This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we explain some of the candidates' policy proposals that affect the federal budget.
This week, former Secretary of State and Democratic Presidential candidate Hillary Clinton released her infrastructure plan that proposes to invest $275 billion over five years in a broad range of projects including highway, rail, sea, air, and broadband expansion. This plan would directly invest $250 billion in projects and would provide $25 billion in seed money to create a National Infrastructure Bank. She also pledges to ensure taxpayer dollars stretch as far as possible by streamlining processes, promoting innovation, and encouraging private investment in American infrastructure. Clinton intends to fully pay for this plan with revenue-positive business tax reforms, although she doesn’t offer additional specifics on the tax reform proposal.
National Infrastructure Bank and Build American Bonds
Since the 1980s, various iterations of a National Infrastructure Bank have been proposed to encourage investment in infrastructure projects. This federally-created bank would offer credit assistance to state and local governments as well as private investors in the form of loans and loan guarantees at below-market rates to be used exclusively for infrastructure. State and local governments currently sell tax-exempt municipal bonds for infrastructure projects that are appealing for investors with high marginal tax rates but don’t attract investors who are exempt from federal income tax like international investors, pension funds, and endowments. With federal financing, tax-exempt entities may be more willing to make equity or debt investments in infrastructure.
Clinton’s plan doesn’t offer much detail about how her bank would be funded or how it would be structured. We do know that the bank would receive $25 billion in seed money to issue loans, loan guarantees, and other forms of credit, and would provide up to $225 billion in additional financing. Presumably, this additional $225 billion would come from private and state/local investment in infrastructure projects. This proposal appears to be similar to, albeit larger than, a proposal from President Obama to create a federal infrastructure bank with $10 billion in startup capital. The President’s plan would require that all government-issued loans be matched by the private sector or local governments to cover at least half of all project costs; it is not clear whether there would be a matching component in Secretary Clinton’s plan.
Secretary Clinton would also restore the now-expired Build America Bonds (BABs) and charge the new infrastructure bank with administering them. BABs were created the American Recovery and Reinvestment Act of 2009 that offered state and local governments a direct 35 percent subsidy on the borrowing cost of taxable bonds in lieu of the traditional tax-exempt bonds, the goal being to expand infrastructure investment by attracting private capital. If designed in the same way as the original BABs, we estimate this would cost about $20 billion over ten years.