nation to putting a man on the moon and returning himself for about $41 billion (in today’s dollars). The federal government did a pretty good job with that money.

    You’re probably correct in saying that Congress would never approve the necessary funding … but that’s a political choice, and I’ll vote against those who make that (to me) wrong choice.

  5. Granted that if we didn’t waste hundreds of millions of dollars in Iraq it wouldn’t be likely to be spent on repairing our infrastructure. But we would still have a massive budget surplus allowing no one to claim we couldn’t afford these much needed repairs.

    This administration has brazenly lavished billions on their contributors from the energy industry, the military industrial complex and elsewhere almost universally over paying for under-performance and non-performance. Now claiming we can’t afford infrastructure repairs, universal health care and the like the Bush administration wants to privatize services formerly provided by the Federal government. Who will provide these services? Why the very same people Bush, Cheney and friends allowed to rip us off post-Katrina, in Iraq, in Afghanistan, for Homeland Security recruitment and screening, Medicare Prescription Drug Benefits, etc. We’re now supposed to believe that now they will the savings onto us? Please!


  6. Hagel-Dodd is not “a unique and special kind of way to fund” anything. It is little more than yet another reincarnation of the unfunded mandate. It is a concept as old as The Constitution demanding that states bear the burden of election costs without any assistance from the national government.

    What makes this type of legislation so devastating in the current scheme of things is the potential for inserting a profit-seeking middleman into the design. The effect is not all that dissimilar from having a government in which bribery is rampant.

    Profit-making in government is another form of inefficiency.

  7. I don’t think even the Chinese will fall for the old I have a bridge to sell you thing. Then again they have bought over $500 billion in mortgage backed securities from the bowels of Fannie Mae and Freddie Mac who were happy as could be to find a sucker for this quickly deteriorating class of financial assets.