Gary Sasse: Can a State Infrastructure Bank Help Rebuild RI?
Wednesday, March 26, 2014
The Ocean State suffers from a deficiency of available capital to improve its infrastructure. World class public infrastructure is essential to sustain the development and growth of businesses at scale. After years of neglect Rhode Island’s roads, bridges, public buildings and schools are in dire need of repair and up-dating. Concurrently, the State’s per capita tax-supported debt is the tenth highest in the nation.
The good news is that today infrastructure modernization is at the front and center of Rhode Island’s political dialogue. Gubernatorial candidates and other office seekers are making serious proposals to improve state and local infrastructure. A bi-partisan group of state legislators has called for the creation of a transportation infrastructure fund. RI-CAN, an educational advocacy organization, has proposed options to deal with school infrastructure. The RebuildRI Foundation for Policy Research has been partnering with the Hassenfeld Institute at Bryant University and others to organize a best practice symposium on infrastructure financing.
State Infrastructure Banks
Central to the conversation of infrastructure has been the suggestion to create some type of infrastructure bank or fund. By way of explanation, a state infrastructure bank (SIB) is usually a revolving loan fund used for the financing and construction of public infrastructure. Operating similar to other types of financial institutions, SIBs use their initial capitalization and ongoing revenue to offer loans and credit enhancements in a number of different ways to public sponsors of transportation, wastewater, and energy projects.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTBottom line, traditional SIBs serve as conduits through which public dollars are channeled to enhance the financing of capital projects. Evidence suggests that the success and effectiveness of SIBs has been mixed.
The Brooking-Rockefeller Project on State and Metropolitan Innovation found that since the 1990’s SIB type agencies have provided billions in financing for more than 1000 projects. “However, this activity is highly concentrated in just a few states as many SIBs are underutilized or inactive.” As Rhode Island debates the creation of an infrastructure bank it will be important to understand why so many have underperformed.
Innovative infrastructure programs
More recently new and innovative ways to leverage private investment in transformative infrastructure projects have been developed. For these innovative approaches to achieve their objective the Brookings Institution says they must be designed to ensure: 1) long-term sustainability of revolving infrastructure funds, 2) partnerships with private and public interests and 3) alignment with federal and state project responsibilities. Hopefully the candidates will keep these lessons in mind when discussing innovative infrastructure financing.
Chicago Mayor Rahm Emanuel has championed the creation of the Chicago Investment Trust. This trust vehicle is different from a conventional SIB. An investment trust is a more sophisticated tool for fostering private-public partnerships to finance needed infrastructure.
Funds from an infrastructure trust typically would be invested in projects where there is a high probably of attracting private capital capable of leveraging taxpayer contributions. If successful an investment trust would allow a city or state to tap private resources to offset increasing taxes and public debt. This is something that is sorely needed in Rhode Island.
Former President Bill Clinton believes that investment trusts are an innovative way to attract capital for infrastructure programs without imposing additional burdens on state and local governments. The Clinton Global Initiative has joined with the U.S. Conference of Mayors to explore ways to utilize innovative financing to entice private capital to invest in public infrastructure.
While the Chicago Investment Trust has been acclaimed as a financing tool that could transform the way state and local governments build new infrastructure, it is not without its critics. An article that appeared in Governing found that “Despite the early promise, the Chicago Investment trust still hasn’t finalized financing on even one project.” Chicago’s Better Government Association said that the Trust lacked an overarching goal and looked to be a “scattershot”.
It would be premature to reach any conclusions about the Chicago Investment Trust. Establishing bold and innovative solutions to problems is always subject to unanticipated challenges. I believe that if properly designed, investment trusts have the potential to revolutionize the way state and local governments build new projects.
Must-answer questions
Nevertheless, there may be morale in this story for the 2014 Rhode Island gubernatorial campaign. Campaign promises to establish SIBs should be taken with a “grain of salt” if the candidates do not provide credible and specific answers to the following question.
1) How will the SIB or innovative financing scheme be capitalized? Will it require a tax or fee increase?
2) What types of projects and programs will be financed by the SIB?
3) Who will make the investment decisions and be responsible for the care and control of the SIB? Will it be a state agency, a quasi-independent organization or a public-private partnership?
4) How will the SIB interface with other state and federal programs?
Innovative financing of public infrastructure may be the wave of the future, but the devil is in the details.
Gary Sasse is Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. He is the former Executive Director Rhode Island Public Expenditure and Director of the Departments of Administration and Revenue.
Related Slideshow: 7 Strategies for Rhode Island Economic Development in 2014
What will it take to move the Rhode Island economy forward in 2014? GoLocal talked with elected officials, candidates, and leaders for their economic development plans in the coming year.
Below are key elements of the economic priorities for Governor Lincoln Chafee, Speaker of the House Gordon Fox, Senate President M. Teresa Paiva-Weed, House Minority Leader Brian Newberry, gubernatorial hopefuls General Treasurer Gina Raimondo and Ken Block, and RI Center for Freedom and Prosperity's Mike Stenhouse.
Related Articles
- Gary Sasse: Focusing on Effective State Leadership
- Gary Sasse: Rhode Island’s Tale of Two Crises
- Gary Sasse: Grading the Governor’s Fiscal Stewardship
- Gary Sasse: Rudderless in the Ocean State
- Gary Sasse: Gubernatorial Leadership—The Defining Issue in 2014
- Guest MINDSETTER™ Gary Sasse: Connecting the Dots in the Ocean State
- Gary Sasse: Is It Time For Truth In Taxation?
- PowerPlayer: Gary Sasse
- Gary Sasse: Is RI’s Tax Climate Really The 5th Worst?
- Gary Sasse: 3 Ways to Restore Confidence in RI’s Government
- Gary Sasse: Is a Constitutional Convention Really Needed?
- Gary Sasse: Adequate Education: The Civil Rights Issue of Our Time
- Gary Sasse: RI’s Leaders Need To Connect The Dots
- Gary Sasse: Deep in Debt in the Ocean State
- Gary Sasse: Rekindling the American Dream in Rhode Island