Senators unveil plan for $10B infrastructure bank

Written by jrood

At a press conference, Senators John Kerry (D-Mass.), Kay Bailey Hutchison (R-Texas), and Mark R. Warner (D-Va.), announced legislation to create an infrastructure bank that would help close America's widening infrastructure-funding gap, create millions of American jobs in the next decade and make the United States more competitive in the 21st century. "This is a bi-partisan moment to make a once bi-partisan issue bi-partisan once again," said Sen. Kerry. "Democrats and Republicans, business and labor, are now united to create an American infrastructure bank to leverage private investment, make America the world's builders once again and close the deficit in our infrastructure investments. The BUILD Act will create good jobs, strengthen our competitiveness, and do more with less. Most of all, this bill breaks a partisan stalemate to get America back in the game. When you've got a Massachusetts Democrat, a Texas Republican, the Chamber of Commerce and the AFL-CIO preaching from the same hymnal, you'll find a sweet spot that can translate into a major legislative step forward." A press release from Sen. Kerry's office stated, "The Building and Upgrading Infrastructure for Long-Term Development Act would establish an American Infrastructure Financing Authority - a kind of infrastructure bank - to complement our existing infrastructure funding. This institution, which would provide loans and loan guarantees, would be both fiscally responsible and robust enough to address America's needs." KEY PROVISIONS OF THE BUILD ACT Independent, non-partisan operations • While AIFA would be a government-owned entity, it would not be controlled by any federal agency and instead would operate independently. It would be led by a Board of Directors with seven voting members and a chief executive officer. • No more than four voting members of the board could be from the same political party. • Board members would have to be U.S. citizens with significant expertise either in the management of a relevant financial institution or in the financing, development or operation of infrastructure projects. Strong oversight by Congress and the Federal government • The Board and CEO would be appointed by the President, with one board member designated as chairperson. All candidates would have to be confirmed with the advice and consent of the Senate. • The Majority Leader of the Senate, the Minority Leader of the Senate, the Speaker of the House of Representatives and the Minority Leader of the House of Representatives would each recommend candidates. • An Inspector General would oversee AIFA's operations, an independent auditor would review AIFA's books and AIFA would submit an assessment of the risks of its portfolio, prepared by an independent source. • The General Accounting Office would also conduct an evaluation of AIFA and submit a report to Congress no later than five years after the date of enactment. Broad eligibility for infrastructure • Eligible projects would include transportation infrastructure; water infrastructure; and energy infrastructure. • In general, projects would have to be at least $100 million in size and be of national or regional significance. • Projects would have a clear public benefit, meet rigorous economic, technical and environmental standards, and be backed by a dedicated revenue stream. • Geographic, sector, and size considerations would also be weighed. Unbiased project selection • The CEO would be responsible, in consultation with professional staff, for reviewing and preparing the eligible project applications. • The Board would be responsible for the ultimate approval or disapproval of the eligible projects that are submitted to the Board by the Chief Executive Officer and staff. Strong rural protections • Rural projects would only need to be $25 million in size. • Five percent of the initial funding of AIFA would be dedicated to helping rural projects. • AIFA would include an Office of Rural Assistance to provide technical assistance regarding the developing and financing of rural projects. • Projects would still have to have a clear public benefit, meet rigorous economic, technical and environmental standards and be backed by a dedicated revenue stream. Addressing market gaps for infrastructure financing • AIFA would issue loan and loan guarantees to eligible projects. • Loans issued by AIFA would use approximately the same interest rate as similar-length United States Treasury securities and would have a maturity of no longer than 35 years. • Loans and loan guarantees could be subject to additional fees or interest rate premiums based largely on the costs of the loan to the Federal government, as determined by AIFA in consultation with the Office of Management and Budget. • AIFA would finance no more than 50 percent of the total costs of the project, in order to avoid crowding out private capital. Self-sufficiency of AIFA • AIFA is set up to be self-sufficient after the first few years. • To achieve self-sufficiency, the CEO of AIFA would establish fees for loans and loan guarantees. These fees could be in the form of application fees or transaction fees, and could include an interest rate premium associated with the loan or loan guarantee. • However, AIFA would receive an initial funding of $10 billion, which would earn interest. This initial funding would be used both to offset the cost of the loans to the Federal government and to cover administrative costs. • Funding under the Act would be subject to the Federal Credit Reform Act, except that it would be exempted from the requirement that appropriations are needed for subsequent loans and loan guarantees. Additional BUILD Act provisions • The BUILD Act also addresses private activity bonds. These bonds are frequently used to finance infrastructure projects. Under current law, interest on tax-exempt private activity bonds is generally subject to the Alternative Minimum Tax. This, in turn, limits the marketability of these bonds and causes states to issue bonds at higher interest rates. This Act would extend the current exemption to bonds that are issued in 2011 or 2012.

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