Obama's proposal of "National Infrastructure Bank"

The Chicago Sun-Times (Pallasch, 02/13) quotes Obama's big spending plans:

“I’m proposing a National Infrastructure Reinvestment Bank that will invest $60 billion over 10 years,” Obama said. “This investment will multiply into almost half a trillion dollars of additional infrastructure spending and generate nearly two million new jobs — many of them in the construction industry that’s been hard hit by this housing crisis.”

For more about the proposal, see the post on professor David Levinson's The Transportationist.

It is good to know that the proposed "Infrastructure Reinvestment Bank" will inject additional funding (through bonds) to the much-needed transportation improvements. The key question, however, is about "the repayment of those bonds."

Although the plan claims to "align the financing of infrastructure investments with the benefits they create," but it is not truly a "bank" that can be "self-financing" through market mechanisms. Instead, the financing package will be "backed by the full faith and credit of the Federal Government" -- so it is essentially a general-obligation bond to be paid back from the general fund budget. Financially, it is equivalent for the federal government to incur yet an additional amount of $60 billion deficit that is guaranteed to be balanced in 50 years. The fact that the repayment would be in the format of "tax credits" rather than interests does not make any true difference for both investors (govt bond interests are tax exempt anyway) or the federal government (tax credit is simply a different form of expenditure like interest payment).

Some may like the proposal as it moves from pay-as-you-go financing to debt-financing and become a de facto national capital infrastructure budget. But the arguable merit of a national capital budget is further complicated by the incontrollable federal deficit that looks to go worse in the foreseeable future.