Commentary by Richard Little

Let's Give Americans a Chance to Own America

Rather than adding hundreds of billions of dollars to the national debt to pay for our long-overdue infrastructure revival, perhaps the President and Congress should consider an alternative path. As this is written, public and institutional pension funds, battered by continuing double-digit stock market declines that have steepened in 2009, are looking to invest in anything that can generate stable, long-term returns on equity. At the same time, interest remains strong in finding a politically-acceptable means of addressing projected shortfalls in social security revenues. In "Not the Macquarie Model: Using U.S. Sovereign Wealth to Renew America's Civil Infrastructure," a paper prepared for America2050, I suggest that there is an "alternative path" with the capacity to supply significant additional capital for infrastructure investment while at the same time addressing the need of public pension funds and the Social Security Administration to obtain higher returns with minimal risk.

Public and institutional pension funds, individual retirement accounts, and private equity funds, together with Social Security Trust Funds could be structured to provide a reliable and sustainable funding mechanism for revenue-producing infrastructure projects and programs in the United States. Project revenues, such as highway tolls, would be used to pay returns to equity for the pension funds, other direct investors, and the Social Security Trust Fund.

There is on the order of $8-$10 trillion held in public pension systems, individual retirement accounts and the Social Security Trust Fund. Private equity funds targeted to infrastructure add several hundred billion more. Investing as little as 10 per cent of these funds as proposed here would unleash almost $1 trillion for investment in U.S. infrastructure. This would have a major beneficial impact on our physical infrastructure and add hundreds of millions of dollars to combined U.S. retirement accounts. At the same time, it would stimulate job creation and generate growth through personal savings and investment. Motorists using tolled facilities would be supporting the long-term solvency of their own retirement systems.

The U.S. Treasury Department could administer a National Infrastructure Investment Fund (NIIF) through an agency modeled on the Bureau of the Public Debt and invest in financially sound, revenue-backed projects that met pre-determined funding criteria. Investors at all levels could purchase equity stakes in U.S. infrastructure projects--large institutional and corporate investors could place significant amounts into equity pools while individual investors could purchase smaller shares appropriate to IRAs, 401k, and other individual investment plans. To minimize the inevitable political meddling, the NIIF should be managed by an independent board that would hire professional investment counselors and money managers to ensure that all investments met strict funding and performance criteria.

Of course the elephant in the room is the need for project revenues to make this work. Although we can hold endless debates about the social and moral implications of charging tolls and fees for the basic building blocks of civil society, this does not obviate the fundamental reality that projects and services must be paid for; if not directly by some or all of the users, then by the larger "public" in their stead.  There is no way to finesse this issue over the long term.  Civil infrastructure must be supported by revenue streams generated either by taxes or fees that are paid to a service provider whether public or private. By focusing on revenue-backed projects, this proposal shifts the primary source of infrastructure funding away from a tax allocation model where everyone pays regardless of usage to a more equitable model where people pay only for their actual use of the system. Unfortunately, our political process has been less than forthright with voters on this matter but now is the time to let them know that absent a move to revenue-based models or a massive increase in fuel and other taxes, necessary renewal and expansion of the nation's infrastructure systems will be long-delayed if provided at all.

This proposal will strike some as impossible to consider seriously let alone implement. I would remind them that the U.S. Government now holds major stakes in the banking, insurance, and automotive sectors. So perhaps in this time of economic and financial upheaval, a new federal role as both banker and broker in infrastructure investment is not such a radical idea. After all, when would be a better time to explore exciting new approaches that would enable Americans to actually own shares in America?

Richard G. Little is director of the Keston Institute for Public Finance and Infrastructure Policy, a non-partisan policy research center at the University of Southern California.