The last thing America needs right now is another government agency. Apparently, Sen. John Kerry, Massachusetts Democrat, doesn't agree. On Tuesday, he announced his intention to establish the American Infrastructure Financing Authority (AIFA). President Obama has championed the idea as an "innovative" solution to our transportation and energy problems. This bad idea was actually lifted directly out of the New Deal playbook.
Mr. Kerry's plan would spend $10 billion in taxpayer funds to create an infrastructure bank that offers loans and loan guarantees for transportation, energy and water projects deemed to be of public benefit. The idea is to leverage the taxpayer cash into $640 billion worth of investment in infrastructure. That extra $630 billion doesn't come from thin air; ultimately, it would be extracted from the taxpayers' pockets. "We will still need public funding, or if we use private dollars, they will still have to be paid back with tolls or something else," said Sen. Mark Warner, Virginia Democrat, at a Tuesday press conference in support of the bill.
Individuals would pay those tolls and extra charges to construct projects deemed unsuitable by private investment banks. Traditionally, financial firms that answer to shareholders only approve the deals that are most likely to succeed. Mr. Kerry's agency would be set up to give the necessary edge for marginal and uneconomic boondoggles. This reduces the amount of capital available to more promising endeavors. On the other hand, politically correct monetary sinkholes like high-speed rail, windmills and solar panels would thrive.
In theory, this bank would eventually pay for itself through fees charged for its loan services, but it will never operate like a real company. The agency's board of directors is appointed by the president with the majority reflecting the beliefs of the party occupying the White House. It will be staffed by civil servants beholden to big government for their paychecks. Those on the public dole have never been particularly adept at protecting the interests of the people who pay those plush salaries.
Mr. Kerry asserted that because the deals would be funded from tolls and other charges, "The chances of this failing are really miniscule." Yet the risk is substantial as toll roads have a long history of failure. The very first High-Occupancy Toll project, the 91 Express Lanes in Orange County, Calif., required a $135 million bailout in 2002. Greenville, S.C.'s Southern Connector went bust in June. Closer to home, Richmond's Pocahontas Parkway required a state bailout. In Australia, three multibillion-dollar tolling schemes went bankrupt in the past three years.
This is relevant because the agency's "leverage" comes from risking the full faith and credit of the U.S. government against the integrity of these projects. This is an arrangement developed by President Franklin D. Roosevelt, who created the government-sponsored enterprises that became Fannie Mae and Freddie Mac. We know how well that turned out, with taxpayers facing a bill of up to $250 billion to clean up the mess.
Mr. Kerry has not yet introduced the actual legislation, as AFL-CIO President Richard Trumka said he is still negotiating to ensure the bill will "provide strong wage protections for workers." In other words, these infrastructure projects will cost a bundle because they will also pad the coffers of union bosses like Mr. Trumka. That's one more sign that the taxpayers would be the biggest losers if Congress decides that the best way to "put America back to work" is to create another sprawling bureaucracy.
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