Creativity in Financing Infrastructure Investment

By March 10, 2010Infrastructure

Harold Meyerson of The Washington Post, the Post’s left-wing op-ed contributor, argues today on behalf of a funding plan to expedite construction of Los Angeles’ electric rail system, already financed by a half-cent increase in the sales tax voters approved in 2008. Mayor Antonio Villaraigosa  now wants federal loans — repaid by the existing funding stream — to speed up the $40 billion in spending originally scheduled over three decades. From “The road to America’s economic recovery starts in L.A.“:

If the work could be accomplished in 10 years, as the mayor now proposes, it would engender more than 150,000 construction jobs smack in the part of the country that is home to more unemployed construction workers than any other. It would also save nearly $4 billion by avoiding the presumably higher costs of labor and materials in, say, 2030.

What Los Angeles needs are bonds and loans to provide now the funds that it would repay with its sales tax revenue over time. Investment banks are likely to put up some of the money, but the city has found it necessary to seek a guarantee from Washington as well.

Meyerson has a good case. Traditional funding sources like the federal/state fuels tax are less capable of raising enough money to maintain and expand transportation infrastructure. The National Association of Manufacturers supports alternative approaches such as Build America Bonds that lowers borrowing costs for states and municipalities. (See the Feb. 4 trade association letter.)

Meyerson makes a credible argument in support of Mayor Villaraigosa’s proposal and for the economic value of infrastructure investment. If there’s any caveat, it’s that California and many of its municipalities are fiscal basket cases (often controlled by public sector unions) that no smart private-sector investor would lend money to. So, the federal government becomes the lender of last resort, and those decisions are subject to political pressure separate from the financial considerations.  

UPDATE (10:55 a.m.): Yes, this is the kind of thing that makes one reluctant to enter into any deal with the City of Los Angeles:

Many council votes are routine, and members could argue that time spent with lobbyists, mayoral aides or even reporters is more valuable than responding to repeated roll calls. But few make that case. A spotty voting record can easily become a political liability.

So instead of being recorded as absent, the council members have a technological fix: The chamber’s voting software is set to automatically register each of the 15 lawmakers as a “yes” unless members deliberately press a button to vote “no.”

(Hat tip: Iain Murray)

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