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S. HRG. 111–815 

INVESTING IN INFRASTRUCTURE: CREATING JOBS 

AND GROWING THE ECONOMY 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING JOB CREATION AND ECONOMIC GROWTH THROUGH 

INVESTMENT IN OUR NATION’S INFRASTRUCTURE 

SEPTEMBER 21, 2010 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

JUDD GREGG, New Hampshire 

EDWARD SILVERMAN, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

MITCHELL S. WARREN, Professional Staff Member 

LISA FRUMIN, Legislative Assistant 

SHANNON HINES, Republican Counsel 

JEFFREY M. WRASE, Republican Chief Economist 

DAWN RATLIFF, Chief Clerk 

BRETT HEWITT, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

TUESDAY, SEPTEMBER 21, 2010 

Page 

Opening statement of Senator Merkley ................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 5 

Chairman Dodd 

Prepared statement ................................................................................... 38 

Senator Johnson 

Prepared statement ................................................................................... 38 

Senator Crapo 

Prepared statement ................................................................................... 39 

WITNESSES 

John F. Kerry, Senator from the State of Massachusetts .................................... 2 

Prepared statement .......................................................................................... 39 

Roy Kienitz, Under Secretary for Policy, Department of Transportation ........... 7 

Prepared statement .......................................................................................... 41 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 63 

Alan B. Krueger, Assistant Secretary for Economic Policy and Chief Economist, Department of the Treasury ...................................................................... 9 

Prepared statement .......................................................................................... 45 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 64 

Edward G. Rendell, Governor, Commonwealth of Pennsylvania, and Cochair, 

Building America’s Future .................................................................................. 23 

Prepared statement .......................................................................................... 49 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 96 

Robert Wolf, Chairman and Chief Executive Officer, UBS Americas ................. 27 

Prepared statement .......................................................................................... 53 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 97 

Senator Vitter ............................................................................................ 100 

Donald Shubert, President, Connecticut Construction Industries Association, 

Inc. ......................................................................................................................... 29 

Prepared statement .......................................................................................... 54 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 101 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Prepared statement submitted by the California Infrastructure and Economic 

Development Bank ............................................................................................... 104 

Prepared statement submitted by the Construction Management Association 

of America ............................................................................................................. 109 

Letter submitted by the National Association of Manufacturers ........................ 112 

Letter submitted by the Association of Metropolitan Water Agencies ................ 114 

(III)

(1) 

INVESTING IN INFRASTRUCTURE: CREATING 

JOBS AND GROWING THE ECONOMY 

TUESDAY, SEPTEMBER 21, 2010 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:03 a.m., in room SD–538, Dirksen Senate Office Building, Senator Jeff Merkley, presiding. 

OPENING STATEMENT OF SENATOR JEFF MERKLEY 

Senator MERKLEY. I call to order this meeting of the Banking, 

Housing, and Urban Affairs Committee. Colleagues, thank you for 

being here for this conversation about how to finance our critical 

infrastructure needs and, in particular, the role of a potential National Infrastructure Bank in helping to finance that infrastructure. 

You have heard it before, and you will hear it again: Our Nation’s infrastructure is a state of shameful disrepair. Yet by investing in our infrastructure and providing our communities and constituents with the physical building blocks of society, we can create 

hundreds of thousands of jobs. And just as importantly, we put in 

place a critical foundation for future economic growth. 

The pipeline disaster in California 2 weeks ago now joins the I– 

35 disaster in Minnesota as yet another wake-up call alerting us 

to the state of our infrastructure. From our railroads to our water 

systems to our schools and universities, our backlog of needed 

maintenance and our failure to maintain modern infrastructure act 

as a drag on our economy. We have 4,000 dams deemed deficient. 

One in four of the Nation’s bridges are either structurally deficient 

or functionally obsolete. The EPA estimates that an investment of 

$255 billion is needed over the next 20 years to update or replace 

water and wastewater systems. We have a backlog of $78 billion 

in our public transit systems, and one in three urban and rural 

roads are in just fair, mediocre, or poor condition. 

Just as critical is this point: Right when our economy needs a 

boost in employment, maintaining that infrastructure would be a 

major source of jobs. Infrastructure projects put people to work immediately, particularly our construction sector that has been so 

hard hit. Infrastructure lays the groundwork for a strong and vibrant economy into the next generation. Our businesses cannot 

grow without a safe, reliable, and efficient transportation network, 

ready access to safe and clean water, reliable and safe delivery of 

energy. 
2 

We also know that with significant deficits to deal with, we need 

to look at innovative ways to finance this necessary investment in 

our infrastructure. One of the ideas that has been much discussed 

in recent months is the idea of a National Infrastructure Bank. 

Such a bank could make merit-based decisions to prioritize projects 

of regional and national significance. And by using tools such as 

loans and credit support and by bringing private capital into the 

market, the bank could bring new financing tools and hopefully additional financing to this area where our needs are so significant. 

I thank our witnesses for being here. We look forward to all 

three panels, but we begin today with my friend Senator John 

Kerry, who has a strong interest in the challenges of maintaining 

and expanding our infrastructure here in America, and we look forward to his comments. 

Welcome, Senator Kerry. 

STATEMENT OF JOHN F. KERRY, SENATOR FROM THE STATE 

OF MASSACHUSETTS 

Senator KERRY. Thank you very, very much, Chairman Merkley, 

and I apologize for being a moment late. I want to thank the other 

Members of the Committee. I am pleased to come back here as a 

former Member of this Committee. I think it served on it for 10 

years and sat beside Chairman Dodd and worked with Senator 

Shelby in that period of time. And I have long advocated for the 

need for us to try to address the question of America’s infrastructure. 

‘‘Infrastructure’’ is a horrible word. It is a lost word to many citizens. But when you see a bridge fall down over the Mississippi or 

you see, you know, airports clogged and our lack of adequate generation of radar and other things that we face, people begin to understand it. 

The truth is, Mr. Chairman, that we are living off our grandparents’ and parents’ responsibility, sense of responsibility. We are 

living off prior generations’ willingness to invest in America. There 

is a great book called ‘‘The Power Broker’’ about Robert Moses and 

New York, and it is a tremendous tale of how the Triborough Authority and all of the great bridges and roads that connected New 

York to Long Island and upstate New York and elsewhere provided 

for the economic development growth of that State. 

The fact is that I believe a National Infrastructure Bank is the 

essential way for our country to catch up to the enormous infrastructure deficit that we face in this country. Rising economic powers around the world, our competitors—China, India, Brazil, Mexico, other countries—are all investing in their future, and they are 

all investing in their future much more significantly than the 

United States. The truth is we are moving at our current rate toward a secondary competitive status because of our inattention to 

the infrastructure of our country. 

Now, there are a lot of ideas about the best way forward. I think 

we have to be candid in the beginning of this discussion and make 

it clear: Building infrastructure does not come on the cheap. But 

it is clear that the most efficient way that we could galvanize the 

private sector to actually provide the investment rather than a big 

Government approach is, in fact, to create an infrastructure bank 
3 

for the United States. Already, a diverse bipartisan group supports 

the idea of a National Infrastructure Bank, including the Chamber 

of Commerce, the AFL–CIO, SEIU. 

So I believe that if we create new and strong incentives for investment here in the building blocks for economic competitiveness, 

all of which are key to America remaining a great economic 

power—the roads, the bridges, the rail, aviation, other essential infrastructure. You know, countless communities—I was visiting Fall 

River, Massachusetts, the other day. They have a combined sewer 

overflow requirement by the courts. The courts have ordered it. 

They do not have the tax base, they have no ability to be able to 

build this on their own. Already, families that cannot afford it are 

paying an additional $800 for a system that the court has ordered 

that lasted over a hundred years, and they are going to be building 

it for the next hundred years. But none of that is reflected in the 

financing structure, which is all immediate and all sort of pay-asyou-go in the current budget. 

President Eisenhower recognized, when he built the National 

Highway System, that it was good to bet on American ingenuity 

and American economic capacity, and it strengthened our hand in 

the cold war. Frankly, all of our infrastructure issues, whether it 

is our grid, which is barely existent as a national grid, or our lack 

of adequate ability to move people by rail after 9/11—remember, 

the only way you could really move people was by rail for the first 

few days. The truth is that infrastructure is directly related to 

America’s economic strength, and economic strength is directly related to our projection of power on a global basis. 

Now, we are going to disagree sometimes, as we all know. We are 

seeing it well exploited in the current political context, the question 

of the appropriate size of Government. I think we all agree that a 

smaller Government is better and that you want to try to reduce 

the size of bureaucracy and so forth. And we should not get tangled 

up in the demagoguery that surrounds that issue. Americans do 

not want big Government, but I will tell you what they do want. 

They want a Government that works for them effectively. They 

want as much Government as it takes to be safe and secure on 

roads and bridges and rail and highways and air travel. And businesses want as much Government as is required to efficiently and 

cheaply move goods, products, to market. That means upgrading 

our Nation’s highway system, our rail, our maritime, our aviation, 

and modernizing our electric grid. 

Now, just to get a picture of how much we need this, Mr. Chairman, in 2008, the National Surface Transportation Policy and Revenue Study Commission called for an annual investment in our 

country in infrastructure of $250 billion a year from Federal, State, 

and local governments for the next 50 years in order to meet just 

the bottom standard of what we need to bring our infrastructure 

up to par. We are talking about staggering sums of money here, 

and it clearly reflects how much we have neglected our infrastructure, and it clearly reflects the path of deterioration that we are 

on. 

Well-functioning infrastructure is not a luxury. It is the key to 

connecting and protecting our people and to creating millions of 

middle-class jobs for American workers over the long term, though 
4 

it is not a jobs bill. That is the ancillary, sort of side benefit of 

doing this. It is a bill directly related to economic strength, directly 

related to competitive strength, and directly related to national security. It is vital to our economic future in the face of global competition. 

Quite simply, we are falling behind our main economic competitors, and the further we fall behind in this race, the harder it is 

to catch up and the easier it is for companies to decide, Well, I am 

not going to locate my company there because it costs me so much 

more to move my goods, it is so much more difficult to effect business; I am going to go somewhere where they have got a modern 

infrastructure capacity. 

China. China’s 2009 infrastructure spending is estimated to be 9 

percent of GDP, or $350 billion a year, and growing at an annual 

rate of 20 percent. China’s highway mileage is expected to surpass 

the United States’ in under 3 years. 

Europe’s infrastructure bank—they have one—the European Investment Bank, financed $350 billion in projects from just 2005 to 

2009 across Europe, across the continent, helping to modernize seaports, expand airports, build railroad lines, and reconfigure city 

centers. 

Brazil. Brazil has invested over $240 billion in their infrastructure in the past 3 years alone, with an additional $340 billion 

planned in the next 3 years. They have unveiled major initiatives 

to invest in infrastructure ahead of hosting the World Cup and the 

Olympics. And, incidentally, the infrastructure bank was a central 

part of their strategy in attracting the World Cup and the Olympics. And they are using their infrastructure bank as a key tool to 

finance this massive expansion. 

So to get back into the game, Mr. Chairman, Members of the 

Committee, we need something more than the municipal bond market system, which is already struggling to support over 80 percent 

of the infrastructure investment in the United States. A National 

Infrastructure Bank would complement existing infrastructure programs, not compete with it. This is not in lieu of the highway bill, 

not in lieu of the FAA bill and other things. It is a complement to 

it, and it is a complement that takes a small amount of public seed 

money, puts it into a revolving concept, and leverages anywhere 

from 6 to 10 times that amount of money so that you go from $25, 

$35, $40 billion of initial investment up to $600, $700, $900 billion 

of private sector stake. If done right, Mr. Chairman, this bank can 

change the playing field for our country. It would finance projects 

from high-speed rail to seaports. In today’s newspaper, there is a 

big article—I cannot remember if it is the New York Times or the 

Washington Post, but it talks about the difficulties we are having 

right now getting high-speed rail out there. And one of the reasons 

is the freight competition for dedicated track. We need to build 

dedicated track for high-speed rail. That is what they have in 

France; that is what they have in Japan and Germany and places. 

And until we get there, we are not going to have a first-rate, modern transportation system for our country. 

So I would just close by saying, you know, this can be run in an 

open, transparent manner by experienced professionals. It can have 

meaningful congressional oversight. We could even sunset it, which 
5 

is something that I have proposed, so that nobody fears that we are 

building some long-term, eternal Federal bureaucracy but, rather, 

it has a purpose, it brings us back to par, and then we figure out 

whether we are going to be a country with a capital budget or how 

we are going to proceed in the future. 

Americans have always been builders. We built the Transcontinental Railroad. We built the Panama Canal. We built the 

Interstate Highway System. We went to the Moon. But for the last 

25, 30 years now, we have lacked adequate investments in that 

building ethic, and the result is we have been without a strategic 

plan for all of that period of time, and I believe a National Infrastructure Bank and the commitment of this Congress can change 

that and put us back onto the path that President Eisenhower 

noted when he signed the Interstate Highway System and he said, 

‘‘Together, the united forces of our communication and transportation systems are dynamic elements in the very name we bear— 

United States. Without them, we would be a mere alliance of many 

separate parts.’’ 

That is the direction we have been moving in. I hope we will put 

an infrastructure bank in place, reverse the course, strengthen 

America’s competitive posture in the world, and give our citizens 

the economy and the quality of life that they deserve. 

Thank you, Mr. Chairman. 

Senator MERKLEY. Thank you very much, Senator Kerry, both for 

painting the vision of the investment we need to make in our infrastructure to serve the next generation and create jobs, but also how 

the National Infrastructure Bank would play a critical role in making that happen. So you have kicked off our hearing very well. 

Thank you. 

Senator KERRY. I appreciate it. Thank you. 

Senator MERKLEY. While our second panel is coming up, I am 

going to ask Senator Shelby if he would like to make his opening 

statement. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. Thank you for putting together this hearing. 

Today the Committee revisits the idea of a National Infrastructure Bank and the potential of infrastructure investment to create 

jobs and enhance economic growth. We have been told by many experts over the years that infrastructure spending is an ineffective 

means to stimulate the economy, although we know it is important 

on its own. 

As early as January 2008, then-CBO Director Peter Orszag testified before Congress regarding public works projects. He stated, 

‘‘Even those that are on the shelf generally cannot be undertaken 

quickly enough to provide timely stimulus to the economy.’’ But the 

nonpartisan Congressional Budget Office has told us repeatedly 

that infrastructure spending has one of the lowest bangs for the 

buck in terms of job creation, if that is what we are trying to do. 

Regardless, in early 2009, the Administration enacted, as we will 

recall, a massive stimulus program of over $800 billion with the 

promise that unemployment would not rise above 8 percent. Mr. 

Chairman, unemployment is 9.7 percent right now in my home 
6 

State of Alabama and higher than that of a lot of States. The unemployment rate nationally is 9.6 percent, well above the 8.2-percent rate when the stimulus was enacted and well above the Administration’s promise of an 8-percent ceiling. This equates to 2.5 

million payroll jobs lost since the stimulus was enacted. 

The President has promised to create jobs. The only thing his 

policies have produced, in my opinion, is more Government, more 

debt, more regulation, and more unemployment. Americans are 

tired of the ‘‘borrow now and pay later’’ mentality of this Administration and its allies in Congress, and they want it to end. 

I agree that investing in our infrastructure is important to our 

Nation. I think we all do that. It is a long-term proposition and one 

that must be considered carefully and constructed thoughtfully. 

Debt-funded infrastructure spending is not and never will be the 

most effective way to deal with shorter-term economic difficulties. 

Nor do I believe that we should create under the guise of innovation in infrastructure finance a new GSE-like structure where taxpayers are put on the hook for the risk of others. 

We already have many ways of funding infrastructure projects. 

While they may not be perfect, most involve the process of appropriating funds through this Congress. I understand that it may not 

be as efficient to have Congress involved, but it does give the 

American taxpayer a voice in these multi-million-dollar spending 

decisions. 

When advocates for a National Infrastructure Bank talk about 

leveraging taxpayer resources in partnership with the private sector, I hear private profit and public risk. When I hear that an infrastructure bank will not cost the taxpayers a dime, I wonder why 

Federal resources and guarantees are needed. When taxpayers are 

on the hook, Congress must have a role, I believe. We must agree 

that we must maintain and modernize our national infrastructure. 

It is a must. Neither the creation of a National Infrastructure Bank 

nor another $50 billion in spending would constitute a comprehensive plan for the future. 

Rather than expose the American taxpayer to more risk and 

waste billions of dollars on ineffective, inefficient programs, I believe we need to develop a comprehensive long-term approach to infrastructure investment. I believe that we need an approach that 

encourages private sector participation and investment, one that 

demands efficiency, effectiveness, and reasonable return on investment. 

But I also believe that we need to protect taxpayers and make 

sure that we do not again construct another Fannie and Freddie 

under the guise of a National Infrastructure Bank. I hope we have 

learned our lesson in that regard. We will see in the future. 

Thank you, Mr. Chairman. 

Senator MERKLEY. Thank you, Senator Shelby. 

We will now hear from our first panel. First we will hear from 

the Honorable Roy Kienitz, the Under Secretary for Policy at the 

United States Department of Transportation. Mr. Kienitz assists 

the Secretary in formulating national policies affecting surface 

transportation and aviation. Prior to his appointment to the Department of Transportation, Mr. Kienitz served as the deputy chief 

of staff for Pennsylvania Governor Edward Rendell. 
7 

Next we will hear from the Honorable Alan Krueger, who currently serves as the Assistant Secretary for Economic Policy of the 

Treasury Department. He advises the Secretary on all aspects of 

economic policy, including current and prospective macroeconomic 

developments, development and analysis of the Administration’s 

economic policy initiatives. 

Thank you both for coming, and I ask that you keep your remarks to approximately 5 minutes. We look forward to hearing 

your thoughts. Thank you. 

STATEMENT OF ROY KIENITZ, UNDER SECRETARY FOR 

POLICY, DEPARTMENT OF TRANSPORTATION 

Mr. KIENITZ. Thank you, sir. Good morning, Mr. Chairman, good 

morning, Senators. Thanks for allowing us to appear today. 

I would like to start by saying it is very appropriate that this 

hearing is entitled ‘‘Creating Jobs and Growing the Economy,’’ because those are two things where we see a very powerful role for 

the type of infrastructure investment we are talking about here 

today. Obviously, the things that we do do create jobs in the short 

run. But as Senator Kerry said, that is not our principal aim. That 

is a wonderful thing to do, but the principal aim is to build projects 

that create long-term economic benefit over decades and generations. 

If we select projects correctly, they decrease costs for business 

and they increase overall economic productivity, and that is something that lasts for generations. And that is really the lesson of the 

big infrastructure investments of the past, be they the Transcontinental Railroad, the Interstate Highway System, the airport 

system, these generations-long streams of benefits that the whole 

economy gets. 

As folks here have alluded to, 2 weeks ago the President gave a 

speech in which he laid out the initial outlines of a vision for making a long-term investment in transportation infrastructure, and 

that combines both the goal of a long-term plan but something 

pretty quick now to get going in the current environment. And this 

is a signal that the Administration agrees with the Members of this 

Committee and most of the Members of the House and Senate that 

a 6-year reauthorization of surface transportation programs is important and we should get it done as quickly as possible. And it is 

a way to get rid of the long-term infrastructure backlog, but to 

make these kinds of investments that will give us long-term change 

in the economy. 

To accomplish this, the program that we are going to be proposing will need a robust level of funding, significantly higher than 

the current baseline that is in the budgets going forward. And we 

are suggesting that a significant share of these new resources, as 

much as $50 billion, be frontloaded in the current environment in 

the first year. We see that money as part of the long-term plan, but 

the traditional method by which these bills—they are smallest in 

the first year and grow largest in the last year, and, now is when 

the economy needs help, and hopefully in 4 or 5 years from now 

the economy will be humming along. So we are looking at a different investment profile to start sooner. 
8 

Under the Recovery Act, we are finding that bid prices for a 

whole range of projects are coming in on average about 20 percent 

below prior estimates, so just from a bang-for-the-buck point of 

view, now is the perfect time to put in a large chunk of money because we are going to get the same projects for less money. 

Some of the tangible accomplishments of the President’s plan 

over the next 6 years we hope will be able to rebuild up to 150,000 

miles of roadway; construct and maintain 4,000 miles of rail; and 

as part of our up-front proposal, we are proposing some aviation investments that potentially could help us rehabilitate or reconstruct 

150 miles of runway. This aviation investment plan would not be 

part of the long-term plan. We are not proposing to merge the surface reauthorization and aviation bills, but we would like to do 

some of that as part of the up-front plan. 

More generally, we want this to be part of a long-term plan. The 

programs at the Department of Transportation have been counted 

up over various times. We think on the surface side there are over 

100 individual funding categories right now. That is traditional 

where you start with a small, streamlined program and it grows 

over time, and it has been 20 years since there has been a major 

pruning exercise, and we think that it is time to do much less in 

the way of categories and much more in the way of performancedriven budgeting, both at the Federal and the State level. 

The Department in our Strategic Plan that the Secretary has put 

out, we have outlined the five strategic goals we want to pursue, 

which are all pretty simple: economic competitiveness, safety, state 

of good repair of existing assets, environmental sustainability, and 

community livability. And we want to have our investments both 

on the formula side and on the discretionary side driven by those 

priorities. 

So the infrastructure bank for our purposes is a way to direct 

spending, A, at the strategic priorities we have in a much more 

concrete and specific way; and, B, to do it according to a set of principles of merit-based decisions on what project to pick and what 

mode to pick that project in rather than a set-aside slide of money 

for each individual category. You have to make that decision on a 

project-by-project basis and be driven by analysis to get the biggest 

bang for the buck for the country for these long-term economic 

gains. 

So those are the core principles behind the infrastructure bank 

that we see. There are a lot of questions that need to be resolved. 

We have yet to make a specific proposal on all the points that Senator Shelby laid out, and I was glad to hear his statement; and I 

think if those are the markers you are laying down, I think we can 

meet those markers. But that will obviously be a conversation we 

have with this Committee and the other committees of Congress. 

So those are, I think, the principal reasons why the President 

has been supportive of this, and then we want to work with the 

Members of this Committee and the rest of the Senate and the 

House to try to work out details that everyone can believe in. 

Thank you. 

Senator MERKLEY. Thank you very much. 

Now we turn to our second testimony from Honorable Alan 

Krueger. 
9 

STATEMENT OF ALAN B. KRUEGER, ASSISTANT SECRETARY 

FOR ECONOMIC POLICY AND CHIEF ECONOMIST, DEPARTMENT OF THE TREASURY 

Mr. KRUEGER. Thank you, Senator Merkley and Ranking Member Shelby and other Members of the Committee. I appreciate the 

opportunity to discuss proposals to improve our Nation’s infrastructure investment. 

The President has announced a bold plan to renew and expand 

America’s transportation infrastructure through an up-front investment connected to a 6-year reauthorization of the surface transportation program. 

In my testimony, I will discuss several aspects of the President’s 

proposal. First, I will evaluate why focusing on infrastructure investment makes sense in the current economic environment. Second, I will discuss some of the long-term benefits from increasing 

our investments in infrastructure. I will then turn to the core ideas 

behind the Administration’s proposed National Infrastructure 

Bank, which were heavily influenced by the bipartisan work of 

Chairman Dodd and former Senator Hagel. Finally, I will highlight 

a successful, innovative financing program, Build America Bonds, 

which could be a useful tool for the National Infrastructure Bank. 

The recession that started with the financial crisis of 2008 has 

had an exceptionally large impact on the job market. From December 2007 to December 2009, our country lost over 8 million jobs. 

While there are positive signs of recovery in many sectors of the 

economy, additional steps are needed to ensure that the recovery 

stays on track. In this environment, accelerating infrastructure investment makes good economic sense for several reasons. 

First, infrastructure investment will provide opportunities for 

workers who were disproportionately affected by the recession. Due 

to the collapse of the real estate market, the contraction of employment in the construction industry has been especially acute. One 

in five of the 8 million jobs lost was in the construction sector. The 

unemployment rate among construction workers is now 17 percent. 

Second, a wide range of analysts, including the CBO, have concluded that additional spending on infrastructure is among the 

most effective policy options for raising output and employment. 

Finally, during recessions it is common for State and local governments to cut back on capital projects, such as road construction, 

in order to meet balanced budget requirements. Past research has 

found that expenditures on capital projects are more than four 

times as sensitive to year-to-year fluctuations in income than is 

State spending in general. The Recovery Act provided crucial support for infrastructure during the recession. 

Investing in infrastructure is not only important to our economy 

now; it is also crucial to the economy’s long-term health. While 

economists have debated the magnitude of the various infrastructure investments, evidence from recent research points to a positive 

and significant effect of transportation infrastructure investment 

on productivity. 

John Fernald’s research, for example, has found that building the 

Eisenhower Interstate System corresponded with a significant increase in the productivity of vehicle-intensive industries compared 

to industries that did not heavily rely on vehicles. 
10 

One of the most promising ways to leverage scarce Federal resources while targeting our most productive investments is to establish a National Infrastructure Bank. Our current method of 

funding infrastructure lacks effective mechanisms to attract and 

repay direct private investment in specific projects. A National Infrastructure Bank would create the opportunity for greater private 

sector investment in infrastructure. 

Second, with a few notable exceptions, Federal funding for infrastructure investments is not distributed on the basis of competition 

among projects using a rigorous economic analysis or cost/benefit 

comparison. The National Infrastructure Bank would develop a 

framework to analytically examine potential infrastructure projects 

based on benefit/cost analysis. It would prioritize the most effective 

and efficient investments. 

I should acknowledge that creating a framework for project selection based on cost/benefit analysis is a challenge. Consider, for example, the problem of congestion. Americans waste an estimated 1 

week of time sitting in traffic. Valuing the time lost due to traffic 

may appear simple at first, if the opportunity cost is lost income 

due to foregone work. However, it is not clear that time spent in 

congestion should be valued at the wage rate as not everyone sitting in traffic wants to work more hours or can find a job. Additionally, there are emotional and physical costs of commuting beyond 

lost working time. All of these potential costs of congestion should 

be factored into any cost/benefit analysis of infrastructure alternatives. 

Identifying all of the benefits of potential infrastructure projects 

is also challenging as all the benefits do not necessarily accrue directly in the area where the infrastructure is built. For example, 

a project that improves the connectivity between a freight rail and 

a port to allow for quicker, cheaper, and more reliable service will 

be a benefit for the producers of those goods, even if they live very 

far away. 

Another benefit of the National Infrastructure Bank arises because coordinating multimodal, multijurisdictional projects in the 

current system is extremely difficult. This is because each mode of 

transportation has a distinct Federal funding source, and there 

could be significant difficulty accessing the capital markets for local 

funding for jurisdictional projects. A National Infrastructure Bank 

would be able to bridge this gap. 

Finally, in addition to improving the targeting of our infrastructure investment, we need to consider new ways to finance it. A National Infrastructure Bank should be at the forefront of innovative 

and sound ways for financing worthy projects. One such financing 

tool is Build American Bonds, which the President has proposed extending. 

I am happy to answer any questions. 

Senator MERKLEY. Thank you both very much for your testimony, and we will have about 5 minutes of questioning from each 

of our Members of the Committee. 

I will begin just by noting, Mr. Kienitz, you referred to five goals: 

economic competitiveness, safety, state of repair, livability, and environmental sustainability. And, Mr. Krueger, you refer to financing worthy projects. Walk us through the vision of how an infra-
11 

structure bank makes its choices about what type of projects to 

fund. And I think, Mr. Kienitz, you referred also to getting away 

from the traditional stovepiping, which means everything is in 

competition with each other. So how does that get sorted out? 

Mr. KIENITZ. It is a complex task and that is exactly the right 

question. We have started to try to figure that out, as some of you 

may know. We have a discretionary program that was created in 

the Recovery Act and has been continued since called the Secretary’s Discretionary Grants, or the TIGER program. We have 

used this as a bit of a pilot to start doing exactly that, and we 

asked applicants who are asking for larger amounts of money to 

provide cost-benefit analysis along with their applications. Some of 

those analyses we got were thin and not very well done, and some 

of them were thick and expert. 

And what we did is we weighed two sets of things, the first of 

which is what do we think the overall bang for the buck for this 

project is, all costs included and all benefits included. Second, do 

we think this project is meaningfully advancing our key national 

goals that we have set out, or, for example, so if you had two 

projects that had a very similar sort of bang for the buck and one 

of them advanced four of our strategic goals and another one only 

advanced one of our strategic goals, we might lean more heavily in 

its favor. 

So it is a balancing act, but I would say the principal thing that 

we want to say about the strategic goals is in the past, the financing markets have often concentrated on can this project be financed? Do the numbers work? That is a very important consideration. We start actually with a different question, which is does 

this project achieve something of national importance? If it does, 

then we will look into, do the numbers add up, and in some cases, 

it can be financed entirely through debt. In some cases, part of it 

can be financed through debt, but it might need grants for part of 

it. And in some cases, if it is in a smaller community that has very 

little ability to pay but there is still a high return on investment, 

then a grant funded project is appropriate. So it depends on the 

specific circumstances of each project. 

Senator MERKLEY. Mr. Krueger, do you want to add to that? 

Mr. KRUEGER. Sure. 

Senator MERKLEY. And specifically, nitty-gritty. Is there going to 

be a board that makes these decisions, or how are the proposals actually evaluated? 

Mr. KRUEGER. Well, of course, all of those details remain to be 

worked out with the Congress. And as Under Secretary Kienitz 

said, I think it is a balancing act. One needs to weigh in any benefit-cost analysis the benefits of increased safety, for example. I 

know that is done in other realms and I think that can be done 

here, as well. 

But the details of how the Infrastructure Bank would work 

would depend on the legislation that authorizes it, and, of course, 

we would be very happy to discuss those details further with you 

and your staff. 

Senator MERKLEY. OK. Well, I will follow up with one other 

question here, and that is in the testimony, Mr. Krueger, you referred to the potential for an Infrastructure Bank to recognize and 
12 

fund projects will have significant network effects. Can you talk 

about this in a little more detail, why such effects are important, 

but also why it is our current systems of funding don’t adequately 

target projects with those types of network effects? 

Mr. KRUEGER. Sure. I think much of the benefit from transportation infrastructure comes about because of the network effects, 

because one highway is connected to another or because a highway 

reaches an airport or a rail line or a port. And valuing those external benefits is very difficult. If a project is funded locally, the local 

government may be aware of some of those benefits, but it doesn’t 

have the same incentive as the national Government does to take 

into account of those external benefits. 

So taking into account of those external benefits, I think is extremely important, especially for projects of national significance 

where you are talking about projects that cut across, in many 

cases, cut across jurisdictional lines and cut across different modes. 

Senator MERKLEY. Thank you very much. 

With that, Senator Shelby. 

Senator SHELBY. Thank you. One of my concerns, and I don’t 

think I am the only one here, about an Infrastructure Bank is that 

it would involve private profit-seeking goals with Government 

backing, in other words, private profits socializing the risk. I fear 

that the bank will simply be a new GSE or something like it and 

we will face another Fannie and Freddie-type entity that will cost 

the taxpayers money down the road, maybe not immediately, but 

down the road. 

Have you thought that out? In other words, if you are putting the 

Government guarantee there, you are exposing the taxpayers, but 

the people who invest privately will make the profit, not the taxpayer. Will we benefit from the infrastructure? Sure. We all do. We 

know that. But have you thought that out, the mechanics of how 

this would work? Your statement earlier seemed a little vague and 

like this is a work in progress. But I fear the GSE model. 

Mr. KIENITZ. Yes, sir. The statement is vague and deliberately so 

because it is a work in progress. We are actively in discussions 

right now—— 

Senator SHELBY. Is it deliberately so because you don’t know yet, 

or is it deliberately vague because you would rather not have the 

Congress know what is going on? 

Mr. KIENITZ. We hope to make a very specific proposal—— 

Senator SHELBY. OK. 

Mr. KIENITZ. ——but probably not for a while, and so we are currently discussing what that should be. I would say that the GSE 

model, I don’t think is terribly high in favor with a lot of folks right 

now, just because Fannie and Freddie are obvious examples of 

something that looked like a good idea at the time and has since 

shown its weaknesses. 

Up until now, we have been using the principles of what is called 

the Federal Credit and Scoring Act, where if we give a loan, for example, under the TIFIA program at DOT, we set aside a certain 

amount of money as coverage, and when you do a portfolio of loans, 

you are setting aside enough money. In the 15 years of that program, I think there has been one bankruptcy, which just occurred. 

In fact, we insist on, in the case of a bankruptcy, the Federal Gov-
13 

ernment jumps to the head of the line in terms of the ability to get 

repaid, and our analysts are telling us that we may make a little 

bit of money in the bankruptcy of that loan, and it is the only one 

out of the entire history of the program that has ever gone bad. 

So that system that exists right now works pretty well. It has 

been pretty safe. It is just way too small, and so part of the potential here is to—one model is to simply take that system and put 

a whole lot more money behind it and expand the scope. 

Senator SHELBY. What you are talking about basically, and correct me if I am wrong, is leveraging this money. In other words, 

if you created a $50 billion, if you had an appropriation, I assume 

an appropriation of $50 billion—— 

Mr. KIENITZ. Right. 

Senator SHELBY. ——I guess we would have to borrow it from 

the Chinese, and then they wouldn’t be able to build their infrastructure, would they? 

[Laughter.] 

Senator SHELBY. But anyway, if we did that, what would you envision, seriously, to leverage with 50? Could you leverage it 10 

times or 5 times? 

Mr. KIENITZ. Our experience has been it is generally somewhere 

between 8-to-1 and 12-to-1, depending on what pledge we get. 

Senator SHELBY. So let us say if it is 8-to-1, you are talking 

about $400 billion in infrastructure. 

Mr. KIENITZ. Now, I would expect that some portion of that 

money would be grant money. I mean, the example Senator Kerry 

used of Fall River, Massachusetts, if they are going to do a water 

upgrade, some portion of that is going to be paid by the local ratepayers. There will be money there to pay back, because part of that 

will be loans. The issue is the level that the rates would have to 

be in that community is so astronomical that you can’t realistically 

pay for the whole thing. 

Senator SHELBY. Would that be like transit today, where we put 

up so much money and the cities put up so much money? 

Mr. KIENITZ. Right, and so there might be a portion of its loan 

that is backed by local ratepayers and a portion of it that is 

grant—— 

Senator SHELBY. How would you limit, sir, or I will direct this 

to both of you, how would you limit the exposure of the taxpayer 

to this? Let us say they put up $50 billion. Is that an implicit guarantee for the $400 billion that you would leverage, say if it was 

eight times? 

Mr. KIENITZ. Right now, the TIFIA program has one-third is the 

maximum that the Federal Government can put into any project, 

so someone else’s money has got to be in there for two-thirds. 

Senator SHELBY. I understand that. 

Mr. KIENITZ. Also in this case—— 

Senator SHELBY. No, but I am talking about the liability. Let us 

go back to the ultimate liability of the taxpayers. Would they be 

liable for, either implicitly or explicitly, $400 billion or just for the 

$50 billion? 

Mr. KIENITZ. Uh—— 

Senator SHELBY. And how would you sell that? I mean, you 

would be selling bonds, probably. 
14 

Mr. KIENITZ. Right. The model that exists now is the Treasury 

simply puts the actual cash into the deal and we hold back a reserve, and the reserves are pooled over multiple projects. So if one 

out of 20 projects goes bankrupt, but you are collecting one-20th of 

the project value from each one, it covers itself, and so far, it has 

worked well. 

Senator SHELBY. Have you run numbers, and who has run those 

numbers, we would like to know, to see if all this could be actuarially sound? 

Mr. KIENITZ. We have yet to do that because we haven’t quite 

made a specific proposal—— 

Senator SHELBY. I know that, but isn’t that important? 

Mr. KIENITZ. Oh, absolutely. Absolutely. 

Senator SHELBY. Secretary Krueger, do you want to comment? 

Mr. KRUEGER. Just a couple of quick responses. I think this 

would be very different from the GSEs. 

Senator SHELBY. How? Explain. 

Mr. KRUEGER. And I would say that Under Secretary Kienitz 

used understatement in saying that the model was different—— 

Senator SHELBY. Would it be different because you would call it 

something different, or—— 

Mr. KRUEGER. Oh, no, no. Let me explain—— 

Senator SHELBY. ——in reality—— 

Mr. KRUEGER. Because it would be on-budget, first of all. Second, 

because it would use the Federal Credit Reform Act for scoring. 

Third, and probably most importantly—— 

Senator SHELBY. Explain what you meant there. 

Mr. KRUEGER. This is related to what Under Secretary Kienitz 

said, that the scoring would be based on expected losses, and there 

would also be limits in terms of the leverage. I mean, I can give 

you an example. In my testimony, I described the Build America 

Bonds model, which as you know are direct subsidy bonds where 

the Federal Government pays right now 35 percent of the borrowers’—of the issuers’ costs. That certainly limits the liability to 

35 percent. The issuer is responsible for the rest of the borrowing 

costs, and this is one way of leveraging Federal resources which we 

are doing right now. 

But the other point I want to make is with the GSEs, the GSEs 

were profit-seeking institutions. The Infrastructure Bank would not 

be. The Infrastructure Bank would be an institution that is seeking 

to make the best investments, but not trying to make itself a profit, 

which is part of the problem—a big part of the reason why the 

GSEs ran into trouble. 

Senator SHELBY. One quick question. Who would decide who 

would get what under this bank? Would that be the Secretary of 

Commerce, the Secretary of Transportation, or somebody there, 

and would Congress have a role, or who would have a role, and 

how objective would that be? 

Mr. KRUEGER. Well, Congress—— 

Senator SHELBY. How do you remove politics from it? 

Mr. KRUEGER. Well, Congress would certainly have a role in designing the institution. 

Senator SHELBY. What about giving out the money? 
15 

Mr. KRUEGER. Under Secretary Kienitz can talk more about that, 

but—— 

Senator SHELBY. Would that be up to the Secretary of Transportation? 

Mr. KRUEGER. ——the proposal that we had was that the bank 

would be housed in the Department of Transportation but have 

input from other relevant agencies and departments. But as I said, 

that is a detail—that is an important detail that needs to be 

worked out with the Congress. 

Mr. KIENITZ. As would the question of does this person—is it run 

by a Government appointee? Is that person confirmed by the Senate? There are many ways that you gentlemen are more familiar 

with than I do in which proper oversight and attention is given. 

And we are sorting through what we want to propose. We suspect 

whatever we propose will be adjusted here—— 

Senator SHELBY. Are you telling us basically it is an idea now 

that has got to be fleshed out and crystallized before you really 

make a concrete proposal? 

Mr. KIENITZ. Correct—— 

Senator SHELBY. OK. 

Mr. KIENITZ. ——and the second point, is we are trying to balance two things. We are trying to balance enough separation from 

politics so that they can make some tough calls, but enough connection that people feel like it is legit. And so I don’t think that is an 

easy balance, but that is the balance it has to be. 

Senator SHELBY. Thank you, Mr. Chairman. 

Senator MERKLEY. Thank you. 

Now we will turn to Senator Tester. 

Senator TESTER. Yes. Thank you, Mr. Chairman, and I want to 

thank the panelists for being here. If I don’t get a chance to say 

hi to Governor Rendell, I want to thank him for being here today, 

too. I very much appreciate it. I know how passionate you are 

about this issue. 

A personal comment first, and then we will get to the questions. 

First of all, I think if we don’t start investing in infrastructure, we 

are not going to be a leader in this world for much longer. I think 

it is critically important that we invest and it is going to cost 

money. Whether we pay for it at this level or we pay for it at the 

local level, it is going to cost some money. But we will all get benefits from that if it is done right, and that is critically important. 

I think as we look at our electrical transmission to water systems 

to our transportation system, whether that is road, highways, or 

air, there has to be an investment there or we will not be able to 

compete. That is just my comment. 

Now I am going to talk about rural America, because I do have 

some concerns with an investment bank. We are going to try to 

make it as nonpolitical as possible and we are not going to have 

the Banking Committee oversee it, doggone it. I was hoping that 

would be the case, but it is not. 

And you talked about, Mr. Krueger, you talked about cost-benefit 

analysis, and I think that on the surface, that sounds really, really 

good, especially if you are talking about people who are sitting in 

front of stoplights or whatever it may be. Now, we have got 950,000 

people in the State of Montana, and Montana is a pretty good-sized 
16 

State. Traffic, for the most part, isn’t an issue, although if you look 

for it, you can find some traffic problems, but you have to really 

look for it. 

So in the area of highways, how does Montana get a fair shot at 

any sort of investment when, quite honestly, we don’t have a population base that is the size of a place like Pittsburgh, much less a 

bigger city or a bigger State? 

Mr. KRUEGER. Well, I think the principle of cost-benefit analysis 

applies in different regions and different types of economic conditions. The rural areas, I think, would also benefit certainly from 

connection, you know, the delivery of goods and services, transport 

of minerals or of cattle and so on to ports. Rural areas would certainly benefit from improvement in the ports, improvement of the 

freight rail lines—— 

Senator TESTER. No argument here. 

Mr. KRUEGER. ——and I think that is exactly what you meant 

when you said that the State would benefit from the investment in 

infrastructure. Presumably, in many cases, that would pass benefit-cost analysis, which would help the State. 

Senator TESTER. OK. Let me burrow down a little bit, and this 

may be unfair because we are just fleshing this thing out and it 

is just starting, and you can jump in if you want to, Ron. The issue 

is, I have been to Southern California. I mean, it is a nightmare 

to drive in that place. If you are looking at developing a mass transit system, you could take a whole pile of money and send it down 

to Southern California and Montana wouldn’t even be a blip on the 

radar. How does Montana get to be more than a blip? And I know 

you are talking about shipping cattle, but when you are talking 

about votes and you are talking about the Electoral College and all 

those kind of things, fact be known, I mean, I don’t care if you are 

talking about the Missouri River or you are talking about highways, that makes a difference. 

How does that cost-benefit analysis—you are not going to be able 

to do everything all at once, don’t have enough money. We are talking, if the figures are right I put in my head, I don’t know how 

many, $60 trillion or something like that over an extended period 

of time, but how do we get to be a part of the equation? And then 

if there are minimums on the amount of dollars, like no project can 

be under $75 million, that puts us at another disadvantage. How 

is this going to work? Maybe you can touch on that. 

Mr. KIENITZ. Yes, sir. We have thought about this a lot. An interesting thing that is going on, for example, in Southern California 

right now, they have gotten to the point where they have agreed 

to tax themselves to try to fund their transit infrastructure because, as you said, their needs are so large, even the Federal Government is not big enough to do it. They have to raise money locally, and so they have proposed a plan to raise $30 billion locally. 

Now, what they want help from us is loans to help front-load some 

of that money to get the projects done quicker, but not grants so 

much. 

We held one of our outreach sessions on the surface reauthorization in Bismarck, North Dakota—far away, but close, if you get 

what I am saying—— 

Senator TESTER. Yes. 
17 

Mr. KIENITZ. ——and what we heard up there was extractive industries. That is the big growth area up there, and it is oil and gas 

and it is timber and it is grain and things like that. And interestingly, in the cost-benefit analysis we did on our TIGER grants, 

frankly, much to my surprise, the largest category of grants that 

we gave was the freight rail system. It wasn’t urban transit. We 

did some of that. But it was the freight rail system because those 

are folks who have really good information about if we make this 

improvement and this improvement and this improvement, and we 

the private guys will pay half or two-thirds, there is enormous benefits that come to shippers over a wide area. 

And so that is the type of thing that we can actually see a fair 

amount of helping in rural America, be it rural Kentucky on the 

short line railroads or the Great Plains on the major railroads. So 

that has, I feel like, been a bright spot for us. The question of how 

to make sure those benefits flow out everywhere rather than just 

to the sort of concentrated pockets is an issue. But as Mr. 

Krueger—you know, untangling the mess in Chicago is hugely beneficial to everything that is 1,000 miles west of there. 

Senator TESTER. Right, and I have run out of time, but I would 

just like to say, I mean, I think this is a critically important conversation we are having. I think it is a conversation—I mean, since 

I took over the farm, which has basically been a little over 30 years 

ago, I haven’t seen much infrastructure take place. It seems like 

the attitude has been about me instead of about all of us together. 

And I can tell you that if we don’t address this, because I see it 

falling apart, I see the need there for water and sewer and highways and rail and—I mean, our rail system in the State of Montana is significantly less than it was 30 years ago. We have got 

rails that are shut down. We have got less access to markets than 

we had. And if this continues along this line, I mean, it is not 

healthy for the country overall and it is not good for our economy. 

I appreciate you guys working on this. I hope we can come together, put the politics aside, and come up with something that is 

going to work for the country. I think this cuts across everybody, 

rich, poor, Democrats, Republicans, Libertarians, Independents. We 

have got to have something that works for this country. 

Senator REED [presiding]. Senator Menendez. 

Senator MENENDEZ. Mr. Chairman, I know that Senator—I was 

here before, but Senator Warner has been here, so I am happy to 

wait—— 

Senator REED. Thank you very much. 

Senator Warner, you are recognized, please. Thank you, Senator 

Menendez. 

Senator WARNER. I would like to thank the Senator for that distinguished moment of leadership. 

Let me—a couple of quick comments, and I will try to be brief, 

recognizing that Senator Menendez is next. 

One, I want to just reiterate what my friend, Senator Tester, 

said, kind of net-net. I think Senator Kerry mentioned this earlier. 

We have seen a 50 percent decline in infrastructure investment in 

America as a percentage of our GDP since the 1970s, and what 

used to be, as I know my good friend Governor Rendell pointed out, 

or will later, one of America’s competitive advantages, infrastruc-
18 

ture, now becomes a competitive disadvantage vis-a-vis nations 

around the world. 

And while a lot of details need to be worked out, the concept we 

are talking about here of how we can use, with limited exposure 

of the public, part of the larger balance sheet to help finance infrastructure investments is not a radical concept. We do it right now 

with OPIC. We do it right now with the Export-Import Bank. We 

do it right now with the World Bank. We do it right now with a 

variety of municipal financing tools that are used. 

We do it right now with the TIFIA grants, one of the things— 

let me get out a couple of questions here and then you can both 

address them. How what we are proposing here, what you are proposing here would differ from TIFIA, number one. Number two, before I got this job, I spent about a year working with the Bipartisan 

Policy Center with former Senator Gorton from Washington State 

on the question of how we do the evaluation so that, again, as Senator Tester mentioned, we don’t go back just to VMT as your assessment and how we have these policy goals and real metrics on 

project selection, and I would commend the Administration to look 

at the Bipartisan Policy Center’s work and AASHTO and a whole 

series of organizations have been involved in that, on that question. 

So I would like to hear a little bit more about what kind of metric 

evaluation we are going to use. 

And then I would also like to make sure, if we thought through 

this and put this investment bank into reality, how would we ensure that there would be mode neutrality in the assessments? We 

still have, as a former Governor, and I know probably Governor 

Rendell will mention this, we all like to talk about at our State levels a goal toward pushing rail, pushing multimodal. In 90 percent 

of the States, the Highway Department still outweighs virtually everybody else. If we were going to create this Infrastructure Bank, 

how would we make assessments based on some level of mode neutrality? 

Mr. KIENITZ. Thank you, Senator. From a structural point of 

view, mode neutrality is not that hard to imagine. The issue we 

have right now is there are dollars which are highway dollars and 

dollars which are transit dollars and so you don’t ever have a conversation about how much highways and transit do I want, because 

it is all locked in stone, mostly at the State level and here at the 

Federal level, too. 

So part of what we are proposing is a large amount of dollars 

which has no label on it, if we can agree to that. That has been 

a political difficulty, honestly, more than anything else, because all 

of the recipients of these dollars, the first thing they want is certainty. I want to know how much is before me, before we look at 

the projects. I want that decided first. Well, we have to let that be 

decided last. Once you create that structure, then the challenge is 

on us to say, how do you evaluate a freight rail project versus a 

transit project versus a highway project? That is a little bit hard. 

We are starting to do that in active year-by-year grant rounds with 

these modest dollars we have in our discretionary program, but it 

is the first test of how would you actually go and do that. 

And what we find is that in the highway world, they are really 

good at evaluating one highway project against the other, and in 
19 

the transit world, they are pretty good at evaluating one transit 

project against the other. And then when you ask the two folks to 

sit down and have one meeting, there is a little bit of talking past 

each other. The systems haven’t ever been created to work together, and let alone high-speed rail and aviation and freight rail. 

So what we are trying to do is start with the generic cost-benefit 

analysis as the leveling tool—— 

Senator WARNER. Would the bank—— 

Mr. KIENITZ. ——recognizing that it misses a lot and that you 

need to be able to say, what about CO2? That has to count, too. 

And what about safety? That has to count, too. 

Senator WARNER. But the bank would not—the bank, as you envision, would not be broken into silos. You would have your traditional grant programs, which we all hope will get out of their silos. 

The bank would be one additional financing tool out there, hopefully leveraging private sector dollars—— 

Mr. KIENITZ. Yes. 

Senator WARNER. ——in a much greater way with these policy 

goals that don’t have the definition as strict as some of our silo approach now back to VMT—— 

Mr. KIENITZ. That is the hope. 

Senator WARNER. ——with these policy goals, and again, I commend you to look at the Bipartisan Policy Group, which has spent 

2 years looking at trying to come up on a way, because is a tough 

thing—— 

Mr. KIENITZ. Right. 

Senator WARNER. These are great goals that are tough to kind 

of break down into how you then evaluate projects. 

Again, my time has been expired and I thank my colleague and 

friend, Senator Menendez, for letting me jump here. 

Senator REED. Senator Menendez, please. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Mr. Secretary, I want to get a sense, as someone who is a full 

supporter, I heard some of the comments earlier that suggest that 

this is somehow wasteful, that this is an effort at stimulus. It 

seems to me it is an effort at the future economy of this country. 

Just look at China. It understands how it is making its investments in such a way that it is going to yield enormous economic 

opportunities for that country, and it is readying itself for fulfillment of its capacity in this century. And so I think it is in that context that we would look at this, understanding that these are about 

investments that yield huge dividends in the long run and that leverage our opportunity to attract the private sector. 

I remember in my days in the House of Representatives when I 

sat on the Transportation Committee, and if you came to visit my, 

what was then my district and now, of course, in my State, you 

would have seen abandoned railroad yards up and down the Hudson waterfront overlooking Midtown Manhattan. And it was the effort of myself and others who created an infrastructure and the 

high-speed nonpolluting light rail line along that same waterfront, 

and working to create sewage infrastructure and what not that 

now has a multi-million-dollar ratable base all up and down that 

waterfront, created tens of thousands of new jobs, and created an 
20 

economic synergy in the region that is probably even in this current challenging economy, that is second to none. 

And that was based in the first instance upon an investment in 

infrastructure. So it seems to me that the dividends that are yielded is rather significant and more than pays back on the investment. 

So if we look at it in that way and eliminate the criticisms just 

on a partisan basis, my question goes, how does a National Infrastructure Bank help us particularly when we have large, important 

national—projects of national significance, and I will just cite one 

right now. I have labored very long and hard, along with Senator 

Lautenberg, to have a new trans-Hudson tunnel created from New 

Jersey to New York. It is the largest single Federal investment in 

our history. It creates 6,000 construction jobs and it ultimately generates by every analysis anywhere between 40,000 and 50,000 new 

permanent jobs. 

Now, unfortunately, our Governor is in the midst of trying to 

cannibalize the State’s contribution to that in order to fund his 

State Transportation Trust Fund, but in the process, we will lose 

the leverage of billions of dollars and the creation of an infrastructure project that has been noted as nationally needed and significant and has a ripple effect in our economy of huge proportions. 

So part of the challenge has been moving that project from conception to where we are today, which is already started. How do 

you envision a National Infrastructure Bank being able to help us 

with projects of national significance move more efficiently? 

Mr. KIENITZ. I will respond to that. I mean, as you mentioned, 

Senator, the ARC project is the largest commitment the Federal 

Transit Administration has ever made to any single project, and 

that is something that we hope has a future. I think we are all 

going to find out in the next month. 

That was hard to fit into the budget of the Federal Transit Administration and it is going to create a big lump of cash-flow going 

out multiple years. Having a National Infrastructure Bank hopefully gives another window for folks who have those very large but 

very transformative projects to go to in a way that allows the more 

bread and butter run of the mill stuff to be funded out of the regular budget in the normal way. And then the question would really 

be, that project has high costs but huge benefits given the number 

of people who will use it, but there is a project in Florida and there 

is a project in Texas and a project elsewhere and those will all go 

in and their evaluations will get put together. 

But to our point of view, it means that the Infrastructure Bank 

has got to be big enough that it can handle these big projects. And 

right now, the TIFIA program we have, which gives out loans for 

these programs, we tend to do $200 million, $400 million, $500 or 

$600 million is a really big loan out of there. And you can do some 

good stuff with that, but you don’t do these big transformational 

things at that price tag. So that is, I think, part of what we are 

seeing. We just need—the magnitude has got to be sufficient to the 

costs of these big transformative projects. They are in the many billions now. That is just the reality of today. 

Senator MENENDEZ. I just hope that as we look at this, after the 

vetting goes through and the determination is made of what is a 
21 

project that is worthy of being funded, that we would look also at 

the mechanism of streamlining a process that ensures that we can, 

in essence, make the project a reality in a most cost efficient manner. In my mind, the bank can be a component of helping that become a reality, as well. 

And finally, if I may, Mr. Chairman, Secretary Krueger, I mean, 

do we look at these investments from an economic paradigm that 

says they yield huge dividends and can be, in fact, part of creating 

a more robust economy for the future, or are we just looking at it 

as some road or highway or sewer system that we are dealing—— 

Mr. KRUEGER. Well, I think we look at investment in infrastructure now as helping us now and in the future. Our competitiveness 

will be improved in the future if we improve our infrastructure 

now. And given the underemployed resources we have currently in 

the construction sector, a 17-percent unemployment rate for construction workers, Roy mentioned that their projects are coming in 

20 percent below cost from what they expected. That is an indication of the unemployed resources we have in the sector. This is the 

right time to invest. But we are investing because of the benefits 

that are yielded for the future and how they will help our country 

in the future as well. 

Senator MENENDEZ. Thank you. 

Thank you, Mr. Chairman. 

Senator REED. Thank you very much, Senator Menendez. 

Gentlemen, thank you for your testimony and also for your work. 

Just two areas I would like to focus on quickly. One, all of us, I 

think, are encouraged by the proposals for the creation of some 

type of infrastructure bank. Based on not just alone, but based on 

the TIGER process, there seems to be a focus on new projects, yet 

we all recognize there is a huge deficit in maintenance of existing 

road systems, sewer systems—you name the system, it has to be 

maintained. 

In my home State of Rhode Island—and we are not unique—27 

percent of our bridges are structurally deficient; 21 percent are 

functionally obsolete. We are closing parts of Route 95—are we 

doing or better or worse, Governor? Probably right in the middle. 

We are closing part of 95 now to truck traffic, the major northsouth route, and we face another serious closure in the future of 

a major section in the middle of Providence, which could be devastating not just to the economy of Rhode Island but just the whole 

Northeast economy. 

And so the question really is: How are we going to meet these 

obvious demands with an infrastructure bank? There is a suggestion, I think, in some of your comments that, well, when we do this, 

we can sort of focus on new projects and let the rest of the budget 

sort of deal with the maintenance, et cetera. But if you could just 

comment. I know this is not an easy yes–no, one-line answer. Some 

initial thoughts, at least, Mr. Secretary, then Mr. Secretary. 

Mr. KIENITZ. I am happy to do so. I think that our hope—and 

I think this is a widely shared view—is that there has to a breadand-butter program, these underlying formula programs, because 

the needs are so huge. I think one policy initiative that is outside 

the infrastructure bank is making sure that that money as necessary is going into these repair situations rather than repair 
22 

needs but still going out and using that to build a big new thing. 

To the degree that that is happening, we have actually had some 

progress recently. In the last dozen years or so, road and bridge 

conditions have actually gotten better. It is a huge ship so turning 

it is slow, but it is kind of going in the right direction. And what 

that has meant, really, though, is the starvation of the funds that 

have normally gone into those new things. 

So you are seeing somewhat of a division, but I will say, for example, in the TIGER program, the project we funded in Rhode Island was a redevelopment building for the future project, but in 

Oklahoma, their highest priority is deficient bridges. And so the 

project we funded in Oklahoma, they came to us and said, ‘‘This 

is our number one priority. Help us with deficient bridges.’’ And so 

we funded a program in Oklahoma for deficient bridges. 

So to some degree, Phoenix and Las Vegas, they have big new 

visions to accommodate all their new people, and, other States are 

going to have different priorities, and that is OK. And the bank 

needs to respect that. There are huge benefit costs—benefits that 

come from rebuilding existing and from building new if the projects 

are designed well. 

So I would not want to go in with a doctrinaire approach to that 

question, but the thing that has been starved in recent years has 

been the ability to do new things. So I think there might be more 

of a focus in the infrastructure bank on that, but that would need 

to be worked out over time. 

Senator REED. Let me just ask, before I turn to Secretary 

Krueger, you have to think, as you are—how you coordinate these 

two demands consciously. I mean, if we set up an infrastructure 

bank and give them separate directors that are approved by the 

Senate, then they go off doing their great things, but there is no 

device to integrate that with the Department of Transportation 

budget and the meat and potatoes of repair. So I do not think you 

have got an answer yet, but certainly that is a topic that you are 

going to give us an answer. 

Mr. KIENITZ. I think our hope is that it be as integrated as possible so you get that kind of a coordination. But there will be many 

views on that topic. 

Senator REED. Secretary Krueger, your comments? 

Mr. KRUEGER. Well, I would just highlight that a lot of the economics research confirms what you said, that the return to investment in maintaining our existing transportation system tends to be 

very high. Ned Gramlich, a former Governor of the Federal Reserve 

Board—I am sure you knew him—published a study where he concluded that maintaining our system of infrastructure has a very 

high rate of return, not just adding to it but focusing on maintenance. So I think that confirms the point that you were making. 

Senator REED. Thank you. Just on another topic, a quick topic. 

We tend to talk about roads, bridges, you know, port facilities. But 

the electrical grid is something that is vitally important up our 

way, could open up huge opportunities in terms of the alternate energy technologies that we all think are the next big thing. That I 

presume would be a topic of this infrastructure bank, too, that you 

would be looking at that. 
23 

Mr. KIENITZ. That is a policy question that I think will be a 

tough one. To the degree that there is some news on this front in 

the President’s speech, he is proposing that the initial creation of 

this thing be done through the surface reauthorization bill that 

would move through this Committee and Environment and Public 

Works and the others here in the Senate and the Transportation 

Committee in the House. I think that will tend to give it a transportation focus just because of the jurisdictional issues there. It 

could certainly go more broadly than that. I am not an expert on 

the electrical grid. I think there will be a fear that the wider you 

make the need, the more money you need to put in, and then how 

are you raising that money. And so that will be the tension. 

But we have not made a specific proposal on that. I think our 

goal is to have it be as broad as it can reasonably be given the 

amount of money we are putting in. 

Senator REED. Thank you very much, gentlemen, and there are 

no further questioners so there are no further questions. Thank 

you very much. 

Mr. KRUEGER. Thank you. 

Mr. KIENITZ. Thank you, sir. 

Senator REED. Let me ask the third panel to come forward, 

please. 

Let me introduce our third panel in order of their presentations. 

First, we will hear from the Honorable Edward G. Rendell. Governor Rendell is the 45th Governor of Pennsylvania. He has been 

a strong advocate for increased infrastructure spending and the 

need for a National Infrastructure Bank. 

Thank you very much, Governor, for being here today. 

Then we will hear from Mr. Robert Wolf, the Chairman and CEO 

for UBS Americas. He is president of the UBS Investment Bank 

and a member of the UBS Group Executive Board. He is also a 

member of the President’s Economic Recovery Advisory Board. 

Thank you very much, Mr. Wolf. 

And then, finally, we will hear from Mr. Donald Shubert, president of the Connecticut Construction Industries Association, and he 

was also appointed by Governor Rell to her task force on reforming 

State contracting. 

Thank you and welcome, a neighbor of Rhode Island. Thank you 

very much, sir. 

Governor Rendell, your comments, please. 

STATEMENT OF EDWARD G. RENDELL, GOVERNOR, COMMONWEALTH OF PENNSYLVANIA, AND COCHAIR, BUILDING 

AMERICA’S FUTURE 

Governor RENDELL. Good morning, Mr. Chairman. I am going to 

start actually answering some of the questions you asked of the 

first panel. The problem with sitting there is, you know, you are 

chomping at the bit to answer the questions, and the questions 

were very important. Unfortunately, some of the Members who 

asked them are not here, but let me answer what Senator Shelby 

said. 

First of all, I want you to understand I am here both as the Governor of the Commonwealth of Pennsylvania and also Cochair of 

Building America’s Future, an organization that I had with Gov-
24 

ernor Schwarzenegger of California and Mayor Bloomberg of New 

York. It is a 501(c)(4) and (3), and we are dedicated to revitalizing 

this country’s infrastructure. 

First, I think Senator Shelby is absolutely right. The infrastructure bank is a small piece of the infrastructure puzzle. It is an important piece of the infrastructure puzzle. In many ways, it could 

be a linchpin to fixing and solving the puzzle, but it is a small 

piece. And we all agree that $50 billion does not begin to scratch 

the surface that the President has recommended. That has got to 

be an up-front payment on a larger reauthorization of surface 

transportation and other things, like water and wastewater and 

levees and dams and you name it. So that is number one. 

Number two, Senator Shelby can rest at ease that we are not trying to create a GSE with the infrastructure bank, and the guarantees that will be given by the Federal Government are very similar, 

as Deputy Secretary Kienitz said, to the guarantees we give in the 

TIFIA program or the BABs program or anything else that is underway right now. We are not becoming the—we are not putting 

the Federal credit behind all of these investments. 

In fact, the bank, because it will leverage private sector investments in most cases, I think you will see a higher scrutiny on 

projects because the private sector is interested in the rate of return. And for the rate of return to be successful, the project has 

to be successful. So you will not only have some level of Government oversight, but you will have the investor oversight as well. 

And I think that will even tighten and reduce the risk and also 

spread the risk out. No question about that. Private–public partnerships do, in fact, spread the risk out and take a lot of the risk 

off the shoulders of Government. 

Second, Senator Tester was absolutely right—and Senator Warner—about a competitive disadvantage. If we do not do something 

about infrastructure in this country, we are cooked as an economic 

power. The ten biggest ports in China take three-and-a-half times 

the throughput of the ten biggest ports in the United States. Only 

two American ports—Los Angeles Long Beach and the Port of New 

York—would rank in the top ten in China. Unless we can find a 

way to competitively move goods and get goods in and out, we are 

not going to get investment, domestic or foreign investment, in this 

country. Goods movement is absolutely critical. Economic competitiveness depends on a vital and vibrant infrastructure. 

To your question, Senator Reed, the infrastructure bank is only 

a component. There still has to be your basic transportation bill. 

The smaller States, the rural States, are going to still get their 

money through the reauthorization of ISTEA. Nothing is going to 

change to that effect. In fact, by taking some of the larger projects 

out of the normal highway trust fund, you may have more money 

to spend for local and regionals. But the real answer to how we are 

going to maintain, the question of maintenance, versus new construction is you must—with the next transportation bill, you must 

totally lift the restriction on States tolling previously Federal accredited highways. You must lift that restriction. If you want maintenance, the only way we are going to maintain I–80 or I–95 

through Pennsylvania or through Rhode Island is if we have the 

right to toll it. That restriction makes no sense. The theory is: Why 
25 

make the taxpayers pay for it twice? Well, when you buy a car, you 

pay for it. But you also pay to maintain it, right? Same thing with 

infrastructure. And the only way, unless you are going to come up 

with a whole lot more money than I think you are going to come 

up with, is you have got to lift that restriction. That is the single 

most important thing we can do for maintaining what we have. It 

is as simple as that. 

I think the infrastructure bank—and BAF does as well—has to 

include more than just transportation. To ignore the needs of the 

electric grid, to ignore the needs of broadband—I assume—and I 

am sorry Senator Tester is not here. But broadband reaching some 

of the rural areas of Montana—I guess there is nothing but rural 

areas in Montana. But to reach those rural areas, there has to be 

broadband buildout, and that has to be financed, and it has to be 

financed through accommodation, I think, of private and public investment. So if you expand the infrastructure bank beyond transportation, it opens up a lot of new avenues that are, I think, very 

attractive to the smaller States and the rural States as well. 

Now, we need this bank for so many different reasons but, first 

of all, because the public wants it. Interestingly, BAF has taken a 

series of polls to find that the public, Republicans and Democrats 

alike, want to invest in infrastructure. Two years ago, 81 percent 

said they would be willing to pay 1 percent more in Federal income 

tax for investments in infrastructure, but only if they knew that 

the investments were not going to be distributed through the normal political process but would be distributed based on some merit 

cost-based analysis. Public support for infrastructure is there. They 

can see it, they can feel it. They can ride on it. It is different than 

almost any other type of Government spending. But they want it 

to be distributed in a way that makes sense. 

Congress can control the performance measures. You put into the 

act setting up an infrastructure bank what the criteria are that the 

bank should make its decisions on. That is where your control 

comes in. And, of course, your oversight. But you can control the 

criteria. You can control the scoring by what you do in the act 

itself. So it is not a question of losing political control, but it is a 

question of gaining the public’s confidence in these projects. 

Why do we need an infrastructure bank? Well, first and foremost, until the stimulus, there have been no real vehicles for multiState, regional, and projects of national significance. Let me give 

you a project that Senator Corker is familiar with and Senator 

Shelby, were he still here, would be familiar with, and that is Crescent Corridor. Six States and Norfolk Southern combined on what 

is an incredible home run for rail freight, taking from the southern 

ports going up the country to Pennsylvania and winding up in 

Bethlehem, Pennsylvania, a rail system that will add tens of thousands of jobs. 

Senator Corker, since you are here, I can tell you with much satisfaction that your investment in the TIGER grant will create for 

Tennessee 5,100 jobs, 573 trucks diverted off the roads for Tennesseans; in Alabama, 8,600 jobs, 578,000 trucks diverted from 

there. 

I became the lead Governor. Norfolk Southern came to me. I convinced my fellow Governors to invest. It is basically a one-third, 
26 

one-third, one-third: one-third Federal investment they are hoping 

to get from TIGER, and they got part of that in the first round; 

one-third from the States, all the States ponied up and we put up 

our third; and one-third from NS. It is the way we have got to do 

this. There has got to be private sector investment in these things, 

and the bank is a perfect vehicle to do it, because TIGER is going 

to go away. I assume you are not going to reauthorize the stimulus 

bill. That is just a hunch I have. So I think stimulus is going away, 

and there has got to be something to replace it. TIGER has been 

enormously successful. 

There is another project with NS called National Gateway, which 

goes the other way, from the Florida coast all the way through 

Pennsylvania and Ohio. We happen to be involved in both projects. 

It also receives some TIGER funding. There is no vehicle for that. 

If we are going to build a true high-speed rail system in this country, you cannot go on giving Florida some money for its high-speed 

rail, California some money for its high-speed rail. There has to be 

coordination, because there are all different types of high-speed 

rail. There is Maglev; there is more conventional high-speed rail. 

Well, if part of the national chain does Maglev and the other part 

does conventional, it will not work. If Pennsylvania does Maglev 

and Ohio does conventional, you will have to get on another train. 

It does not work. These projects have to go through some vehicle. 

An infrastructure bank is the vehicle to do it. We can leverage private assistance, and there is so much we ought to do. 

You heard Deputy Secretary Kienitz say TIFIA is a great program. It is a loan program. It has been enormously successful. It 

goes in as sort of the last piece of the money when the equity cannot do the entire deal, and it has been very successful. But it has 

got limits on it. We need to enhance the TIFIA program dramatically right now. And we do not spend the Federal money. We get 

that money back in loan repayments. 

Private activity bonds, you have got a cap, I think it is $15 billion nationally. That is a drop in the bucket. Raise the cap significantly or uncap private activity bonds. 

Building America’s Bonds, I think the President is right. We 

ought to make it permanent. It has been hugely successful. 

Pennsylvania just did a $1.1 billion infrastructure bond that was 

about 55 percent BAB. We got our lowest interest rate in the history of the Commonwealth, 3.1 percent interest, saving the citizens 

of the Commonwealth a tremendous amount of money in interest. 

But all this private investment can be funneled through the infrastructure bank. 

Senator Menendez, to your question, if we were starting that 

project over, if we were starting the project over, what a good idea, 

since I assume it is going to be told, your tunnel. 

Senator MENENDEZ. It is a passenger rail tunnel. 

Governor RENDELL. Well, you could use the passenger rail ticket 

price and some form of availability payments from the State and 

Federal Government and get a private company to come in, private 

investors to come in, up-front the money, and they get repaid by 

the fare price and by the availability payments from the Federal 

and State governments over the course of time. But we do not up- 
27 

front it. We do not take the risk. A private company can do that. 

We have got to do it. 

And, by the way, Congressman Oberstar is a hero to all of us 

who believe in infrastructure. There is a part in his bill to reauthorized ISTEA. The Office of Public Benefit, that would be very 

damaging to involving private dollars in infrastructure. We are 

going to take a hard look at that and either get rid of it or frame 

it in a different way. 

So there is so much that we need to do, and we need to do it. 

I know there are always questions about deficit spending and can 

we afford to do this. Gentlemen, we cannot afford not to do it. Unless we want to consign ourselves, as Senator Menendez says, and 

as Senator Tester said, and Senator Warner, to being a second- or 

third-rate economic power, we have got to invest. And there is a 

difference between investing and spending. 

Let me close, because we have some great businessmen on this 

panel, by saying there is not a business in America that has grown 

successful without investing in its own future. Most of the time 

that has been prudent borrowing, sometimes from capital reserves, 

but investing in its own future. We have to find a way to do that. 

There is so much that we would love to talk to you about in BAF. 

I think we need a Federal capital budget as a means for investing 

in infrastructure. But regardless of what route you choose, we better start investing in our infrastructure, our dams, our levees. You 

know, New Orleans, to repair the levees in New Orleans would 

have cost $700 million. You are winding up spending $14.8 billion 

of Federal money. Good idea not to invest that $700 million? I do 

not think so. It is a 20:1 ratio that you have lost Federal dollars 

by not investing at the right time. And infrastructure spending is 

like that old Fram oil filter commercial, remember? A greasy mechanic holds up a Fram oil filter and says, ‘‘You can pay me now, 

$17.28.’’ He points to a wrecked car, and the screen flashes $4,326. 

‘‘Or you can pay me later.’’ 

Let us pay it now. Let us do it right. Let us invest in infrastructure. Let us create—Senator Kerry is a great man, but he is wrong. 

If we did a 10-year infrastructure revitalization program, that 

would revitalize this Nation’s economy and American manufacturing. There is no excuse not to do it. The infrastructure bank is 

an important component. You can control it by what you put into 

the bill. You are not going to lose control. You are going to decide 

what the performance measures are. You are going to decide what 

the make-up of the board is. You are going to decide about congressional oversight. Let us not let these small problems stand in the 

way of a great opportunity. 

Senator REED. Thank you, Governor, very much. Thank you. 

Mr. Wolf, please. 

STATEMENT OF ROBERT WOLF, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, UBS AMERICAS 

Mr. WOLF. Good morning, Chairman Reed, and distinguished 

Members—— 

Senator REED. Could you put your microphone on, please? 

Mr. WOLF. Oh, I am sorry. Good morning, Chairman Reed and 

distinguished Members of the Committee. I am grateful for the op-
28 

portunity to offer testimony in support of a National Infrastructure 

Bank. My name is Robert Wolf, and I am chairman and CEO of 

UBS Americas and president of the global Investment Bank. 

I have worked in the financial services industry since receiving 

my undergraduate degree in economics from Wharton in 1984. My 

career has focused predominantly on fixed income at two firms— 

Salomon Brothers and UBS. 

As a member of the President’s Economic Recovery Advisory 

Board, I have worked with fellow Board members to develop a considered approach to creating a National Infrastructure Bank. 

Today, I am here to share my own views, as a 26-year veteran of 

the markets, on why I believe a National Infrastructure Bank is in 

our Nation’s best interest. 

Let me say at the outset that creating a National Infrastructure 

Bank at this time makes sense for two main reasons: 

One, it will attract private investments to help fund badly needed infrastructure improvements critical to America’s competitiveness and economic growth. 

The NIB would vet projects carefully, lend to fund the highest 

priority projects and help attract private sector capital to augment 

Government funding. Preqin, a private equity industry consultant, 

estimates that there is over $180 billion dollars of private equity 

and pension fund capital focused on infrastructure equity investments. This capital can play an important role in bridging State 

and local budget gaps. 

And, two, it will create jobs. 

The U.S. Department of Transportation and the Milken Institute 

both estimate $1 billion of Federal and State spending on transportation infrastructure creates 25,000-plus jobs. Many of these jobs 

are in the construction industry and related sectors that have sustained the largest losses in the economic downturn. Our hope is 

that new jobs will be created in the building industry as well as 

for engineers, architects, urban planners, scientists, and industrial 

production businesses. 

To achieve these goals, it is crucial that an NIB be chartered 

with a clear and achievable mission and strict operational guidelines. 

The NIB should be: 

One, policy driven. It should be a vehicle for attracting public 

and private funding to projects of considerable merit that will modernize our Nation’s infrastructure. 

Two, loan focused. It should focus on making loans that will generate returns, which means funding primarily projects with user 

fees or dedicated revenue sources. 

And, three, it must be merit based. It is crucial that the NIB allocate its funds on the basis of a rigorous cost/benefit analysis conducted by experienced industry experts and be focused on those 

projects that will deliver the most value for its dollars. This process 

must be totally transparent. 

The NIB should not be: 

One, a project equity investor. Consistent with the focus on lending, the NIB should primarily offer loans and loan guarantees at 

the project level, not project equity capital. 
29 

Nor should it be a substitute for existing infrastructure funding 

programs. Rather, the NIB should complement successful programs 

like the TIFIA loans, private activity bonds, Build America Bonds, 

and municipal bonds. 

Nor should it be solely focused on transportation. Instead, it 

should make funds available for projects of regional or national significance in other qualified sectors such as energy, broadband, 

water, and sewerage. 

Finally, in order to achieve this mission, the NIB must be properly structured. 

In my view, the NIB should be established as wholly owned Government corporation, allowing it to serve a broad range of infrastructure sectors, such as transportation, energy, and water. The 

NIB decision makers must have the independence to make loan decisions based on project merit. And it should be capitalized with equity capital that comes solely from the U.S. Government via the 

Treasury. 

In closing, creating a National Infrastructure Bank is an idea 

whose time has come. I do not think anyone disputes that our 

country’s infrastructure needs are extraordinary. The NIB would 

mobilize the capital markets to fund new projects, leading to sustainable economic growth and create jobs. 

Again, Chairman, thank you for providing me with this opportunity to appear before the Committee today. Thank you. 

Senator REED. Thank you, Mr. Wolf. 

Mr. Shubert, please. 

STATEMENT OF DONALD SHUBERT, PRESIDENT, CONNECTICUT CONSTRUCTION INDUSTRIES ASSOCIATION, INC. 

Mr. SHUBERT. Good morning, Mr. Chairman Dodd, Members of 

the Committee. Thank you for this opportunity to testify today. 

Mr. Chairman, I commend you and the Members of the Committee for convening today’s hearing on how infrastructure investments can help generate American jobs and strengthen the economy. 

Congress identified infrastructure investments as an agent for 

economic change during the debate over the American Recovery 

and Reinvestment Act. During those discussions it was widely endorsed that infrastructure investments create well-paying jobs for 

skilled workers. Through my organization, CCIA, we work closely 

with the basic building trades. We know that there is a skilled 

workforce in our industry that could be a powerful economic engine 

that is sitting idle. 

Nationally, the unemployment rate in our industry is 17 percent. 

Since 2006, 2.1 million construction jobs have been lost. Just to put 

this into perspective, almost one-third of all jobs lost in the U.S. 

during the 2007 to 2009 recession were construction jobs. The Recovery Act put many people to work; however, there are many more 

workers ready to go who are standing idle. 

It was also widely endorsed that infrastructure investments drive 

long-term economic growth. We know that the business community 

relies on an efficient and safe infrastructure system. Chambers of 

Commerce constantly tell us that mobility increases competitiveness; however, congestion disrupts the supply chain, increases the 
30 

cost of doing business, and threatens the ability to attract and retain employees. 

Our Nation has tremendous infrastructure needs in all modes of 

transportation, and significant funding is needed to meet those 

needs. We must rebuild and maintain our current infrastructure in 

a state of good repair and add capacity across all modes of transportation to improve mobility and address growing congestion. My 

statement provides details on those needs and the costs to address 

them. 

The Recovery Act is playing a major role in meeting the Nation’s 

infrastructure challenges. From an industry perspective, the Recovery Act stabilized what may have been a devastating construction 

season. With little work available in other sectors of the construction industry, it provided a lifeline to many large and small construction companies and their employees. The most important discussion to have about the Recovery Act investments at this point 

is that those investments are coming to an end. If it is allowed to 

end without new funding in place, the construction industry will be 

decimated, our infrastructure will continue to fall into a state of 

good repair, and congestion will mount while State transportation 

departments cut back programs and wait for long-term stable funding. 

The authorization of a long-range surface transportation bill is 

critical not only to our industry, but to the safety of the traveling 

public and the competitiveness of America’s business community. 

To fully fund a reauthorization bill, Congress and the Administration need to make tough decisions on infrastructure funding. In the 

near future, Congress will have to decide whether to scale back 

transit and highway investments, add to the deficit, or raise new 

revenues. We are willing to work with you and stand by you as 

these decisions are being discussed. 

A National Infrastructure Bank should be part of those discussions. An infrastructure bank can provide for megaprojects that are 

not easily supported under existing programs, draw outside dollars 

into the transportation funding scheme to fund large projects and 

preserve more core funding for basic needs, and create a competitive process that would ensure the best projects are funded. 

Mr. Chairman, we commend the Committee for advancing the 

discussion on a National Infrastructure Bank. I can assure you 

that the construction industry, labor unions, and Chambers of 

Commerce in Connecticut stand ready to help you as these discussions go forward. 

Again, thank you for this opportunity, and I would be happy to 

respond to any questions. 

Senator REED. Thank you very much, gentlemen. 

Let me first recognize Senator Warner, then Senator Corker; 

then if no one arrives, I will conclude. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. I would like to 

thank the panel for their very good comments. I also feel if we 

could only get Governor Rendell a little bit excited about this issue, 

it would be helpful. 

Let me also acknowledge something that I think everybody said. 

This concept of bringing public capital and private capital together 

is critical, and I would add, Governor, that the Commonwealth of 
31 

Pennsylvania has done some extraordinary things, but the real 

leader in public–private partnerships has been the Commonwealth 

of Virginia. We go back a decade-plus on some of these initiatives 

in terms of trying to draw together—trying to get private sector 

capital into our infrastructure. And Lord knows anybody that has 

driven in Northern Virginia knows we have not solved that problem yet. But it is a tool. 

I have got two questions. The first question is: My sense—and 

I think this panel has reflected that the idea of the National Infrastructure Bank really means it is one tool particularly for some of 

these larger, more expansive projects. And the key here is to get, 

again, the private sector at the table, and I particularly want to 

thank my friend Mr. Wolf for his leadership on this issue for some 

time, particularly in terms of rallying some of his colleagues on 

Wall Street. 

One of the things I have thought about for some time—and this 

would have some controversy perhaps more on my side of the aisle. 

But as we think about these national infrastructure projects of significant importance, if the National Infrastructure Bank was to target in on some of these, have you all given any thought to the notion that, you know, part of the price of, in effect, qualifying for the 

infrastructure bank to participate might be an expedited regulatory 

process? 

One of the biggest challenges we have for any kind of transportation project—as someone who has still got the scars of working 

for 20 years trying to get rail to Dulles—is that the regulatory 

overhaul—the appropriate environmental reviews, other process reviews—becomes such an added transaction cost, that something 

that might make sense in terms of the actual dollar construction 

cost gets put into financial uncertainty because of the enormous 

regulatory burden and uncertainty. 

And, Governor Rendell, in your efforts, have you talked about 

any kind of notion that those projects that would qualify for an infrastructure bank funding or potential funding, that part of the 

quid pro quo from the localities and States involved might be an 

expedited regulatory review? 

Governor RENDELL. In fact, Senator, BAF—that is one of our 

principles on our basic goals for the system—is we can and we 

should do this, and I think the post-bridge collapse in Minnesota, 

it was our hope that that would shock the Nation enough to get 

us really involved in a real comprehensive infrastructure program. 

It didn’t do that. But the only benefit that came from that tragedy 

was do you know how long it took Minnesota to rebuild its bridge? 

Nine months. Nine months. Most EISes alone for transportation 

projects take a year, year-and-a-half. They did it in 9 months. 

We can do things like that. The regulatory process doesn’t need 

to take the time that is built in. If we are willing to invest the effort, we can slice through that regulatory process, save money by 

doing it, at the same time preserve the basic things that the regulatory process was intended to protect and do it quickly. And I 

think that would, and maybe Mr. Wolf wants to comment on this, 

but I think that would excite the private sector because it would 

be a quicker return on their investment. 
32 

Senator WARNER. Let me just add one thing before I get to Mr. 

Wolf’s comment, and let me just echo and agree with you. I also 

agree with your notion about the ability for us to lift the restrictions in a reasonable way on Federal interstates. We looked at that 

opportunity, I–81, which goes through your State and mine. 

There was recently a conversation a number of Senators had 

with a very senior member of the Administration. We were talking 

about China’s move on putting in a major high-speed rail link within 3 years and kind of the comment was, well, that couldn’t happen 

in America. Whenever we get to the point where we say, that 

couldn’t happen in America because of the processes we have set 

up, well, that is a very different America than I think either of us 

grew up in—— 

Governor RENDELL. No question. 

Senator WARNER. ——or want and—— 

Governor RENDELL. We used to be the ‘‘can do’’ country for the 

world. 

Senator WARNER. Amen. And listen, we need appropriate regulatory oversight, but sometimes this becomes a transaction cost 

that makes otherwise fundable projects not fundable. 

Very quickly for Mr. Wolf, and again, I want to thank Robert for 

your leadership on this issue, you are out there on this, but how 

do we get—clearly, your colleagues have done pretty well. I often 

think that one of the quid pro quos maybe of the TARP ought to 

have been really challenging Wall Street to come up with a $2 trillion private sector Infrastructure Investment Bank as the payback 

for the taxpayers rescuing the financial system. 

But how do we make sure that we get not only your institution, 

but the best minds on Wall Street really engaged in this issue in 

a way they can make reasonable returns, not make perhaps outrageous returns, but reasonable returns to get those minds to the 

table? 

Mr. WOLF. Thank you, Senator. I think, one, it would be important to make sure that the model is right, so it would have to be 

a project that is deemed to be having sustainable user fees or revenues that theoretically are paid for, so not a grant process but 

based much more on user and revenue driven. 

I think, second, there would have to be a capital market structure at the project level. I mean, this is not going to be anything 

like a GSE. This is going to be at the project level. It is almost like 

project finance. And so our view would be that the NIB would normally come in, possibly at more like a subordinated debt-type level, 

which they have done in the past. You would have senior debt, you 

would have sub-debt, and then you would probably have some mezzanine debt and equity. 

And then, therefore, for the Government, OK, they would be able 

to maximize their dollars by getting private institutions, but more 

importantly, their risk is defined. Now, the best thing about doing 

it at the project finance level is if it goes well, great. Everyone is 

happy, because the returns are based on the cash-flow of the user 

fees and the time to finish. So to your point, regulatory would have 

to be governed because that would—you know, if it postponed because of all these different hurdles, then that would be a negative. 
33 

On the flip side, let us just say it didn’t go well, which is not 

what we would want, but you would restructure the financing at 

the project level, OK. And where you restructure, I mean, to be 

blunt, private equity loses first. And so I can give you examples of 

how we would structure it that would limit the Government risk, 

OK, and make sure that there was no type of guarantee on the 

whole project. 

So at the end of the day, it has to be based on what we would 

say either the appropriate revenues or the right availability process. 

Senator WARNER. Thank you. Thank you, Mr. Chairman. 

Senator REED. Senator Corker. 

Senator CORKER. Mr. Chairman, thank you, and thanks for your 

courtesy and to each of you for your testimony. 

Governor, we have been on a number of media programs together 

and you always talked in a rational way, so I thank you for that. 

I don’t know what you do when I am not around—— 

[Laughter.] 

Senator CORKER. ——but I certainly have seen you talk in a rational way and I thank you for that and have added to a constructive debate. And, Mr. Wolf, it is good to see you again. 

I am actually here for one reason. I have read the testimony and 

all of that, but I really want to follow up on the last comment Mr. 

Wolf made. I just want to—I don’t understand exactly how it 

works, OK, so the mechanics of how the whole transaction would 

work. So I would love it—I don’t know if it is appropriate for the 

Governor or Mr. Wolf just to walk me through sort of a standard, 

typical transaction, because I think that would be really educational for all involved. 

Mr. WOLF. So, great. Thank you. Good to see you, as well. 

Senator CORKER. Yes. Thank you. 

Mr. WOLF. So I think I will bifurcate the answer into understanding the capitalization and then understanding how a funding 

of a project. 

But from the capitalization perspective, my recommendation 

would be that the NIB would borrow debt and that it would not 

be guaranteed by the Government. It does not have to borrow debt, 

but that would be my recommendation, and the leverage, very different than a GSE, would be capped at two, two-and-a-half times, 

which is where the European Investment Bank was. So there 

would be a defined leverage. 

Senator CORKER. Instead of that, why don’t you just walk 

through a deal. 

Mr. WOLF. A deal—— 

Senator CORKER. Give me a specific deal and just sort of walk 

through it so—— 

Mr. WOLF. So let us just say there was a $1 billion project for 

something that had some sort of user fees. There would be likely 

four different types of investors. You would have $200 million at 

the State or local level. Then you would have billion at the National Infrastructure Bank level. And you would probably have 

somewhere around $350 billion at private debt. And then you 

would have $250 billion at private equity. And it would be completely focused on the cash-flow of that project, OK—— 
34 

Senator CORKER. So every deal, if we could have a little bit of 

exchange, each deal that one would look at would need to have 

some type of user-fee generation for it to work. 

Mr. WOLF. Or availability, but predominately user-feedriven. 

That would be the preference of this. 

Governor RENDELL. So Mr. Wolf is correct. It needs a rate of return. But Deputy Secretary Kienitz before you talked here talked 

about Measure R in Los Angeles. Mayor Villaraigosa persuaded 64 

percent of Los Angeles County residents to vote to raise their sales 

tax by half a cent over a 30-year period. They were to generate 

enough money to do a number of projects, but the most important 

one was to radically expand their light rail system. 

I think, and these figures may not be dead on, but I think the 

project itself, that project was like an $18, $20 billion project. In 

the first 10 years, the sales tax will generate about 8 of the 18. 

What they would seek to do is come to the Infrastructure Bank and 

say, this is a little different from what Mr. Wolf was saying. They 

would say, look, a half cent on the sales tax for Los Angeles County, you can gauge what that return is going to be. 

But we want to get this done in 10 years, not 30. So can you loan 

us, and we are willing to repay you, can you loan us the money in 

the first 10 years of the existence of this project so we can finish 

it in 10 years? You will get your money back by the guaranteed 

rate of return, by the half-penny increase in the sales tax. That will 

be pledged to repay the Infrastructure Bank with the loan. 

So it can be conventional things where the private sector is involved or it can be where the Government is going to do a rate of 

return. When Mr. Wolf talked about availability payments, it is a 

very important concept. Assume that I wanted to do, and I do, but 

I’m going to run out of time, I want to do something called the 

Schuylkill Valley Metro. That is a high-speed rail line from Reading, Pennsylvania, all the way through the Western suburbs of 

Philadelphia into the city. It would be, I think over time, be a 

money maker. But there is no way I can get a private company to 

invest if I say you can have all the fares and you can have some 

of the right of ways at the stations. It is just too much of a risk. 

But if I said to the private company—maybe Mr. Wolf and I can 

do the deal right here today—if I said, Pennsylvania is willing to 

give you, in addition to all the fares and the retail, we are willing 

to give you X-amount of million dollars a year, can you build it— 

it is a $1.1 billion project—can you build it? Well, with that availability payment and the fares, he might be able to take that risk. 

So the thing about it, Senator, is it can respond to all sorts of 

needs like this. And again, I know—look, I have been in Government all my life and I know there is always a tendency to not want 

to lose control because you think your ideas are the good ones, and 

usually they are. But you can structure this—— 

Senator CORKER. Actually, I think if we lost control of a lot of 

things around here, it would be good, so—— 

[Laughter.] 

Governor RENDELL. Well, we lost control of the airline industry. 

That didn’t work out so well. 

Senator CORKER. Yes. 
35 

Governor RENDELL. But if we could—I mean, you can put in the 

criteria. You can put in the framework. But the beauty of the bank 

is, it can be responsive to creative solutions. And again, what Mr. 

Wolf said is so important, and I wish Senator Shelby was here— 

I don’t know if you heard his opening statement or read it. He was 

worried about this becoming another GSE. It isn’t. It isn’t. And the 

Government—— 

Senator CORKER. How does the entity—I know my time is over, 

and probably you have a noon meeting. How does the entity borrow 

money without Federal backing? I don’t get that. 

Governor RENDELL. It borrows money up to the State and the 

Federal investment, but you do that right now in TIFIA. You put 

in $400 million in a TIFIA loan to a project. That is your risk. But 

$400 million is a very small piece of the project. 

Mr. WOLF. Well, it would be very clear. I mean, our creation of 

a National Infrastructure Bank would be the Treasury would put 

in, say, $25 billion, $5 billion a year for 5 years, and that would 

be their equity. And then I would propose a slight leverage at 

maybe two times. That is $75 billion of funding toward the National Infrastructure Bank, which we think can get you $400 billion 

of project. 

Senator CORKER. Yes. You know what would be good? First of all, 

I thank you for the courtesy. I know I am a minute and 57 over. 

I think what would be good for me would be just if you all could 

send like three examples on different types of projects as to how 

your standard, typical deal would work. 

And again, I thank each of you for your testimony and for coming 

up here today. It is rare that we are actually, during this period 

of time, focused on something that is substantive, so we thank you 

for giving us a break in that regard. 

Senator REED. Thank you, Senator Corker. 

Thank you, gentlemen, for your testimony. Governor, I will start 

with you, but a question I want to pose to every member of the 

panel, an important part of this concept is a local contribution. You 

have done a remarkable job in Pennsylvania of coming up with 

local contributions, but there are lots of parts of the country where 

States and cities and municipalities have no capacity or very little 

capacity to match. They have the projects. You can show on paper 

their rate of return is huge. But they don’t have that kind of 

match. So it raises a—or they are going to borrow from Peter to 

pay Paul. They will take from an existing program and they will 

wash the money through something and, voila, so you lose out on 

something else. 

So the question really is, when we think about this, how do we 

make sure, one, that there is a real local match, and two, we don’t 

sort of borrow from other things that have to be done, and essentially it is new money, matching this new money going forward. I 

will start with you, Governor, and then Mr. Wolf, and then Mr. 

Shubert, please. 

Governor RENDELL. Well, I think part of the answer to that is 

to get the private sector involved, that heretofore basically hasn’t 

been involved in transportation at all. But I think the wastewater 

and water and sewer example, there often is private sector involve-
36 

ment, and there, the Government guarantees some of the loans at 

fairly low interest and it works. 

But remember, we all have borrowing capacity, and in most 

cases, in most cases, even in this tough recession, our borrowing capacity is in fairly good shape. Not everywhere, obviously. There are 

some municipalities who are really up against it. 

Take Pennsylvania, for example. I have borrowed a lot of money 

to invest in infrastructure and other projects critical for the Commonwealth. To hear some of my citizens talk about it, I have borrowed every dime ever borrowed in the history of the Commonwealth. Not necessarily true, but we are barely over 25 percent of 

our constitutional borrowing authority in Pennsylvania. We are at 

about $11 billion and it is a $40 billion authority. We are still 

doing very, very well in terms of Wall Street’s analysis of our debt 

capacity. 

There is debt capacity. I mean, the Federal Government is so 

hamstrung by not having your own capital budget. The only part 

of the Federal—DOD, as you know, has a small capital budget built 

in, but it is the only part of the Federal Government that has a 

capital budget. Rhode Island could never have done any of the 

things that it did without a capital budget. And my guess is, you 

match the Federal transportation money in Rhode Island by some 

form of borrowing to come up with the State share. That is what 

we do in Pennsylvania and what most States do. 

So I think having a capital budget gives us the ability even in 

difficult times to continue moving forward, and as my colleague 

from the Connecticut building trades said, the borrowing gets a 

great return on investment. 

You know, one of the things that has always rankled me is the 

CBO scores everything up here and they will score a $400 billion 

infrastructure program at $400 billion, and yet it is easy to demonstrate how in increased individual taxes that these workers who 

are now earning nothing would pay, in additional corporate taxes, 

in the avoidance of unemployment compensation, that most of 

these 70 percent unemployed guys are, that $400 billion, my guess 

is the Federal Treasury would get back $100 or $125 billion, and 

yet it is scored at $400 billion. 

Senator REED. Mr. Wolf? Thank you. 

Mr. WOLF. Thank you, Senator. One, the creation of a National 

Infrastructure Bank would be more for the large regional and national projects, but to answer the question more on local, first, the 

burden of local governments is just too high. They are funding 75 

percent of the infrastructure. It is just disproportionately too big. 

Governor RENDELL. State and local. 

Mr. WOLF. State and local. And then, second, I think that you 

really have to look at the projects that are being put forward. They 

have to be merit based. So it has to be either user based, availability based, but it has to have some sort of sustainable perspective for a National Infrastructure Bank. If you are going to the 

grant process, my recommendation would be to work more with the 

agencies. 

Senator REED. Mr. Shubert, from your perspective on the ground. 

Mr. SHUBERT. Thank you, Senator. From our perspective, and 

being from Connecticut, we see large megaprojects. We are to the 
37 

point now in Connecticut where four megaprojects are basically devouring our transportation program. And as our State starts looking for new revenue sources to start funding megaprojects in the 

future—like Rhode Island, we are in the Northeast. We have an old 

system. It is running over capacity. The winter weather, everything 

affects our system. It is falling into disrepair faster than we are addressing it. 

We are going to have a line of these megaprojects into the future. 

If we can fund some of those megaprojects through an Infrastructure Bank, that will free up more regular formula funding for us 

to apply toward our basic needs. And also, across the country, the 

same thing would apply. If there is more and more use of an Infrastructure Bank, that is taking projects out of the core system, 

which leaves more money in the core system overall for all the 

States. 

Governor RENDELL. And, Senator, one other thing. Building 

America Bonds have been a great help to municipal and State governments. We couldn’t have financed a number of the major construction projects we have done in the teeth of the recession within 

BABs and they should be, whether it is at 35 percent or 28 percent, 

they should be reauthorized. 

Senator REED. Well, thank you, Governor, not only for your testimony, but for your great leadership in Pennsylvania. And Mr. Wolf 

and Mr. Shubert, thank you for your excellent testimony here 

today. 

My colleagues might have additional questions. You could get 

them. We will send them to you, and please respond in a prompt 

manner for additional questions. 

But thank you again for your insightful testimony and the hearing is adjourned. Thank you. 

[Whereupon, at 11:58 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 
38 

PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

I call the Committee to order. Today, we are here to discuss how investing in our 

public infrastructure can help to strengthen our economic recovery and create wellpaying jobs for American workers. 

In 1955, President Dwight Eisenhower sent a message to Congress. In it, he 

called on Congress to meet the challenge presented by a national economy that was 

rapidly outgrowing its capacity to transport people and goods. The result of that 

message was a monumental Federal investment in our national infrastructure—our 

Interstate Highway System. 

Eisenhower’s initiative was broad in scope, and bold in conception. It built upon 

over a century of investments in our railroads, ports, water and sewer systems, and 

other infrastructure. These investments helped build the world’s strongest economy. 

Now other nations are catching up and focusing a greater share of resources on 

infrastructure investment than the United States. China puts 9 percent of its GDP 

towards infrastructure projects and India contributes 5 percent. 

These countries are focused on providing their citizens with fast, reliable transit 

options. They are lowering their reliance on fossil fuels. 

They are making investments on the scale that our Nation made early in the 20th 

century—but they are focusing on the needs of a 21st century economy. 

We can’t settle for second place. 

We need to do better. This includes passing a long-term surface transportation bill 

which will remain the backbone of our transportation policy. Only a long-term bill 

can give our State and local governments the certainty they need to ramp up investments in our road, transit, and rail infrastructure. While these investments are vital 

to the health of our transportation systems, we also need a new approach to infrastructure finance. 

A National Infrastructure Bank will build on our Nation’s legacy of bold, innovative investments in public infrastructure. It would complement our current infrastructure financing programs in a manner that delivers taxpayers the best bang for 

their buck. 

First, an infrastructure bank would create a competitive, merit-based process to 

distribute money. Projects would be subject to cost-benefit analysis to determine 

their national and regional economic impact. 

Second, a well-designed National Infrastructure Bank would leverage State, local, 

and private funds to support these investments. With the current system of formula 

grants, States often simply substitute Federal funding for State funding. The Infrastructure Bank’s competitive selection process can reward those projects that best 

leverage new public or private funding to expand the pie, not just rearrange the 

slices. 

Lastly, it would allow us to shift our focus from the near-term to the long-term. 

This will provide opportunities to fund large projects of national and regional significance, projects that require vision and patience. Investments like these will fuel 

our economy and create jobs over the long-term. 

With my former colleague Senator Chuck Hagel, I originally proposed legislation 

that would have established such a bank on August 1st, 2007. Our announcement 

received little notice or fanfare—until a few hours later when the tragic I-35 bridge 

collapse happened in Minnesota. I’d like to applaud President Obama—who cosponsored my 2007 legislation—for his continued support of this important idea. 

This is our opportunity to embrace the legacy of big-picture thinking that led to 

investments on the scale of the Interstate Highway System. By establishing a National Infrastructure Bank, we’re affirming our commitment to building a prosperous 21st century economy. 

I look forward to today’s testimony, and I’d like to turn it over to Senator Shelby 

for his remarks. 

PREPARED STATEMENT OF SENATOR TIM JOHNSON 

Mr. Chairman, thank you for holding this hearing today regarding the need to invest in our Nation’s infrastructure. I commend your focus on infrastructure as an 

investment in jobs and our economy. I am also pleased that President Obama has 

focused national attention on strengthening our transportation systems and other 

infrastructure to ensure long-term economic growth and competitiveness. 

This hearing examines an important topic. Throughout my congressional career, 

I have worked to improve South Dakota’s highways and transit systems, water systems and stock of affordable housing. Infrastructure investments are needed across 

the State—in Indian Country, in our rural areas, and in our cities—and those investments are in the national interest. 
39 

Mr. Chairman, in the 110th Congress you introduced legislation to address infrastructure concerns in housing, water, and transportation. This Committee held a 

hearing on the legislation in March of 2008. 

I’d like to reiterate an issue I raised in my statement at that hearing. Specifically, 

I want to ensure that we take rural as well as urban concerns into account in examining investment needs and developing any response. For example, in my State we 

have important needs but relatively few projects that would involve a minimum $75 

million Federal commitment, a minimum threshold that has been suggested in the 

past. Also of concern are project criteria that emphasize leveraging. In low population density States, the ability to provide meaningful financial leverage and to attract outside investors may be quite limited. Small numbers of people not doing especially well economically are not as well equipped to contribute to projects as large 

numbers of workers in large metro areas. This is especially a concern in Indian 

Country and in other poor rural areas. The citizens in these less populated States 

still have important needs in housing, in water systems, in transportation that 

should be of concern to this Committee. 

So, as we examine the issues of infrastructure needs and possible responses, I 

hope that any solutions we develop would provide meaningful opportunities for investment in States like South Dakota, as well as in more populous areas of the 

country. 

Mr. Chairman, thanks for your efforts on this issue. I look forward to working 

with you. 

PREPARED STATEMENT OF SENATOR MIKE CRAPO 

Mr. Chairman, today the Committee hears testimony on infrastructure investment needs and possible responses, including a possible infrastructure bank. 

In my time in public service I have worked consistently to support needed highway, transit, and other improvements to infrastructure in Idaho and I agree that 

infrastructure deserves the attention of the Committee. From my work in this area, 

I can assure my colleagues that the infrastructure investment needs our Nation 

faces include needs in a relatively rural State like Idaho as well as in large metropolitan areas. 

So, as we hear testimony and consider possible approaches to this issue, I will 

be interested in learning how we can ensure that any proposed solutions that we 

develop would be responsive to needs in a State like mine as well as to other needs. 

For example, in infrastructure bank legislation that was introduced in 2007 there was a Federal project amount minimum of $75 million. That might not seem high 

in big States and cities but it is an amount that looms as a possible barrier to participation for smaller States. Also of concern are project criteria that emphasize 

leveraging and revenue streams. With respect to transportation projects, a revenue 

stream may well mean toll roads. Those are not feasible with the traffic levels prevalent in lower population density States. 

So, as we consider infrastructure issues, we need to keep in mind the concerns 

and needs of rural States as well as those of large metropolitan areas. 

Mr. Chairman, thanks for your interest in this issue. I look forward to hearing 

from the witnesses. 

PREPARED STATEMENT OF SENATOR JOHN F. KERRY 

Mr. Chairman and Senator Shelby, I wanted to thank you for the opportunity to 

testify at this hearing to explore ways to develop a National Infrastructure Bank. 

Rising economic powers around the world are investing in their future—we need to 

do the same before we are left behind. 

Chairman Dodd, I also wanted to take this opportunity to thank you for your efforts to enact historic financial reform and for your great work as Chairman and 

as a Member of this Committee for the past 30 years. As a former Member of the 

Senate Banking Committee, I know your efforts have helped to restore confidence 

in our capital markets and our financial institutions and provided critical new protections to consumers from financial fraud and abuse. 

Mr. Chairman, I also want to thank you for your leadership in bringing attention 

to the critical need to renew and expand America’s infrastructure. I believe we must 

work together in a bipartisan manner to find new ways to finance infrastructure 

projects that create jobs and increase our economic competitiveness. 

There are many ideas about how to do this. However, the costs of tackling this 

problem are high and it’s clear to me that the best way—and the most efficient 

way—is to create an infrastructure bank for the United States. Already, a diverse 
40 

bipartisan group supports the idea of a National Infrastructure Bank including the 

Chamber of Commerce, the AFL–CIO, and SEIU. 

We need to create new and strong incentives for investment here in the building 

blocks for economic competitiveness—roads, bridges, rail, aviation, and other essential infrastructure. 

This is an idea whose time has not just come but is long overdue. And Americans 

know it. Every day, during their commute to work, they drive on broken roads and 

crumbling bridges. They are paying more to fly and spending more time in the air 

than they should because we have failed to invest in modern radar and upgrades 

to our airports. They travel a rail system that is, for the most part, the product of 

another century. And they live in communities that too often are unable to properly 

manage their natural resources. 

How bad is it? Our infrastructure earned a ‘‘D’’ rating from The American Society 

of Civil Engineers, who has estimated that it would cost more than $2 trillion to 

bring our country’s existing infrastructure to an acceptable level. We are talking 

about staggering sums here, and it clearly reflects just how much we have neglected 

our infrastructure—and just how much we need to do in the years ahead. To bring 

that level of investment to market will require a partnership with the private sector 

and the proper delivery of private capital catalyzed by public funds and loan guarantees. 

Well-functioning infrastructure is not a luxury—it is the key to connecting our 

people and creating millions of middle-class jobs for American workers over the long 

term. And it is vital to our economic future in the face of global competition. Our 

growth and exports are directly tied to how our infrastructure operates. Quite simply, we are falling behind many of our main economic competitors, and the further 

we fall behind in this race, the harder it will be to catch up. 

For example, China’s 2009 infrastructure spending is estimated at 9 percent of 

GDP, or $350 billion, and is growing at an annual rate of 20 percent. China’s highway mileage is expected to surpass the United States’ in under 3 years. 

Europe’s infrastructure bank, the European Investment Bank, financed $350 billion in projects from just 2005 to 2009 across the European continent, helping modernize seaports, expand airports, build rail lines, and reconfigure city centers. 

And Brazil has invested over $240 billion in their infrastructure in the past 3 

years alone, with an additional $340 billion planned for the next 3 years. Brazil has 

unveiled major initiatives to invest in infrastructure ahead of hosting the World 

Cup and Olympics, using their own infrastructure bank as a key tool to finance this 

massive expansion. 

To get back in the game we need more than the existing municipal bond market 

system, which is already struggling to support over 80 percent of infrastructure investment in the United States. We have to do more than our existing Federal Government programs, which have been squeezed by the recent economic downturn and 

budget deficits. Fundamentally, what we need is an American infrastructure bank 

that complements our public efforts and acts as a catalyst for significant private investment. 

If done right, I believe an infrastructure bank can change the playing field. It 

would finance projects from high-speed rail to air and sea ports, all with the expectation of being repaid. It would lend directly to economically viable projects of both 

national and regional significance, without political influence. It would be run in an 

open and transparent manner by experienced professionals and have meaningful 

Congressional oversight. 

Americans have always been builders. We built a transcontinental railroad. We 

built an interstate highway system. We went to the Moon. But for too long now, 

we have lacked adequate investments in our infrastructure and what building we 

have done has been without a long-term strategic plan. A National Infrastructure 

Bank will change that. A National Infrastructure Bank will make Americans builders again. 

In deciding whether to create a National Infrastructure Bank, we should also consider this: When President Eisenhower signed the law creating the Interstate Highway System; he noted that, ‘‘Together, the united forces of our communication and 

transportation systems are dynamic elements in the very name we bear—United 

States. Without them, we would be a mere alliance of many separate parts.’’ What 

was true then is still true today. 
41 

PREPARED STATEMENT OF ROY KIENITZ 

UNDER SECRETARY FOR POLICY, DEPARTMENT OF TRANSPORTATION

SEPTEMBER 21, 2010 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, thank 

you for inviting me to appear before you today to discuss how investing in transportation infrastructure can create jobs and grow the economy. 

It’s particularly appropriate that the Committee has titled the hearing ‘‘Creating 

Jobs and Growing the Economy,’’ because transportation infrastructure investment 

has both effects, and the two effects are closely related but separate. Infrastructure 

investment creates jobs by creating work opportunities in construction and related 

industries. These jobs are temporary—lasting from less than a year for simple 

projects to several years for complex projects. After the project is complete, it creates—if it is well-designed and well-chosen—decreases in cost and increases in productivity that will spark economic growth. Our goal at the Department of Transportation is to make sure that both objectives—the short-term goal of creating jobs and 

the long-term goal of growing the economy—are achieved in our infrastructure investments. 

The President’s Infrastructure Investment Proposal 

Two weeks ago, the President laid out a bold vision for renewing and expanding 

our transportation infrastructure—in a plan that combines a long-term vision for 

the future with new investments today. It is time to authorize a new 6-year program 

for transportation infrastructure investment, and the President has called for a 6- 

year authorization that would help restore job growth and economic prosperity today 

while reducing our long-term infrastructure deficit. To accomplish this, the program 

will need a robust level of funding, higher than our current baseline, and, with the 

current state of the economy in mind, the Administration proposes that $50 billion— 

a significant share of the new investments—be frontloaded in the first year. 

Some of the tangible accomplishments of the President’s plan over the next 6 

years will include rebuilding 150,000 miles of roads; constructing and maintaining 

4,000 miles of rail; and rehabilitating or reconstructing 150 miles of runway. 

More generally, our new surface transportation program needs to be part of a 

long-term framework that reforms the infrastructure investment process and expands our levels of investment so that we can build a truly world-class transportation system. We need to streamline, modernize, and prioritize our transportation 

investments, consolidate our dozens of programs into a coherent program structure 

that reflects national needs, and foster a culture of competition and performance 

that will drive investments that will produce better transportation outcomes and 

more livable communities for the American people. 

This program must have a number of key elements. We need to continue the commitment by the President and the Congress to expand our high-speed rail program. 

As the Secretary has traveled around the country meeting with people in outreach 

sessions on our surface transportation program, a recurring theme is that people 

want high-speed rail. They don’t want to have to wait in crowded airports or drive 

for hours on congested highways to get where they want to go. They want another 

choice. They want high-speed passenger rail. 

We need to make achieving a state of good repair in our transportation infrastructure a national priority. Our highways, our bridges, our transit systems, our waterways, our ports, and our railroads have in some cases been allowed to deteriorate 

to the point that they are not safe, are not reliable, and don’t provide an adequate 

level of performance for the American people. As we repair and rehabilitate our infrastructure, we can build in new safety features and new technology that will improve our transportation system’s performance, so that, in every mode, we have a 

truly 21st Century transportation system. 

We need to make livable communities a central part of our transportation program. That means we need to invest in better transit—in both urban and rural communities—to give people the transportation choices they want. We need to give people the option of walking or bicycling on short trips without putting their lives at 

risk by walking or bicycling in the street. We need to give people more fuel-efficient 

options to get where they want to go, and allow people easier access to jobs and 

housing. 

We also need to take advantage of the technological breakthroughs of the past 20 

years in Intelligent Transportation Systems. Advanced technology can multiply the 

effectiveness of our investments, so that we get more safety, more congestion relief, 

and more performance from each dollar of our investments than we could with conventional technology. We have spent billions of dollars on developing new tech-
42 

nology; now we need to deploy it to reap the returns on our research and development investment. 

The reauthorization proposal needs to address our key priorities, and that means 

that it needs an appropriate division of responsibility between the Federal Government, States, and local governments. Each State and metropolitan area has transportation needs, and Federal assistance should help them meet those needs and 

grow their economies while also addressing national priorities. While formula programs can provide basic financial support to States and localities to maintain and 

expand their transportation infrastructure, there are some national goals that the 

Federal Government is uniquely suited to address. The Federal Government should 

address critical freight transportation problems that affect our national economic 

competitiveness and the prosperity of communities all across the country. The Federal Government should focus on the nationwide environmental sustainability challenges that affect the environmental quality of the world that we pass on to our children and grandchildren. Competitive Federal programs would allow the Federal 

Government to direct funds toward projects that can have the best regional and national impacts on our economy, our environment, and our other critical national 

goals. For too long, these critical national needs have been falling through the 

cracks of our stovepiped transportation programs. We need a truly national transportation program to address national needs. 

Moreover, competitive programs can promote an environment where projects competing with one another for support are forced to demonstrate how they can be more 

effective in advancing our performance measures and strategic goals. As projects 

that are most cost-effective, most innovative, and based on the best analysis show 

that they can win additional financial support, the entire culture of transportation 

infrastructure investment is pushed toward a more data-driven, outcome-oriented 

framework. 

The Secretary has proposed five national transportation goals as part of the Department’s Strategic Plan—Economic Competitiveness, Safety, State of Good Repair, 

Livability, and Environmental Sustainability. If we want to achieve these goals, we 

need to be able to direct our transportation funds toward whichever mode of transportation—or combination of modes of transportation—can most effectively achieve 

those goals. So we need to step away from the traditional stovepiped approach to 

transportation funding. An Infrastructure Bank provides an important opportunity 

to compete projects in a way that breaks away from these stovepipes. 

Finally, we need to make sure that the process of deciding which projects to invest 

in is based on the best analysis possible. If we want to use transportation infrastructure to grow the economy, we need to use economic analysis to find out which 

projects will have the greatest impact on economic growth. In order to achieve and 

maintain a state of good repair for the Nation’s transportation infrastructure, we 

need to use asset management systems to develop a complete inventory of our transportation assets and analyze what stream of maintenance, repairs, and rehabilitation will maintain a state of good repair over the life-cycle of the infrastructure at 

the lowest possible cost. If we have specific goals that we are trying to achieve, we 

need to use economic analysis to determine which projects will achieve those goals 

in the most cost-effective way possible. 

The surface transportation program also needs to take advantage of all the financing options available to us. Some parts of the transportation system can generate 

a revenue stream that can pay for the project without tax revenues. For these 

projects, the Government may need to advance the money up-front, at least in part, 

but then the taxpayer can be paid back from the revenue stream that the project 

generates. 

So we need a financing institution that can provide a range of financing options— 

grants for projects that by their nature cannot generate revenue, and loans and loan 

guarantees for projects that can pay for their construction costs (or part of their construction costs) out of a revenue stream. In short, we need the Infrastructure Bank 

that the President has proposed. 

The Infrastructure Bank can be designed to embody all of the key elements I have 

described. It can avoid the excessive stovepiping of funds into narrow categorical 

programs. It can be focused on directing its investments toward achieving the strategic goals that the Congress designates. It can be provided with a professional staff 

that can focus its attention on meeting national and regional transportation needs. 

It can have a broad modal scope, so that it can invest funds in whichever mode of 

transportation—land, water, or air—is most suited to achieving our strategic goals. 

It can apply the tools of economic analysis to select projects that can be demonstrated to have the greatest possible impact on those goals. It can foster an environment of competition and innovation that will encourage the best projects to be 

funded. And it can offer the combination of financing options—grants, loans, and 
43 

loan guarantees—that will allow it to leverage public funds and get the best results 

from our limited budgetary resources. 

We recognize that these proposals represent a major change in how we have envisioned our transportation program in the past. But we pledge to work with the Congress to design this program and to figure out the best way to pay for it. 

Creating Jobs 

The President’s new plan will build on what we have already accomplished in the 

American Recovery and Reinvestment Act. That Act embodies these twin goals in 

its title—short-term job opportunities to achieve recovery, and long-term economic 

growth based on reinvestment. 

We are making good progress on using our Recovery Act investments to create 

jobs. As you know, the measurement of the jobs created under the Recovery Act is 

subject to two different sections of the Act, each of which calls for a slightly different 

measure of the number of jobs created. Section 1201 of the Act (which applies only 

to the Department of Transportation) calls for DOT to measure the number of ‘‘jobyears’’ created by the Act. A ‘‘job-year’’ is one person working for one year. So if a 

project keeps 100 people working for 2 years, it creates 200 job-years. Section 1512 

of the Act is less clear—it asks us simply to measure the number of ‘‘jobs.’’ This 

has been interpreted as meaning the number of full-time-equivalent jobs that have 

been created by the Act. Returning to our example, if 100 people are employed for 

2 years on a project, then the full-time-equivalent number of jobs is 100. So it is 

easy to see that the varying statutory language in the two sections of the Act can 

result in two different measures of the number of jobs created. 

But the important point is that jobs have been created, by either measure. Our 

measure of the number of job-years created has risen steadily as more projects have 

been started and completed. In our first report on job-years created, as of April 30, 

2009, the program had just started, and only a few projects had broken ground. We 

recorded only 130 job-years. In our second report, as of July 31, 2009, we had begun 

to make a real impact, with 15,000 job-years created. In our third report, as of January 31 of this year, we were up to 95,000 job-years. As of September 10, we estimate that we had created over 208,000 job-years. 

The number of full-time-equivalent (FTE) jobs, by contrast, is higher during the 

peak construction season in the summer, and then falls during the off-peak period 

in the winter. Unlike job-years, FTE jobs can’t be added from one time period to 

another—they are a snapshot of the number of people working the equivalent of 

full-time at any one point in time. So our first report, for the period through September 30, 2009, showed an average of 46,000 people employed full-time between 

when the Act was signed on February 17th and the end of September. In our second 

report, for the period through December 31, 2009, FTE employment had fallen to 

40,000 employees, because projects were shutting down for the winter. The numbers 

for the first quarter of 2010 showed an even lower estimate, 34,000 employees, because two of these three months were winter months. The most recent estimate, for 

the second quarter of 2010, showed FTE jobs bouncing back up to 62,000 as spring 

and early summer weather made it possible for construction projects to get started 

again, especially in the northern States. Moreover, in creating jobs we are also creating skills. These jobs provide on-the-job training for our construction workforce 

that will make it easier for them to find good-paying jobs in the future. 

While we have created thousands of jobs already, additional opportunities remain. 

Almost all of the funds appropriated to DOT under the Recovery Act have been committed to specific projects, but much of the project funding will continue to be spent 

over the coming year, creating hundreds of thousands of new jobs. Some States emphasized the ‘‘Recovery’’ part of the Act, and spent their money quickly on projects 

that could be started and completed in a few months. Other States emphasized the 

‘‘Reinvestment’’ part of the Act, and chose to spend their funds on more complex 

projects that could create greater long-term improvements to their economies, but 

which took longer to plan and execute. These projects will not be completed until 

next year, and they will continue to create jobs through 2011. We knew when the 

Recovery Act was designed that this would be a long recession. The Recovery Act 

will continue to create jobs in 2011 and 2012 and continue to help the economy to 

recover. We estimate that the DOT portion of the Recovery Act will create 523,000 

job-years, so we have plenty of jobs left to create in 2011 and 2012. 

Growing the Economy 

Infrastructure investment doesn’t just create jobs—it grows the economy over the 

long term. There is an extensive economic literature that bears out this observation. 

Let me give you a few examples. 
44 

1The most recent of these is Theofanis P. Mamuneas, ‘‘Contribution of Highway Investment 

to National Economic Growth’’ (Federal Highway Administration, July 2008). 2Glen Weisbrod, Donald Vary, and George Treyz, ‘‘Economic Implications of Congestion’’, National Cooperative Highway Research Program Report #463 (Transportation Research Board, 

2001). 3Donald J. Graham, ‘‘Agglomeration, Productivity, and Transportation Investment’’, Journal 

of Transport Economics and Policy, v. 41, pt 3 (September 2007), pp. 317–343. 

First, if you look back in history, the effect of our transportation investments on 

growing the economy is undeniable. In the 19th Century, investments in canals and 

railroads opened up the agricultural lands of the Midwest and allowed the productive bounty of that land to be shipped to markets in the East and abroad. In the 

20th Century, the construction of the Interstate Highway System and our network 

of hub airports made possible convenient, long-distance automobile transportation 

and high-speed, long-distance air passenger transportation. The taming of the Mississippi River system with locks and dams made possible low-cost barge transportation of Midwest grain to export ports. More than 200 years ago, Adam Smith 

grasped the essential role of transportation in the economy when he observed that 

The greatest improvements in the productive powers of labor . . . seem to 

have been the effects of the division of labor, [and] the division of labor is 

limited by the extent of the market. 

He then went on to explain how transportation improvements in 18th century 

Britain expanded the extent of the market and allowed the British economy to grow. 

Second, the Department has sponsored research that quantifies the impact of 

transportation investments on the growth of the economy. In a series of studies conducted by Ishaq Nadiri and Theofanis Mamuneas, our research has estimated that 

our expenditures on transportation infrastructure have had a huge payoff on economic productivity. 1 On the average, from 1949 to 2000, investments in transportation infrastructure had a 31 percent rate of return. This rate was particularly 

high when we were first building the interstate highway network, when we had 

rates of return as high as 48 percent. But even more recently, in the 1990s and 

2000s, we have had rates of return of 6–16 percent. 

Third, in urban areas, improvements in transportation infrastructure have impressive economic effects. Studies by Glen Weisbrod and his colleagues in the Chicago and Philadelphia metropolitan areas showed that investments in transportation infrastructure that reduced travel times by as little as 10 percent would reduce business operating costs in Chicago by $980 million and in Philadelphia by 

$240 million each year. 2

Fourth, more recent research by Daniel Graham of Imperial College, London, has 

shown that, in urban areas, ‘‘agglomeration effects’’ of reducing the costs of travel 

and freight transportation increase productivity. 3 Businesses are more productive 

when it is easy for them to ship goods to one another and to travel to one another’s 

offices and facilities. Even after taking into account the time savings for freight and 

passenger transportation from transportation investments, there is a further 25-percent increase in productivity resulting from these agglomeration effects. 

We have seen these effects in the transportation projects we have reviewed as 

part of our TIGER Grants program. When the Congress authorized the TIGER 

Grant program last year, and we issued guidance to applicants, we wanted to make 

sure that we could choose the best projects possible. To achieve this, we required 

applicants, at least for the larger projects, to do a careful analysis of the benefits 

and costs of their proposed projects. We then organized a team of economists from 

within the Department to review those analyses and make sure that their estimates 

were valid. The results gave us confidence that the projects we were selecting were 

truly the best projects available. 

We repeatedly found projects that had measurable benefits well in excess of their 

costs. For example, the Priority Bus Transit project for Washington, DC, had benefits as much as six times its costs. The Kansas City Transit Corridors project had 

benefits equal to at least twice its costs. Several other projects were in the same 

range. We can invest in these projects confident that we are getting our money’s 

worth. 

We want to emphasize that growing the economy is not the only factor that influences our choices of transportation projects. Not all of the benefits of transportation 

projects can be translated into dollars and cents. Many of the elements that make 

our urban areas more livable—sidewalks and trees and multiple transportation options—are difficult to assign dollar values to. And we take these kinds of benefits 

seriously, too. But we also pay attention to the effects of transportation on increas-
45 

ing the number of dollars in our pockets—dollars that enhance our economic security and our sense of well-being. 

It’s plainly apparent that the Nation’s economy is not producing the prosperity 

that we all expect. There are, of course, many reasons for that, including defects 

in our financial markets and excessive financial leverage that many consumers were 

encouraged to engage in during recent years. But clearly one contributing factor is 

that we have not allocated the Nation’s public investment well. We have not invested enough in the public infrastructure that generates demonstrable returns in 

increased productivity, while we have invested too much in projects whose value 

was supported more by speculative expectations than by demonstrable contributions 

to productivity. It’s time to refocus our investment priorities toward projects of enduring value—projects that make a solid contribution to our Nation’s economic wellbeing. The Department of Transportation stands ready to play its part in that effort. 

Thank you, Mr. Chairman, for this opportunity to appear before you. I would be 

happy to respond to any questions that you have. 

PREPARED STATEMENT OF ALAN B. KRUEGER 

ASSISTANT SECRETARY FOR ECONOMIC POLICY AND CHIEF ECONOMIST, DEPARTMENT

OF THE TREASURY

SEPTEMBER 21, 2010 

Introduction 

Thank you Chairman Dodd, Ranking Member Shelby, and distinguished Members 

of the Committee for inviting me to testify before your Committee today. I appreciate the opportunity to discuss proposals to improve our Nation’s infrastructure investment and finance system. 

Infrastructure is an essential part of the U.S. economy. Publicly owned transportation infrastructure—including the roads, rail lines and airports that businesses 

use to transport and deliver goods, and that people use to commute to work, visit 

their families and travel the country—makes up nearly 13 percent of our total nonresidential capital stock according to the Bureau of Economic Analysis. In addition, 

spending on public infrastructure is a significant part of Government activity. According to the Congressional Budget Office, public investment in transportation infrastructure in 2006 was approximately $140 billion (6.4 percent of total Government spending), which was split roughly equally between the Federal Government 

and State and local governments. 

The President has announced a bold plan to renew and expand America’s transportation infrastructure through an up-front investment connected to a 6-year reauthorization of the surface transportation program. Under Secretary Kienitz is providing an overview of that plan. 

In my testimony, I will discuss several aspects of the President’s infrastructure 

proposals. First, I will evaluate why, from an economist’s perspective, focusing on 

infrastructure investment makes sense, especially in the current economic environment. Second, I will discuss some of the long-term benefits from increasing our investment in infrastructure. I will then turn to the core ideas behind the Administration’s proposed National Infrastructure Bank, which were heavily influenced by the 

bipartisan work of Chairman Dodd and a distinguished former Member of this Committee, Senator Hagel. Finally, I will highlight an innovative financing program, 

Build America Bonds, which has provided an efficient new way to provide Federal 

support for financing State and local government infrastructure investments and 

could be a useful tool for the National Infrastructure Bank. 

Infrastructure Investment in the Short-Term 

The recent recession that started in late 2007 had an exceptionally large impact 

on the labor market. The U.S. lost over 8 million jobs between December 2007 and 

December 2009, and the unemployment rate currently stands at 9.6 percent. One 

in five jobs that were lost in the 2-year period beginning in December 2007 was in 

the construction sector. While there are positive signs of recovery in many sectors 

of the economy, additional steps are needed to ensure that the recovery stays on 

track. In this economic environment, accelerating infrastructure investment—building on what we have already accomplished in the American Recovery and Reinvestment Act—makes good economic sense for several reasons. 

First, infrastructure investment will provide opportunities for workers who have 

been disproportionately affected by this recession. Due to the collapse of the real estate market, the contraction of employment in the construction industry has been 

especially acute. Since December 2007, the construction industry has lost 25 percent 
46 

1 Congressional Budget Office, ‘‘Policies for Increasing Economic Growth and Employment in 

the Short Term’’, January 2010. 2See, James R. Hines, Hilary Hoynes, and Alan Krueger, ‘‘Another Look at Whether a Rising 

Tide Lifts All Boats’’, in The Roaring ’90s: Can Full Employment Be Sustained?, edited by Alan 

B. Krueger and Robert Solow, Russell Sage and Century Fund, 2001. 3Munnell, Alicia, ‘‘Policy Watch: Infrastructure Investment and Economic Growth’’, Journal 

of Economic Perspectives, Vol. 6, No. 4, (Fall 1992), pp. 189–198. 4Gramlich, Edward, ‘‘Infrastructure Investment: A Review Essay’’, Journal of Economic Literature, Vol. 32, No. 3 (Sept., 1994), pp. 1176–1196. 5Fernald, John G., ‘‘Roads to Prosperity? Assessing the Link Between Public Capital and Productivity’’, The American Economic Review, Vol. 89, No. 3 (Jun. 1999), pp. 619–638. 

of its total payroll jobs. In August 2010, the unemployment rate for construction 

workers stood at 17 percent. This is over three times higher than it was 3 years 

ago. We should move quickly to provide an opportunity for construction workers to 

productively apply their skills and experience. Investment in infrastructure is well 

targeted to that goal, and will take advantage of underutilized resources in the construction sector. 

Second, a wide range of analysts, including economists at the Congressional Budget Office, have found that additional spending on infrastructure is among the most 

effective policy options for raising output and employment. 1 Investment in infrastructure directly increases employment because workers are hired to undertake 

construction projects. Additionally, it adds to demand for goods and services through 

purchases of material and equipment and through additional spending by the workers who are hired. This in turn further increases employment and output throughout the economy. 

In addition, during recessions it is common for State and local governments to cut 

back on capital projects, such as building schools, roads and parks, in order to meet 

balanced budget requirements. Past research has found that expenditures on capital 

projects are more than four times as sensitive to year-to-year fluctuations in State 

income than is State spending in general. 2 Tax receipts at the State and local level 

contracted for four straight quarters at the beginning of this recession and are still 

below prerecession levels. The American Recovery and Reinvestment Act provided 

crucial support for infrastructure during the recession. However, we must do more 

to ensure that investment in infrastructure is not reduced for the wrong reasons, 

as the need for improved and expanded infrastructure is just as great during a 

downturn as it is during a boom. 

Finally, we have long been underinvesting in the Nation’s infrastructure—and, as 

I will explain in the next section of my testimony, addressing this shortfall with investments we make today could help spark growth not only now but also in the 

long-term. The American Society of Civil Engineers (ASCE) estimates that we face 

a $2.2 trillion need for infrastructure investment over the next 5 years. We would 

need to roughly double our current level of investment in order to reach the levels 

they recommend. While that analysis might not be an authoritative guide for the 

most efficient investment of public resources, it strongly suggests that additional 

funding can be put to good use. Given the stark difference between their assessment 

of the need for investment and what we are doing, it is not surprising that these 

engineers have given us a ‘‘D’’ for our current efforts. It doesn’t take a professor to 

know that this grade is unacceptable. 

Infrastructure Investment in the Long-Term 

As I just mentioned, investing in infrastructure is not only important to our economy now; it also is crucial to the economy’s long-term health. Investment in infrastructure can have a sustained impact on aggregate output by improving economic 

efficiency and productivity. There have been several major infrastructure investments throughout American history that have allowed goods to be transported more 

quickly and at lower costs, resulting in both lower prices for consumers and increased profitability for firms. Examples include the building of the national railroad system in the 19th century and the creation of the Eisenhower Interstate System in the 1950s and 1960s. 

While economists have debated the magnitude of the productivity gains from various infrastructure investments,3 4 evidence from recent research clearly points to 

a positive and significant effect of transportation infrastructure investment on productivity. In a 1999 paper published in the American Economic Review, John 

Fernald finds that the large infrastructure investments made during the construction of the interstate highway system in the 1960s corresponded with a significant 

increase in the productivity of vehicle-intensive industries (such as transportation 

and gas utilities), relative to industries that do not depend heavily on vehicles (such 

as apparel and textiles and plastics). 5 Fernald’s findings suggest that, in the past, 
47 

6 Haughwout, Andrew F., ‘‘Public Infrastructure Investments, Productivity, and Welfare in 

Fixed Geographic Areas’’, Journal of Public Economics, Vol. 83, No. 3, (Mar. 2002), pp. 405–428. 7Quintana-Domeque, Climent, and Marco Gonzalez-Navarro, ‘‘Street Pavement: Results from 

an Infrastructure Experiment in Mexico’’, Industrial Relations Section, Princeton University, 

Working Paper No. 556, (Jul. 2010). 

investment in infrastructure led to substantial productivity gains, and they point to 

the potential for further increases in productivity through additional, well-targeted 

investment. 

In addition to improving productivity, infrastructure is a public good that provides 

lasting benefits to consumers and households. Evidence from economics research, including preliminary evidence from a randomized experiment involving road paving 

in Mexico, suggests that infrastructure investment can raise housing values, which 

reflects an improvement in living standards.6 7

Of course, policy should adjust to take advantage of new investment opportunities 

made available by technological progress and we must be mindful of the fact that 

at some point, the economy reaches the point of diminishing returns from further 

investments in a particular area. As Fernald observed, ‘‘Building an interstate network might be very productive; building a second network may not.’’ 

The Case for a National Infrastructure Bank 

A well designed National Infrastructure Bank could help achieve three major policy objectives. It could: 

• increase overall investment in infrastructure, and, specifically, attract private 

capital to coinvest in specific infrastructure projects; 

• improve the efficacy of our infrastructure investment by having a merit-based 

selection process for projects; and 

• fill in the gaps in our infrastructure funding system, which currently disadvantages investments in multimodal and multijurisdictional infrastructure projects. 

As I indicated earlier, there is a large gap between our current level of investment 

in infrastructure and the level that outside experts assess is needed to maintain our 

transportation infrastructure. We are also investing less than other countries as a 

percentage of GDP. Last week, President Obama noted that our total infrastructure 

investment as a share of GDP is much less than infrastructure investment in Europe and China. While we are investing 2 percent of our GDP, Europe is investing 

roughly 5 percent and China is investing 9 percent. 

One way to address the need for more infrastructure investment is to attract more 

private capital for direct investment in transportation infrastructure. There is currently very little direct private investment in our Nation’s highway and transit systems. The lack of private investment in infrastructure is in large part due to the 

current method of funding infrastructure, which lacks effective mechanisms to attract and repay direct private investment in specific infrastructure projects. It also 

results because the private benefit for investors is less than the benefit for society 

as a whole, because of externalities from infrastructure. The National Infrastructure 

Bank could address these problems by directly funding selected projects through a 

variety of means. The establishment of a National Infrastructure Bank would create 

the conditions for greater private sector coinvestment in infrastructure projects. 

Secondly, with a few notable exceptions, Federal funding for infrastructure investments is not distributed on the basis of a competition between projects on the basis 

of rigorous economic analysis or any cost-benefit comparisons. The current system 

virtually ensures that the distribution of investment in infrastructure is suboptimal 

from the standpoint of raising the productive capacity of the economy. 

To address the lack of merit-based funding, the National Infrastructure Bank 

would develop a framework to analytically examine potential infrastructure projects 

based on cost-benefit analysis, and evaluate the distributional impact of both the 

costs and benefits of each project. Of course, not all of the costs and benefits can 

be quantified, but an effort should be made to quantify what can be quantified and 

to take account of any additional benefits and costs to society. A rigorous analytic 

process would result in support for projects that yield the greatest returns to society, and would avoid investing taxpayer dollars in projects where total costs exceed 

total societal benefits. The National Infrastructure Bank would select projects along 

a sliding scale of support that most effectively utilizes the bank’s limited resources, 

targeting the most effective and efficient investments. 

I should clearly acknowledge that creating a framework for project selection based 

on cost-benefit analyses of competing infrastructure projects is challenging. For example, consider the well publicized cost of congestion. The Texas Transportation Institute recently estimated that in 2007 some 4.2 billion hours were spent sitting in 
48 

8Kile, Joseph, ‘‘Issues in Infrastructure Investment’’, National Tax Association Conference. 

Congressional Budget Office, Philadelphia, 26 Sep. 2008. Address. 

traffic in 439 urban areas, which they calculate is equivalent to nearly one full work 

week for the typical American. Valuing the time lost due to being stuck in traffic 

may appear simple at first, if you only think about the cost of that time as equal 

to the lost income (i.e., valued at the marginal wage rate). However, not everyone 

can find a job or wants one, so it is not clear that time spent in congestion should 

be valued at the wage rate. The Department of Transportation, in its guidance on 

this matter, recommends a variety of values of time, depending on whether the travel takes place as part of paid business travel, local commuting travel, or long-distance leisure travel. The value of time in freight transportation is even more complex, varying with the value and ‘‘perishability’’ of the cargo that is being transported. Additionally, there are costs of commuting beyond lost time. A recent survey 

by Gallup, for example, found that those with long commutes are more likely to experience back and neck pain. All of these potential costs of congestion—and corresponding benefits of alleviating congestion—should be factored into any cost-benefit analysis of infrastructure alternatives. 

Finally, in addition to the lack of merit-based funding within one mode of transportation, coordinating multimodal projects in the current system is extremely difficult because each mode of transportation has distinct funding sources. Each of 

these funding sources has different requirements, Federal and State matching limits, and other restrictions. Complicating matters further, if a multimodal project 

crosses State lines, there could be significant difficulty accessing the capital markets 

for local funding given the difficulty inherent in multi-State debt issuances. Because 

of the current criteria underlying infrastructure investments, we have lost sight of 

the larger rationale for national infrastructure investment. 

As a result, there has been an underinvestment in multimodal and multijurisdictional infrastructure projects, compared with single modes and single jurisdictional projects. A National Infrastructure Bank would be tasked with assisting 

projects that are multimodal and/or cross jurisdictional boundaries. 

A corollary to this point is the potential value that can be generated from socalled ‘‘network effects.’’ Network effects suggest that investments in certain areas, 

such as infrastructure, can lead to increasing returns based on the size and 

interconnectivity of the broader network. A classic example is telephones: if only one 

person has a telephone, the value is much less than half as great than if two people 

have telephones. This is particularly important when one considers the new types 

of investments that can be financed by the National Infrastructure Bank. 

Multimodal, multijurisdictional investments will improve the connections between 

our existing infrastructure networks, such as better links between our ports and our 

freight rail lines, or connecting our airports and intercity passenger rail lines to individual cities’ public transit systems. 

As infrastructure investments often have broad benefits for society as a whole, it 

is incorrect to simply assign the benefits of a project directly to the area where the 

infrastructure is built. For example, a project that improves the connectivity between a freight rail line and a port to allow for quicker, cheaper and more reliable 

service will be a benefit for the producers of goods, who will use the rail line to send 

their goods to the port for export. Those producers may be thousands of miles from 

the actual infrastructure investment, but they will enjoy a portion of its benefits. 

Innovative Financing 

In addition to improving the targeting of our infrastructure investment, we need 

to consider new ways to finance it. A National Infrastructure Bank should be at the 

forefront of innovative and sound ways for financing worthy infrastructure projects. 

According to the Congressional Budget Office, there is little direct private investment in our Nation’s surface transportation infrastructure system, and this is a 

challenge that the National Infrastructure Bank would be able to address. 8 However, State and local governments often turn to the private capital markets to finance infrastructure investment through the municipal bond market, a long standing practice which the Federal Government subsidizes by allowing tax-exempt bond 

status. 

I’d like to highlight an innovative financing tool that was introduced in the Recovery Act and has helped hundreds of States and local governments fund infrastructure projects thus far—Build America Bonds, or BABs. BABs are an alternative for 

issuers who traditionally have issued tax exempt bonds, such as State and local governments. A Build America Bond is a taxable bond for which Treasury pays a 35 

percent direct subsidy to the issuer in lieu of the traditional extension of tax exempt 

status. (Other Recovery Act bonds, which utilize the BABs model, have an even 
49 

deeper subsidy, such as Recovery Zone Facility Bonds.) BABs have enjoyed a very 

positive reception from both issuers and investors. Between the program’s launch 

on April 3, 2009, and August 31, 2010, over $126 billion of BABs have been issued 

by State and local governments in 49 States and the District of Columbia. Last 

spring, the Department of the Treasury estimated that for the $90 billion of Build 

America Bonds issued through March 31, 2010, State and local governments will 

save over $12 billion in present value borrowing costs compared with issuing traditional tax-exempt bonds. This figure has grown since then. 

Given the success of the program, the Administration has proposed to extend the 

BABs program at a subsidy rate of 28 percent, which we estimate would be revenueneutral for the Federal Government. In addition, the Administration has proposed 

to expand the eligible uses of BABs, allowing them to support financing for nonprofits and a wider range of municipal borrowing. This is an example of both building off the successes of the Recovery Act as well as creating innovative financing 

tools for infrastructure investment. We look forward to working with Congress to 

extend this innovative program. Indeed, the value of extending BABs would be even 

greater if a National Infrastructure Bank were in existence to spur public–private 

investments in infrastructure projects. 

Conclusion 

To summarize, a strong economic case can be made to increase our infrastructure 

investments and to accelerate those investments to put people back to work, to partner more with the private sector in funding infrastructure projects, and to take benefits and costs into account in allocating infrastructure investments. The creation 

of a National Infrastructure Bank would be a major step toward achieving these 

goals. 

Mr. Chairman, this concludes my prepared testimony. I thank you for your leadership on these issues. I will be pleased to answer any questions you or other Members of the Committee may have. 

PREPARED STATEMENT OF EDWARD G. RENDELL 

GOVERNOR, COMMONWEALTH OF PENNSYLVANIA, AND COCHAIR, BUILDING AMERICA’S

FUTURE

SEPTEMBER 21, 2010 

Introduction 

Good morning and thank you Chairman Dodd and Senator Shelby for welcoming 

me to the Senate Banking, Housing, and Urban Affairs Committee. Given the President’s recent infrastructure investment announcements, and the interest from people across America, I am very grateful to be here to testify about the need to create 

a National Infrastructure Bank to help finance critical investments in our Nation’s 

crumbling infrastructure. 

Building America’s Future 

I am here both in my capacity as the Governor of Pennsylvania and as Cochair 

of Building America’s Future, which I am honored to lead along with Governor Arnold Schwarzenegger of California and Mayor Mike Bloomberg of New York City. 

Building America’s Future is a growing, bipartisan, nonprofit organization of State 

and local elected officials from across the United States who believe that we must 

reform how we pay for infrastructure and that additional resources must be invested more wisely. 

Our members include 18 sitting governors, 44 mayors of major cities, and 47 other 

State and local elected officials. They are republicans, democrats, and independents 

each working in their own communities to figure out how to repair and rebuild our 

crumbling infrastructure. Given the economic downturn, the decreased budgets in 

States and cities, and the rising unemployment rate, many of us are searching for 

responsible ways to invest more while spurring additional job growth. 

The Need for Additional Investments in Our Infrastructure 

I am struck by what happens every time there is another infrastructure catastrophe in this country. For 24, 48, or 72 hours there is a barrage of news videos 

and articles about those catastrophes but when the cameras leave our collective attention is turned to other issues while the victims and local leaders are left to contend with the aftermath of the disaster. 

Take the recent gas pipeline explosion in San Bruno, California that killed at 

least four people, injured about 50, and destroyed or damaged more than 80 homes. 

Media reports indicate that the pipeline was first installed in 1956. As of now, we 
50 

do not know the cause of that horrible explosion since the National Transportation 

Safety Board and the Pipeline and Hazardous Materials Safety Administration continue investigating. But we do know that many of our pipelines and underground 

systems, such as our drinking water and waste water systems, are old and could 

fail at any moment. 

The question for all of us here today is whether or not we will act in the aftermath of this recent crisis in California or must we wait for another catastrophic 

event to occur before we realize the need to move now and make investments to repair and rebuild infrastructure that was installed during the Eisenhower Administration? 

I do not want to sound alarmist but I know firsthand that an accident of this 

magnitude—or worse—could happen in many other communities whether it is another gas pipeline, a structurally deficient bridge, aging dams, or leaking water 

pipes. Part of the reason many people do not think a problem exists is because these 

assets are hidden or underground. It is only after a disaster occurs do we pay attention to that infrastructure but by then it is too late. 

Many of you may recall back in March of 2008 when I had to shut down I-95 in 

both directions just north of the Philadelphia central business district. An inspector 

from the Pennsylvania Department of Transportation just happened to be in the 

area during lunch and discovered a major crack in one of the main concrete support 

pillars of I-95. We had to shut down the highway for fear that if that concrete pillar 

collapsed several hundred people could have been hurt or killed because 190,000 vehicles per day travel over that section of I-95. Thank goodness that inspector happened to discover that crack or the consequences could have been devastating. 

In the past few years we have seen the I-35W bridge collapse in Minneapolis, 

dams fail in Cedar Rapids, widespread power outages in the Northeast and parts 

of the Midwest, and the levees fail in New Orleans. The cost of the search and rescue and clean-up efforts is in the billions where had we made the necessary investments we may have been able to avoid the costs in dollars and human lives lost. 

The aftermath of Hurricanes Katrina and Rita have already totaled over $15 billion 

in Federal Emergency Management Agency assistance alone according to the Department of Homeland Security. Had we invested more in those levees perhaps we 

could have avoided the painful aftermath. 

We should not wait for another disaster to take action and that is part of the reason why I am here today to discuss how a National Infrastructure Bank can help 

our Nation. 

Building America’s Future has been fighting for additional investments in our Nation’s roads, bridges, transit systems, dams, levees, ports, drinking water and waste 

water facilities, broadband and electricity systems and other infrastructure. We believe that we must not only invest more but we must do so more wisely and with 

a longer-term vision. We must do more if the United States is to remain competitive 

in a global economy. A first class infrastructure system is one way to ensure our 

success in that effort. 

I would also like to include a letter for the record that is signed by many of our 

fellow Building America’s Future governors, mayors, and other local elected officials. 

Whether it is Los Angeles’ ‘‘30/10’’ transit initiative, the construction of high speed 

rail in Florida or California, the public–private Crescent Corridor rail project connecting the South and the Northeast, or the need to address our crumbling bridges, 

dams and levees in other parts of the country we know that the needs for more investment already exists. 

It is my opinion that you can help address that need by passing legislation before 

this Congress adjourns to establish a National Infrastructure Bank. 

President Obama’s Announcement 

That is why I was extremely encouraged with President Obama’s recent announcement that he is asking Congress to create a National Infrastructure Bank, 

provide an additional $50 billion on top of existing funding levels for transportation 

infrastructure, and that he seeks a reformed, robust transportation bill as quickly 

as possible. By doing these three things we can ensure that America’s infrastructure—our transit systems, highways, bridges, runways, pipelines, water and energy 

systems, and high speed rail network—is of the highest caliber for its owners, the 

American people. We will create millions of jobs and boost our economy. 

As I understood the President’s announcement he seeks an additional $50 billion 

on top of existing surface transportation funding levels and some of that money 

would go toward capitalizing a National Infrastructure Bank for projects of regional 

and national significance. What I think is important about this proposal is that the 

cost of such projects will not be shouldered by the Federal Government alone but 

rather the Bank would seek to establish partnerships with Federal, State, and local 
51 

governments as well as more robust private sector involvement. If we do this quickly and properly we can make great progress toward repairing and rebuilding our 

Nation’s crumbling infrastructure. 

The idea of a National Infrastructure Bank is not new. It is a concept that has 

been around for many years and versions of it have been implemented successfully 

in several States like California and South Carolina. And across the pond the European Investment Bank has been financing infrastructure projects since 1958. 

The Need for a National Infrastructure Bank in the United States 

What is missing at the Federal level is a long-term vision about budgeting and 

planning for large-scale infrastructure projects. We do not have a Federal capital 

budget and because of that investments are typically made on an annual basis. We 

must change that investment strategy so that we invest the taxpayers’ dollars in 

the most meritorious projects that have the most economic impact. 

Building America’s Future believes that the United States must create a National 

Infrastructure Bank so that we can have a single entity, staffed by experts, who can 

work to attract and leverage dollars from State and local governments as well as 

the private sector. The Bank will focus on projects of regional and national significance, will remove politics from the process, subject all requests to a benefit-cost 

analysis, and set the standard for accountability and transparency. 

I recently hosted a forum in Pennsylvania to discuss the future of the transportation bill and other infrastructure needs. I was pleased that former Governor Jon 

Corzine, with whom many of you served here in the Senate, came to talk about the 

billions of dollars in private investment funds that are waiting to be invested in the 

United States. These investment funds represent a significant opportunity to be creative in how we go about repairing and rebuilding our infrastructure because they 

will allow us to leverage the Federal dollars that are used to capitalize the bank. 

If we can marshal this private capital then I believe we can make a significant dent 

in the $2.2 trillion funding shortfall that the American Society of Civil Engineers 

says exists in the United States just to bring our systems into a State of good repair. 

Many are rightly concerned about our growing Federal deficit but I believe more 

people are concerned about the growth of our economy. We must invest where it 

makes sense and that means more resources for our transit systems, the creation 

of high speed rail, and removing bottlenecks in and around our ports and cities so 

that people and goods move more quickly, use less gas, and keep costs down. 

If we do this through the National Infrastructure Bank we will create millions of 

more jobs not only on the construction sites but back in the factories that produce 

the concrete, asphalt, aggregate, steel, wood, and other materials that go into these 

projects. We are used to building things in this country and we can do so again by 

standing up the National Infrastructure Bank now. 

One other point I would like to make. Many detractors of a National Infrastructure Bank say that we cannot afford to do this. I say we cannot afford not to do 

it. I would like to know what successful company in the United States has grown 

itself without investing money back into its business. Some say that there should 

be no more spending, no more borrowing, and no more investing. If that argument 

wins the day then I think we will look back upon these times of 9.7 percent unemployment with envy because it will mean not only significantly more unemployment 

but a complete degradation of our infrastructure. Companies will leave our shores 

and we will import more than we export. That cannot be the way of our future. That 

is not the America we know and love. 

National Infrastructure Bank Structure 

We believe that a National Infrastructure Bank should be created with the following basic concepts: 

• Establish the Bank as an independent entity with the greatest flexibility to finance and fund only projects of regional and national significance. 

• Allow the Bank to fund projects beyond just transportation such as ports, drinking and waste water, electrical grid, broadband and others that make sense. 

• Enable merit-based selection of projects by experts so that the most critical and 

feasible projects proceed by employing benefit-cost analysis methods. 

• Ensure Federal assistance at a significant enough scale to make these major 

projects financially viable. 

• Ensure that the Bank has the authority to employ a range of finance and funding tools including, but not limited to: grants, credit assistance, low interest 

loans, tax incentives, Build America Bonds, Private Activity Bonds, enhanced 

TIFIA authority, and others to be determined. 
52 

• Create a method for leveraging public investments with private capital. 

• Establish clear performance measurement standards such as completing 

projects on time and within budget, reducing traffic delays for passengers and 

goods movement, reducing carbon emissions, and improving safety. 

• Provide project expediting capability by eliminating redundancies to speed completion of projects while still ensuring the environment remains protected. 

President Obama’s fiscal year 2010 budget proposed $5 billion per year for 5 years 

for a total initial capitalization of $25 billion for the National Infrastructure Bank. 

In fiscal year 2011 that proposal was modified to be an infrastructure fund administered by the Department of Transportation. However, Congress has not appropriated these dollars primarily because the Bank has not been authorized. I give 

the President credit for supporting this concept with real dollars as it is a sign of 

his commitment to the long-term vision of rebuilding this country through smart, 

targeted investments. 

It is incumbent upon this Congress to pass a National Infrastructure Bank authorization bill this year so that it can be stood up properly next year. And I believe 

that the Obama Administration must engage with the House and Senate in the details of this legislation in the coming days. 

We have heard some concerns about whether or not a National Infrastructure 

Bank means rural States will be ignored to the benefit of urban areas. I do not 

think that is true at all. The Bank will look at projects on a regional and national 

basis. That may mean investments in areas that expand beyond any major city because of the long-term vision. For example, we need to expand our exports and by 

investing in our ports now we can ensure that agriculture products that come from 

our rural areas can get to those foreign markets more efficiently and quickly. This 

would mean a benefit not only to the port in the city in which it is located but to 

the farmers and ranchers who depend upon proper delivery to earn their wages. 

One other way that rural areas will benefit is if existing grant programs that fund 

large-scale projects would concentrate on smaller projects. For example, the Highway Trust Fund has recently been under threat of depletion and insolvency. Transfers of funds from the general fund into the Highway Trust Fund have kept the program alive. I believe that if the National Infrastructure Bank stands up it could 

ease the current strain on the Highway Trust Fund by funding the larger-scale 

projects through the Bank. Therefore, allowing more Highway Trust Fund dollars 

to remain available for smaller projects in rural areas. I think that is a benefit that 

must be studied and explored. 

Ultimately this is about what we are going to do for the American people. The 

average American loses 60 hours a year stuck in traffic. That is time that people 

can never get back and it is time that they cannot spend with their families and 

friends. And it’s costing us $87.2 billion in lost productivity and 2.8 billion gallons 

in wasted fuel each year. 

We must stop this cycle. 

We can do this. This is not rocket science. But we must do so on a good-faith, 

bipartisan basis and with the goal of assuring the Bank’s success. If the Bank is 

successful then our cities, States, and regions will be more successful. 

Conclusion 

Our hope is that if the National Infrastructure Bank is capitalized at the right 

level the Bank will make significant progress towards addressing some of the larger 

projects and outstanding needs in the country while Congress moves forward with 

significant reforms of existing funding silos, policy decisions, and the creation of a 

national vision. 

We believe that Congress must also pass a robust, reformed transportation bill 

that will address our surface transportation needs for the next several years. This 

program needs reforms and I was extremely encouraged that the President recognized that fact and intends to offer a proposal in the coming weeks. 

I know that many of you are hearing from people in your States as I have in the 

Commonwealth of Pennsylvania about the economy and unemployment. People are 

hurting. The construction industry is at 20 percent unemployment and future job 

creation is uncertain at best. As Governor of the sixth largest State in the Nation 

I have done what I can to make smart investments and I can tell you investments 

in infrastructure have created and saved thousands of jobs. What that means is that 

a worker can make the car and mortgage payments, put food on his or her family’s 

table, and contribute to the tax base. It means less people on unemployment and 

more people being productive as part of our workforce. 

That is the fabric of America. 
53 

Is a National Infrastructure Bank going to be the single solution to our unemployment or crumbling infrastructure problems? No, it is not. There are no silver bullets. But we must fight this battle with as many bullets and weapons as possible 

to defeat it. 

Thank you and I look forward to answer any of your questions. 

PREPARED STATEMENT OF ROBERT WOLF 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, UBS AMERICAS

SEPTEMBER 21, 2010 

Good morning Chairman Dodd, Ranking Member Shelby, and distinguished Members of the Committee. I am grateful for the opportunity to offer testimony today 

in support of a National Infrastructure Bank (NIB). My name is Robert Wolf, and 

I am Chairman and CEO of UBS Americas and President of the global Investment 

Bank. I am also a member of the Group Executive Board of UBS AG, our parent 

company. 

I have worked in the financial services industry since receiving my undergraduate 

degree in economics from Wharton in 1984. My career has focused predominantly 

on fixed income specializing in the credit markets, principally at two firms— 

Salomon Brothers for approximately 10 years and UBS for 16 years. 

As a member of the President’s Economic Recovery Advisory Board, I have worked 

with fellow board members to develop a considered approach to creating a National 

Infrastructure Bank. Today, I am here to share my own views, as a 26-year veteran 

of the markets, on why I believe a National Infrastructure Bank is in our Nation’s 

best interest. I will also offer specific recommendations on how the proposed bank 

should be structured to achieve its goals in an optimal manner. 

Let me say at the outset that creating a National Infrastructure Bank at this time 

makes sense for two main reasons: 

(1) It will attract private investment to help fund badly needed infrastructure improvements critical to America’s competitiveness and economic growth 

State and local governments account for about 75 percent of public infrastructure 

spending, and many of these governments are under severe fiscal strain. A number 

of important projects have been delayed or sidetracked, especially those with high 

capital cost or those which cross State boundaries. A National Infrastructure Bank 

would vet projects carefully, lend to fund the highest priority projects, and help attract private sector capital to augment Government funding. Preqin, a private equity industry consultant, estimates that there is over $180 billion dollars of private 

equity and pension fund capital focused on infrastructure equity investments. This 

capital can play an important role in bridging State and local budget gaps. 

(2) It will create jobs 

The U.S. Department of Transportation estimates that $1 billion of Federal and 

State spending on transportation infrastructure creates 27,400 jobs. Similarly, the 

Milken Institute estimates that $1 billion of spending creates 25,000 jobs. Many of 

these jobs are in the construction industry and related sectors that have sustained 

the largest job losses in the economic downturn. Greater employment in these areas 

is essential to any sustained and accelerated economic recovery. A National Infrastructure Bank will provide funding for new projects that put people to work now— 

not just transportation-related jobs, but jobs that build durable infrastructure with 

lasting economic benefit, including projects in energy and electricity, water and 

wastewater, and telecommunications and broadband. Our hope is that new jobs will 

be created not only for construction workers, but also for engineers, architects, 

urban planners, scientists and many industrial production businesses. 

To achieve these goals, it is crucial that a National Infrastructure Bank be chartered with a clear and achievable mission and strict operational guidelines. 

I have looked at other Government-sponsored infrastructure institutions from 

around the world and have developed views on what the National Infrastructure 

Bank’s mission should and should not be. 

The National Infrastructure Bank SHOULD be: 

(1) Policy driven 

It should be a vehicle for attracting public and private funding to projects of considerable merit that accomplish broader policy goals like relieving congestion, minimizing environmental impact, improving mobility, enhancing transportation networks, and increasing our national or regional economic competitiveness. 
54 

(2) Loan focused 

It should focus on making loans that will generate returns, which means funding 

primarily projects with user fees or dedicated revenue sources. 

(3) Merit based 

It is crucial that the National Infrastructure Bank allocate its funds on the basis 

of a rigorous cost-benefit analysis conducted by experienced industry experts and be 

focused on those projects that will deliver the most value for its dollars. Transparency is critical throughout the decision-making process. If a project cannot generate revenues sufficient to pay the principal and interest on the loan, and there 

is no other dedicated revenue source or local availability payments for that purpose, 

the loan should not be made. 

The National Infrastructure Bank should NOT be: 

(1) A project equity investor 

Consistent with its lending focus, the NIB should primarily offer loans and loan 

guarantees at the project level, not project equity capital. 

(2) A substitute for existing infrastructure funding programs 

Rather, the National Infrastructure Bank should complement successful programs 

like loans under the Transportation Infrastructure Finance and Innovation Act 

(TIFIA), Private Activity Bonds, Build America Bonds and municipal bonds. It 

should act to leverage other public and private sector funding sources at the project 

level, and it should complement the traditional appropriations process, not replace 

it. 

(3) Focused solely on transportation 

Instead, it should make funds available for projects of regional or national significance in other qualified sectors such as energy, broadband, water and wastewater. 

Finally, in order to achieve this mission, the National Infrastructure Bank must 

be properly structured. 

In my view, the National Infrastructure Bank should be established as a wholly 

owned Government corporation, allowing it to serve a broad range of infrastructure 

sectors, such as transportation, energy and water. The NIB decision makers must 

have the independence to make loan decisions based on project merit. Independence 

will permit faster, more transparent and objective project selection supported by detailed cost-benefit analysis. 

It should be capitalized with equity capital that comes solely from the U.S. Federal Government via the U.S. Treasury. Funding its equity in this manner will 

avoid the problems seen with the Government Sponsored Enterprises, such as 

Fannie Mae and Freddie Mac, which are hybrid organizations chartered to be owned 

by private shareholders while benefiting from Government sponsorship. By contrast, 

the National Infrastructure Bank should be fully owned by the Federal Government 

with no private shareholders. 

In closing, creating a National Infrastructure Bank is an idea whose time has 

come. I don’t think anyone disputes that our country’s infrastructure needs are extraordinary. The NIB would mobilize the capital markets to fund new projects, leading to sustainable economic growth—and new jobs. 

Again, Mr. Chairman, thank you for providing me with this opportunity to appear 

before the Committee today to discuss my views, and I am happy to answer any 

questions you and other Members may have. 

PREPARED STATEMENT OF DONALD SHUBERT 

PRESIDENT, CONNECTICUT CONSTRUCTION INDUSTRIES ASSOCIATION

SEPTEMBER 21, 2010 

Good morning Chairman Dodd, Ranking Member Shelby, and Members of the 

Committee, my name is Don Shubert and I am president of the Connecticut Construction Industries Association (often referred to as ‘‘CCIA’’), based in Wethersfield, 

Connecticut. CCIA is an organization of associations representing the many facets 

and disciplines of the construction industry in Connecticut. The associations include 

the: Connecticut Road Builders Association, Associated General Contractors of Connecticut, Connecticut Ready Mixed Concrete Association, Connecticut Asphalt and 

Aggregate Producers Association and others. The membership includes construction 

managers, general contractors, subcontractors, equipment and material suppliers, 

professional engineers, and other professionals allied with the construction industry. 

Together, we build the infrastructure that services all modes of transportation. 
55 

The CCIA divisions enjoy an active working relationship with national organizations that include the: American Road and Transportation Builders Association, Associated General Contractors of America, National Asphalt Pavement Association, 

National Ready Mixed Concrete Association, National Stone, Sand and Gravel Association, and the U.S. Chamber of Commerce. Additionally, we are founding members 

of a large transportation advocacy coalition, KEEP CT MOVING, that is a broadbased group modeled after the Americans For Transportation Mobility coalition that 

is led by the U.S. Chamber of Commerce. KEEP CT MOVING members include industry associations, organized labor, and the major Chambers of Commerce in Connecticut. 

I am testifying today solely in my capacity as president of CCIA. 

Infrastructure investments drive economic growth 

Mr. Chairman, I commend you and the Members of this Committee for convening 

today’s hearing on how infrastructure investment can help generate American jobs 

and strengthen the U.S. economy. There are few things the public sector can do that 

rival the short-term and long-term benefits of boosting infrastructure investment. 

The 2008 and 2009 debate on an economic stimulus package proves this point, as 

the potential of infrastructure investment to facilitate economic recovery was widely 

endorsed by both parties, with only the immediacy of these impacts questioned by 

some. As later parts of my testimony will demonstrate, the American Recovery and 

Reinvestment Act’s (Recovery Act) transportation investments have delivered profound results for our community and the entire country over the last 18 months. 

The benefits of investing in infrastructure are basically two-fold. First, those investments create well-paying jobs for skilled workers who are sitting idle in a sector 

of the economy that has been hit hardest by the economic downturn. Second, those 

investments rebuild infrastructure that is falling into disrepair and expand capacity 

to improve mobility. Investments in transportation infrastructure drive the long run 

growth, productivity, and competitiveness of the American economy. 

The U.S. economy is a vast network of businesses that produce goods and services 

for America’s 115 million households, for export to foreign countries, or for use by 

other businesses. The tie that binds these businesses to their customers, suppliers 

and workers is the U.S. transportation network. Each year, almost 80 percent of the 

value of freight shipments in the U.S. is carried by trucks along the Nation’s highways. 

CCIA has an active working-relationship with the U.S. Chamber of Commerce, 

and local Chambers of Commerce across Connecticut. We hear constantly from the 

business community that manufactured goods and cargo move through the United 

States on a system primarily consisting of ports, roads, rail, and inland waterways. 

The supply chain is viewed from initial point of origin to the final destination with 

frequent junctures in between. To keep competitive domestically and internationally, many U.S. businesses have developed complex logistics systems to minimize inventory and ensure maximum efficiency of their supply chains. However, as congestion increases throughout the U.S. transportation system, these supply chains and 

cargo shipments are frequently disrupted and the cost of business increases. 

Another priority message from business is that traffic congestion threatens its 

ability to attract and retain employees. Employers in all industries rely on transportation systems to connect them with their workforce and connect that workforce 

with suppliers and customers around the country and the world. In Connecticut, the 

rising cost of living in certain areas is pushing workers farther from their place of 

employment, increasing commute times and costs. The business community constantly reminds us that increasing congestion is disrupting the important connection 

with their workforce and imposing additional costs on the workforce and employers 

alike. 

To the business community, infrastructure investments: improve competitiveness 

because of reduced production and distribution costs as a result of increased travel 

speeds and fewer mobility barriers; give employees access to higher-paying jobs; and 

improve regional economic competitiveness, which stimulates job growth to support 

an increasing population. 

For example: the Stamford Chamber of Commerce identifies Stamford as the economic engine of Connecticut. According to the Chamber, Stamford is the largest 

business center in the State, and with present development plans under construction, it will be the largest city in the State. Stamford is the largest international 

trade center between New York and Boston. The Chamber tells us that the biggest 

challenge to Stamford’s economic growth is the out-dated transportation infrastructure and mounting congestion in all modes of transportation that is becoming a barrier the region. 
56 

The foundation of a modern economy is a transportation system that moves people 

and freight efficiently, safely, and on time. This lesson was learned during the 1960s 

and 1970s when construction of the Interstate Highway System allowed American 

firms to access a nationwide market and take advantage of scale economies that 

yielded significant increases in productivity. 

The construction industry can play a significant role in economic growth. Employing local workers and using local materials to improve our infrastructure is an excellent combination to drive economic growth. Unfortunately, the pervasive uncertainty about future investments by Federal and State governments and the private 

sector is stalling many infrastructure projects. 

A skilled workforce, that is a powerful economic engine, is idle 

The construction industry workforce today is faced with its worst economic crisis 

since the Great Depression. This past winter, 23 percent of construction workers 

were unemployed. In August, the peak of the construction season, the unemployment rate was still 17 percent. Before the recession, the unemployment rate for construction workers was less than 6 percent. According to the Bureau of Labor Statistics, there were 7.7 million workers employed in construction in August 2006. This 

August, there were only 5.6 million employed, a loss of more than 2.1 million construction jobs. To put this in perspective, almost one-third of all the jobs lost in the 

United States during the 2007–2009 recession were construction jobs. Contractors 

are reluctant to hire new employees and purchase new equipment with few prospects of work in the near future. The reality of the construction industry is that 

most jobs exist only if the companies have sufficient work. The last thing our members want to do is hire and train new employees when they may not be able to keep 

them on the payroll. The following graph charts construction unemployment over 

the past 32 months. 

Labor unions in Connecticut have reported 20–30 percent unemployment this 

year. One union has reported that unemployment increased over 2009 figures, even 

with the additional funding provided by the Recovery Act. Many union members 

struggle to work the number of hours needed to maintain their benefits over the 

course of the year. Contractors and suppliers are rotating employees and mandating 

furloughs to maintain continuity in the workforce. 

In addition to the economic downturn, construction employment is suffering from 

the direct impact of the uncertainty, being caused by lack of Federal long-term surface transportation funding legislation, that is paralyzing State Department of 

Transportations. Since SAFETEA–LU expired on September 30, 2009, State transportation agencies have been restricting their programs to compensate for the lack 

of a stable, predictable funding stream. During the delay of reauthorizing the last 

surface transportation legislation, from 2003 to 2005, there was an abundance of 

private projects, and other public projects to keep contractors working while State 

DOT’s constricted their programs. Today, we are in a delay period for reauthorization, and there is little other work available. We expect the economic impacts in 

terms of job loss and industry contraction to be much more significant in 2010–2011 

than during the 2003–2005 period. 

Contractors also have significant excess capacity. According to the quarterly construction market survey conducted by the American Road and Transportation Builders Association, only 3 percent of transportation construction firms are currently op-
57 

erating at full capacity, compared to a normal rate of 15 percent. At the other end 

of the scale, 45 percent of contractors are operating at less than three-quarters of 

capacity, compared to a normal rate of 10 percent. Even with $20 billion of Recovery 

Act highway projects underway, the industry could undertake far more construction 

work than is currently available. 

This available labor force and industry capacity can be an economic engine. Every 

$1 billion invested in nonresidential construction adds $3.4 billion to Gross Domestic 

Product (GDP) and $1.1 billion to personal earnings according to the Associated 

General Contractors of America. The Federal Highway Administration calculates 

that every $1 billion invested in highway and bridge improvements creates or sustains 27,823 jobs. Approximately one-third (9,537) of these jobs are on-site construction jobs in the State of investment. Another one-sixth (4,324) are in industries that 

supply materials and services used in highway and bridge construction. Most of 

these jobs would be in-State depending on the project and mix of in-State suppliers. 

About half (13,962) of the jobs would be induced jobs created when the construction 

and supplier workers and owners spend their additional incomes. These jobs would 

be a mix of in-State and out-of-State jobs. Conversely, investments elsewhere would 

support some jobs in-State. 

There is no shorter line between unemployment and a job than a construction 

project. There are millions of skilled trades-people across the country who are out 

of work and stand ready to return—many of whom could report back to work on 

one-day’s notice. Construction jobs on public projects offer people the opportunity to 

earn a decent living, obtain quality health benefits, and save for retirement. However, contractors and construction workers are in a holding pattern while State 

transportation departments adjust to a lack of funding certainty and search for 

funding. 

The Nation has tremendous transportation needs 

A 2010 National State of Good Repair Assessment conducted by FTA reports that: 

• Nine percent of America’s rail assets are in poor condition and 17 percent of 

are in marginal condition. 

• Nine percent of America’s bus assets are in poor condition and 32 percent are 

in marginal condition. 

TRIP, a national research group, reports that: 

• Thirty-two percent of America’s major roads are in poor or mediocre condition. 

• Twenty-five percent of America’s bridges are structurally deficient or functionally obsolete. 

• Forty-four percent of America’s major urban highways are congested. 

Connecticut has similar needs. TRIP reports: 

• In 2008, thirteen percent of Connecticut’s major roads were rated in poor condition and 32 percent were rated in mediocre condition. 

• Nine percent of Connecticut’s bridges were structurally deficient in 2009. 

• Twenty-five percent of Connecticut’s bridges were functionally obsolete in 2009. 

• In 2008, fifty-eight percent of Connecticut’s urban Interstates and other highways or freeways were considered congested. 

And these are only surface transportation needs. We must also modernize the air 

traffic control system, expand capacity at our airports and on freight rail lines, improve connections to ports and increase the reliability of the inland waterways system. 

Significant funding is needed to meet those needs 

Two congressionally appointed commissions have recommended a broad overhaul 

of the Federal Surface Transportation Program to improve mobility, safety and the 

physical condition of the Nation’s surface transportation system by significantly increasing funding. The National Surface Transportation Policy and Revenue Study 

Commission (NSTPRSC) and the National Surface Transportation Infrastructure Financing Commission (NSTIFC) were created by Congress to examine the current 

condition and future funding needs of the Nation’s surface transportation program, 

develop a plan to insure the Nation’s surface transportation system meets America’s 

future mobility needs, and to recommend future funding mechanisms to pay for the 

preservation and improvement of the Nation’s roads, highways, bridges and public 

transit systems. 
58 

1State investment needs are based on Federal Highway Administration data on the number 

of highway miles in poor or mediocre condition in each State, the total deck area of deficient 

bridges in each State, and a measure of highway congestion. 

• The NSTPRSC concluded that it is critical to the future quality of life of Americans that the Nation create and sustain the preeminent surface transportation 

system in the world, one that is well-maintained, safe and reliable. 

• The NSTIFC found that the U.S. faces a $2.3 trillion funding shortfall over the 

next 25 years in maintaining and making needed improvements to the Nation’s 

surface transportation system. 

The U.S. Department of Transportation issues reports on the Conditions and Performance of the Nation’s Highways, Bridges and Transit, in which it calculates the 

annual investment that all levels of government would have to make both to maintain current conditions and improve conditions. 

The 2008 Conditions and Performance Report issued by the U.S. Department of 

Transportation included data on the cost to maintain and improve the Nation’s mass 

transit systems, including both bus and rail-based transit. When combined with 

data on recent cost increases and traditional Federal share, the report indicates that 

a Federal transit program of $12 to $14 billion annually between FY2011 and 2016 

would maintain conditions while $17 to $19 billion would be needed to improve conditions. In FY2010, total funding for the public transportation program was just 

over $10 billion. For FY2011 through 2016, Transit Account revenues are projected 

to be about $5.5 billion per year, less than half the amount needed just to preserve 

existing conditions. 

The latest report, which was issued in January 2009, provides data on the average annual investment that would be needed between 2006 and 2026 both to maintain conditions and improve conditions on our Nation’s highways. When combined 

with information on recent increases in highway construction costs and the traditional Federal share of highway investment, the report shows that funding for the 

Federal highway program in the next surface transportation authorization bill 

should be in the range of $71 to $78 billion per year just to maintain current highway and bridge conditions. The annual Federal investment needed to improve conditions would be even higher. By contrast, Federal highway investment in fiscal year 

2010 is $41.1 billion, a shortfall of more than $30 billion for just keeping the status 

quo. 

The massive gap between Federal highway investment and needs is shown on a 

State by State basis in the following Table that was provided by the American Road 

and Transportation Builders Association. For example, the table shows that Connecticut would need an annual Federal investment of just over $627 million as the 

Federal share of the cost to maintain conditions and performance on the State’s 

highways and bridges. 1 In FY2010, the State received about two-thirds of that 

amount. Alabama also received fewer Federal highway funds than needed just to 

maintain current highway and bridge conditions, as did almost every other State. 

The table also shows that the one-time highway stimulus funds in the American Recovery and Reinvestment Act, while helpful in the short-term, come nowhere near 

filling the long-term Federal highway investment shortfall, leaving a shortage that 

threatens to cripple the systems that provide the mobility that is essential to support our economy and quality of life. 
59 
60 

In January 2010, the Connecticut Department of Transportation released an analysis that identifies approximately $4 billion of unfunded initiatives in our public 

transit, highway, and bridge systems that were programmed over the next 5 years. 

The Department based its analysis on what it described as a tremendous uncertainty surrounding the passage of long-term surface transportation measure which 

has significant implications on the Department’s ability to plan and execute its 

transportation infrastructure program. In the analysis, ConnDOT identifies 49 unfunded projects that were programmed for 2010, 102 unfunded projects programmed 

for 2011, 36 unfunded projects programmed for 2012, 17 unfunded projects programmed for 2013, and 16 unfunded projects programmed for 2014. Additionally, 

the analysis identified over $8 billion in additional major long-term unfundable initiatives in the transit, highway, and bridge programs. 

ARRA’s major impact on the Nation’s transportation needs is ending 

The American Recovery and Reinvestment Act’s transportation investments have 

been one of the few bright spots for the transportation construction industry. Virtually all of the projects financed by the Act’s $48 billion for transportation improvements are now either underway or completed. As a result, transportation construction is the only major construction market that did not decline during the 2007– 

09 recession. As the next graph shows, the value of construction work put in place 

on homebuilding is now more than 60 percent below its prerecession peak, while private nonresidential construction is down 25 percent and public construction other 

than transportation is down more than 10 percent. But the value of construction 

work put in place on transportation improvements has not fallen. It is clear the construction industry could very well have been devastated over this construction season without the Recovery Act projects stabilizing the workload. 

The Recovery Act has mitigated a steep drop in construction activity in the residential and commercial sectors of the industry. For example: in the asphalt industry, over a third of the total market was comprised of homebuilding and commercial 

construction projects. When those market segments were devastated by the economic downturn, the loss was somewhat offset by the gains provided by the Recovery Act. In the cement and concrete industries, where those market segments comprise a larger part of the total market, the resulting loss was greater. In turn, the 

aggregates industry (stone, sand, and gravel) suffered major market losses. The following chart shows that even with the Recovery Act there was a downturn in the 

asphalt market. 
61 

While the Recovery Act funds have had a positive stabilizing impact on the construction marketplace, those resources are coming to an end. We believe the momentum generated by ARRA will be lost if Congress fails to find revenue sources to support a well-funded, multiyear surface transportation authorization bill. A robust 

multiyear bill is the best step that can be taken to alleviate the uncertainty that 

prevents State DOTs from planning and undertaking projects and driving America’s 

economic recovery and growth. 

Unfortunately, the Federal public transportation and highway programs are currently in a state of limbo and have been operating under a series of short-term extensions since the last bill expired almost a year ago. The delay periods during the 

reauthorization of the last two Federal surface transportation measures show that 

States rely heavily on continuing and guaranteed funding from the Federal Government. As stated earlier, uncertainty in Federal transportation funding stifles State 

transportation programs which stalls the delivery of much needed infrastructure, 

disrupts hiring and equipment purchases, interrupts steady employment, fosters inconsistent training, and causes the loss of highly skilled employees. In short, this 

shuts-down a large economic engine. 

A comprehensive long-term reauthorization bill is needed 

We were greatly pleased to see President Obama’s recent call for enactment of a 

6-year reauthorization of the Federal public transportation and highway programs. 

We believe that enactment of a multiyear surface transportation bill would be a true 

economic stimulus. 

As welcome as the President’s commitment to prompt enactment of a reauthorization bill is, we recognize there is still a long path ahead of us. The 2005 reauthorization bill included surface transportation investment levels well beyond what existing 

revenues could support and included no new resources. As a result, the Highway 

Trust Fund surplus was liquidated over a 4-year period and this structural draw 

down was exacerbated by the worsening economy. 

The Mass Transit and Highway Accounts face cash crises in the years ahead. This 

means Congress is now faced with three very difficult funding alternatives for the 

next bill: 

• scale back transit and highway investments to currently supportable levels and, 

in so doing, force the loss of hundreds of thousands of construction industry 

jobs; 

• further add to the Federal deficit to support future transportation investments; 

or 

• raise new revenues. 

CCIA supports raising new revenues. While I fully appreciate the challenges this 

situation presents for elected officials, I would be remiss in not pointing out that 

only through dedicated revenues can contract authority and other mechanisms that 

provide States the certainty to move forward with long-term transportation plans 

be retained. Clearly, the core of an effective national surface transportation program 

must be a stable, guaranteed, long-term revenue source. 

Given the inherent financing challenge facing the reauthorization of the Federal 

surface transportation program, we fully acknowledge the importance of being open 

to new ways to meeting the Nation’s transportation infrastructure challenges. 
62 

An Infrastructure Bank could be part of the solution 

A National Infrastructure Bank proposal is one of a number of proposals that has 

been suggested by both of the federally chartered commissions mentioned above and 

many transportation interests. An Infrastructure Bank would provide funding for 

many megaprojects that are not easily supported through the existing Federal public transportation and highway programs. It would enhance a long-term stable funding source, by providing new funding for projects, which would leave more funding 

in the core stable and dependable transportation formula programs. 

In Connecticut, several megaprojects are currently devouring the State’s transportation program. If one or two of those projects had been funded by an Infrastructure 

Bank, more resources would be available through the core program and the State 

would be in a better position to meet its maintenance and expansion needs. Additionally, there are many other megaprojects that ConnDOT has identified with no 

funding sources. An Infrastructure Bank may be the ideal funding mechanism for 

one or more of those projects, which may not otherwise be delivered in the future. 

An Infrastructure Bank could provide several benefits. It could fill a clear void 

that exists in Federal transportation policy to support large-scale projects that provide service beyond the border of an individual State. An Infrastructure Bank could 

bring more revenue from State, local, and private sources into the infrastructure 

funding scheme. For example, if the amount of financial participation from State, 

local, and private sources is one of the criteria included in project selection process, 

an Infrastructure Bank could create competition that will draw new investments 

into transportation funding programs. Likewise, the competitive process created 

under an Infrastructure Bank would ensure the best projects move forward. As 

such, we urge Congress and the Obama Administration to pursue an Infrastructure 

Bank as a supplement to robust Federal public transportation and highway programs. The additional funding generated by the bank would leave more of the stable 

core program funding in place to meet basic needs. 

My discussion today has focused mainly on transportation infrastructure. However, the concept of infrastructure bank funding for large-scale projects may also 

lend itself to other applications, such as Clean Water projects that are facing similar 

funding challenges. The U.S. Environmental Protection Agency estimates we could 

need as much as $390 billion each year over the next 20 years to repair obsolete 

drinking water and waste water systems. In Connecticut, the Metropolitan District 

Commission is currently administering a billion dollar Clean Water project to separate sanitary sewer and storm water lines. There are likely many similar projects 

in cities and towns in Connecticut and across the country in need of funding. 

Mr. Chairman, we commend you for the time you and your staff have invested 

in advancing the creation of a National Infrastructure Bank. We believe there is 

substantial potential in an Infrastructure Bank to leverage new infrastructure dollars and create a new merit-based process to select and deliver much-needed upgrades to our transportation systems. We stand ready to work with you as these 

proposals develop. 

Again, thank you Mr. Chairman for this opportunity to testify today. This discussion is important to putting the Federal-Aid Public Transportation and Highway 

Programs on a solid foundation of fiscal stability. 

I will be happy to respond to any questions. 
63 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM ROY KIENITZ 

Q.1. Ideal Time to Invest in Infrastructure. I have heard that given 

today’s low interest rates and the excess capacity available in the 

construction industry that now is an ideal time to be investing in 

infrastructure. Please comment on the efficiencies that we can realize by increasing our Nation’s investment in infrastructure right 

now, in the midst of the current economic downturn. 

A.1. This is indeed a good time to take advantage of abundant 

underused resources to close part of the Nation’s infrastructure 

gap. As the Department of the Treasury and the Council of Economic Advisers noted in their report on infrastructure investment 

on October 11, 2010, the unemployment rate in the construction industry is currently over 17 percent, so abundant human resources 

are available. Many are also unemployed in supporting industries, 

such as steel and cement manufacture. As a result, construction 

costs for infrastructure investment are unusually low. Our experience with Recovery Act funding has shown that many projects were 

built for less than the estimated construction cost. Among our $1.1 

billion in aviation investments, for example, winning bids for the 

projects came in $200 million below their initial engineering estimates. As a result, more than 2,000 additional airport, highway, 

bridge, and transit projects were funded because other projects 

were being completed under budget. Finally, interest rates on highgrade municipal bonds are down 82 basis points from 2008, further 

reducing the costs of investing in infrastructure. 

Q.2. Merit-Driven Selection Process. One of the benefits of creating 

a National Infrastructure Bank is the fact that we create a competitive, merit-driven process that leads to selection of those 

projects with the best returns. How can we design a bank to ensure 

that we make the best use of Federal dollars and fund the projects 

with the highest rates of return and the greatest public benefits? 

A.2. We believe that our selection process for the TIGER Grants 

program that was created under the Recovery Act provides a good 

model for how a merit-driven selection process might work. In that 

program, we received over 1,400 grant applications, totaling over 

$59 billion in requested funding, for a $1.5 billion program. We organized teams of technical experts—with each team including experts from several modal administrations—to provide a preliminary 

review of the applications and to select the best 10 percent as 

‘‘highly recommended’’ for further review. We had required that 

each application provide a detailed discussion of the benefits that 

it would achieve, including a detailed benefit-cost analysis for 

projects over $100 million. A team of economists critically reviewed 

the benefit-cost analyses for the highly recommended projects, and 

provided its conclusions, along with the conclusions of the technical 

experts, to a senior review team comprising the Department’s senior management from each of its modal administrations. The senior 

review team made its recommendations to the Secretary, who made 

the final selection decisions. This process worked effectively because it drew heavily on the technical expertise of the Department’s career staff, combined with the common sense judgment and 

wide experience of the Department’s senior management, as well as 
64 

the ultimate accountability of final selection by the Secretary. The 

process also worked because we required applicants to make use of 

economic analysis to provide a common measuring stick for comparing disparate projects. While we exempted smaller projects from 

the benefit-cost analysis requirement in the first round of TIGER 

Grants, our experience was that even applications for small 

projects often were able to put together very capable benefit-cost 

analyses; as a result, in the second round of TIGER Grants that 

were awarded in October 2010, we required all applications to include a benefit-cost analysis. 

Q.3. Leveraging. One of the goals of an infrastructure bank is to 

leverage new State, local, and private funding. Some studies have 

found that previous increases in Federal transportation funding 

have led to reduced State and local funding. How can we best design an infrastructure bank to ensure that it leverages new public 

and private funding rather than simply substituting for existing 

funding? 

A.3. It is true that previous studies have found that States curtail 

their own spending on infrastructure when the Federal Government increases its spending. A GAO report in 2004, for example, 

found that since 1982 States had reduced their spending on highways by about 50 percent of the Federal increase in spending on 

highways, and that this rate of fiscal substitution had increased 

during the 1990s. In the TIGER Grant program, we looked closely 

at the extent to which States, cities, transportation authorities, and 

private firms were contributing to the costs of the projects for 

which TIGER Grant funding was sought. We did this partly because we wanted to increase the number of projects that could be 

funded, and partly because we thought that projects that had attracted funding from local authorities and private firms were more 

likely to have high benefits than projects that had not. In many 

cases we awarded less funding than the applicant had originally requested, strengthening the incentive for local authorities to increase their contributions. An infrastructure bank that has flexible 

authority to issue both grants and loans can structure its assistance so as to leverage funding from several sources—State and 

local taxes, user fees, and private sector contributions—and increase the number of projects that can be funded with a given level 

of resources. Careful economic analysis can also identify how the 

benefits of a project are distributed and suggest what would be a 

fair distribution of the costs of funding the project. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM ALAN B. KRUEGER 

Q.1. Ideal Time To Invest in Infrastructure. I have heard that given 

today’s low interest rates and the excess capacity available in the 

construction industry that now is an ideal time to be investing in 

infrastructure. Please comment on the efficiencies that we can realize by increasing our Nation’s investment in infrastructure right 

now, in the midst of the current economic downturn. 

A.1. There is currently a large group of unemployed and underemployed labor available to improve our infrastructure. Building 
65 

more roads, bridges, and rail tracks would help the segment of 

workers that was most disproportionately affected by the economic 

crisis—construction and manufacturing workers. The Treasury Department, with the Council of Economic Advisers, recently issued 

a report which addressed this topic in greater detail. I am enclosing a full copy of the report for the record. 

Due to the collapse of the real estate market, the contraction of 

employment in the construction industry was especially acute. 

Since December 2007, the construction industry has lost 25 percent 

of its total payroll jobs, dropping from 7.5 million to 5.6 million employees. In September 2010, the unemployment rate for construction workers stood at 17.2 percent; over three times the rate from 

3 years ago, and almost double the overall unemployment rate. Accelerated infrastructure investment would provide an opportunity 

for construction workers to productively apply their skills and experience. Moreover, hiring currently unemployed construction workers would require lower training costs for firms than would be incurred by hiring workers during normal times, because these workers already have the requisite skills and experience in construction. 

The excess supply of construction workers is one of many factors 

making current construction costs low, which in turn leads to lower 

project costs. For example, the Federal Aviation Administration received $1.1 billion in Recovery Act funds for airport improvements. 

The money was designated for 300 projects. The winning bids for 

those projects came in over $200 million below the engineers’ original estimates. A second round of projects was selected, which also 

received less expensive bids than had been anticipated. As a result 

of these cost savings, 367 runway and airport improvement projects 

were funded with the same amount of money that was originally 

intended to support 300 projects. 

Q.2. Merit-Driven Selection Process. One of the benefits of creating 

a National Infrastructure Bank is the fact that we create a competitive, merit-driven process that leads to selection of those 

projects with the best returns. How can we design a bank to ensure 

that we make the best use of Federal dollars and fund the projects 

with the highest rates of return and the greatest public benefits? 

A.2. Transportation investment by the Federal Government has 

rarely been made through a competitive process. To address the 

lack of merit-based funding, the National Infrastructure Bank 

would develop a framework to analytically examine potential infrastructure projects based on cost-benefit analysis and to understand 

the distributional impact of both the costs and the benefits of each 

project. Of course, not all of the benefits and costs can be quantified, but an effort should be made to quantify what can be quantified and to take account of any additional benefits and costs to 

society. A rigorous analytic process would result in support for 

projects that yield the greatest returns to society, and would avoid 

investing taxpayer dollars in projects where costs exceed total benefits. 

This is a difficult process given the inherent complexities involved in calculating the benefits from investment in transportation infrastructure. As I mentioned in my testimony, even calculating the full costs of congestion is very difficult. The Department 
66 

1See, Laurence Ball, ‘‘Aggregate Demand and Long-Run Unemployment’’, Brookings Papers 

on Economic Activity, 1999(2), pp. 189–251; and Laurence Ball, ‘‘Disinflation and the NAIRU’’ 

(1997), in Reducing Inflation: Motivation and Strategy, edited by Christina Romer and David 

Romer, Univ. of Chicago Press. 2Linn, Margaret W., Richard Sandifer, and Shayna Stein, ‘‘Effects of Unemployment on Mental and Physical Health’’, American Journal of Public Health, 75(5):502 (1985). 

of Transportation has begun a competitive multimodal transportation grant program, the TIGER program, which was started 

under the Recovery Act and subsequently continued through additional Congressional funding. DOT is planning to gather data on 

the actual benefits of their TIGER Grant projects so that they can 

find out how closely the actual benefits correspond to the benefits 

anticipated in the benefit-cost analyses. I support this effort to see 

what lessons can be learned from the experience of the TIGER program to develop procedures for a National Infrastructure Bank. 

Finally, I recommend that when considering the costs and benefits of project proposals, the Bank should take into account the effects that infrastructure investments will have throughout the network connected to these investments. Specifically, the Bank ought 

not only to consider the costs and benefits that accrue in the area 

where the infrastructure project takes place, but also track the 

costs and benefits attributable to investments away from the 

project site. For example, a significant improvement in the connection between a port and a freight rail line will also benefit those 

who use that route to export goods. The National Infrastructure 

Bank should consider all the costs and benefits when considering 

project proposals—not just localized costs and benefits at the 

project site. 

Q.3. Effects of Prolonged Unemployment. Prolonged unemployment 

can have significant negative impacts on construction workers and 

the construction industry. Can you discuss what impacts prolonged 

unemployment can have on the skills of construction workers and 

the long-term impacts of substantial prolonged unemployment on 

the construction industry? 

A.3. The construction industry was hit particularly hard by the economic downturn. We have conducted analysis which suggests that 

61 percent of the jobs created by investing in infrastructure would 

be in the construction sector, 12 percent would be in the manufacturing sector, and 7 percent would be in retail trade, for a total of 

80 percent in these three sectors. Nearly 90 percent of the jobs in 

the three sectors most affected by infrastructure spending would be 

middle class jobs, defined as those between the 25th and 75th percentile in national distribution of wages. Overall, the average unemployment rate among those who would be put to work by additional investment in infrastructure is currently over 15 percent, 

more than one and one-half times the national unemployment rate. 

Research by Laurence Ball of Johns Hopkins University, who 

analyzed unemployment in OECD countries, finds that prolonged 

recessions can produce persistently high unemployment, even after 

the recession is over—a phenomenon known as hysteresis. 1 At a 

microeconomic level, unemployment has been found to be associated with health problems, illness, and depression. 2 Moreover, research by Andrew Clark and others finds that unemployment has 

a ‘‘scarring’’ effect; unemployment spells lower the reported life sat-
67 

3 Clark, Andrew E., Yannis Georgellis, and Peter Sanfey, ‘‘The Psychological Impact of Past 

Unemployment’’, Economica, 68(270):221–241 (2001). 4This figure is for BABs issuances from April 2009 to October 31, 2010. 

isfaction of those who return to work even after they become reemployed. 3

Q.4. Public–Private Partnerships. What is the potential for public– 

private partnership in infrastructure? What is the evidence that 

private capital is available for the kinds of significant regional 

projects that the NIB would be designed to support? 

A.4. Experience suggests that there is enormous potential for public–private partnership in infrastructure, and private capital is 

available and ready to invest in transportation infrastructure. For 

example, the Recovery Act established a number of new and expanded bond financing programs to enable State and local governments to borrow at lower costs for capital projects, including Build 

America Bonds (BABs), which have been very successful. Prior to 

the introduction of BABs, the traditional tax-exempt municipal 

bond market was frozen. In March 2009, highly rated issuers faced 

borrowing costs that were higher than taxable Treasury yields, 

even though their bonds were tax-exempt, and many issuers were 

unable to access financing at any price. Then in April 2009, the 

BABs program was introduced. This program made municipal 

bonds attractive to a wide variety of new investors—including pension funds, sovereign wealth funds, and retail investors in lower 

tax brackets. Since the program’s inception in April 2009, State 

and local governments have now issued more than $150 billion in 

BABs and saved billions of dollars in financing costs. 4 The success 

of the BABs program demonstrates strong private investor interest 

in infrastructure financing. 

As Governor Rendell stated in his testimony, there are billions 

of dollars in private investment funds that are waiting to be invested in the United States. Moreover, as Robert Wolf stated at the 

hearing, ‘‘Preqin, a private equity industry consultant, estimates 

that there is over $180 billion dollars of private equity and pension 

fund capital focused on infrastructure equity investments. This 

capital can play an important role in bridging State and local budget gaps.’’ 
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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM EDWARD G. RENDELL 

Q.1. Ideal Time To Invest in Infrastructure. I have heard that given 

today’s low interest rates and the excess capacity available in the 

construction industry that now is an ideal time to be investing in 

infrastructure. Please comment on the efficiencies that we can realize by increasing our Nation’s investment in infrastructure right 

now, in the midst of the current economic downturn. 

A.1. There is no question that now is the time to invest in our infrastructure to take advantage of the very low interest rates as 

well as the low bids cities and States are receiving on their construction projects. That has the potential to make current dollars 

go further. For example, Pennsylvania issued a $900 million ‘‘Build 

America Bond’’ in January of this year and the result was that the 

Commonwealth obtained the lowest interest rate since 1968 at a 

rate of 3.13 percent. That is a remarkable rate and the savings realized will mean more dollars available for other worthy projects. 

Additionally, we have been receiving some of the lowest construction bids for projects throughout Pennsylvania. The bad news is 

that many of these bids are so low because unemployment rates 

are high. The September, 2010, U.S. Department of Labor unemployment figures indicate that unemployment in Pennsylvania is at 

about 9 percent which is slightly below the national unemployment 

rate of 9.6 percent. And because of that, construction firms are 

more interested in keeping workers employed by reducing their 

bids in order to win more contracts. For example, when Pennsylvania received its stimulus funding for roads, highways, and 

bridges we bid out 242 projects. Because the bids came in significantly lower than expected, we were able to add 344 new projects. 

I cannot speak for every other State but my guess is that other 

governors, mayors, and elected officials are experiencing similar experiences. 

Q.2. Merit-Driven Selection Process. One of the benefits of creating 

a National Infrastructure Bank is the fact that we create a competitive, merit-driven process that leads to selection of those 

projects with the best returns. How can we design a bank to ensure 

that we make the best use of Federal dollars and fund the projects 

with the highest rates of return and the greatest public benefits? 

A.2. If we are going to set up a National Infrastructure Bank then 

we must do it right from the beginning. That means we must have 

expert staff capable of conducting benefit-cost analysis, we must 

have a board experienced in the infrastructure world making informed and merit-based evaluations of the projects, and we must 

establish criteria which all projects must meet. One way to do that 

is to limit the types of projects to those that have regional or national significance. I would also recommend that an NIB be completely transparent by posting all the data for the world to see. 

When people can see where and why their tax dollars are being 

spent then they will tend to trust their leaders in making these difficult decisions. 

With respect to the rates of return and public benefit that is not 

easy to define but that is why this Bank must be established—to 

make the tough decisions. Will every project be eligible? The an-
97 

swer to that is absolutely not. Those submitting projects for consideration must prove to the Board why these projects truly benefit 

a region or Nation. For example, our ports are clogged and cargo 

is often expensive to ship over land due to congestion, lack of capacity, and lack of alternative transportation options such as ondock-rail. Well, a port could justify the impact by laying out for the 

Bank how improvements in certain cities and States would eliminate choke points, speed traffic, or get our goods exported more 

easily. That scenario is a win not just for that particular port but 

for the shippers, consumers, and those buying our products overseas because the overhead costs of shipping will be reduced and ontime delivery can improve. And I believe that our Government—be 

it through the Bank or another entity that currently tracks this 

data—should measure those benefits to companies who ship their 

products and earn profits thereby hiring more people back to work 

so that can increase their productivity. 

Q.3. Leveraging. One of the goals of an infrastructure bank is to 

leverage new State, local, and private funding. Some studies have 

found that previous increases in Federal transportation funding 

have led to reduced State and local funding. How can we best design an infrastructure bank to ensure that it leverages new public 

and private funding rather than simply substituting for existing 

funding? 

A.3. First, I am not suggesting that a NIB replace current Federal 

funding—most of which is allocated to the States on a formula 

basis. Instead, the NIB should be viewed as a supplementary tool 

that could provide appropriate assistance to large scale projects of 

national or regional significance. Establishing criteria about the 

level and amount of NIB assistance would be the best way to safeguard the Federal contribution. Some of these limits are already in 

place. For example, in the transportation infrastructure area the 

TIFIA program is prohibited from contributing more than 33 percent of a project’s total cost. Additionally, Federal law already requires a specific State/local match for highway and transit projects. 

I think similar things could be done in the water and wastewater, energy, broadband, and other infrastructure areas that the 

Bank could help finance once criteria are established for those 

needs. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM ROBERT WOLF 

Q.1. Ideal Time To Invest in Infrastructure. I have heard that given 

today’s low interest rates and the excess capacity available in the 

construction industry that now is an ideal time to be investing in 

infrastructure. Please comment on the efficiencies that we can realize by increasing our Nation’s investment in infrastructure right 

now, in the midst of the current economic downturn. 

A.1. Interest rates are currently at their lowest levels in decades 

allowing for low-cost funding of projects. 
98 

1 Bloomberg data, 10/9/10. 

2 Bloomberg data, 10/9/10. 

3 Bloomberg data, 10/9/10. 

4Factset data, 10/9/10. 

5 Bureau of Labor Statistics, ‘‘Industries at a Glance: Construction’’, September 2010. 

6Preqin, September 2010. 

7 Jack Wells, USDOT, September 2008. 

8Milken Institute, ‘‘Jobs for America’’, January 2010. 

• The 10-year U.S. Treasury is currently 2.39 percent, 172bps 

below the 10-year historical average of 4.11 percent and 

454bps below the 30-year historical average of 6.93 percent. 1

• The Moody’s Aaa corporate bond index is currently 4.56 percent, 104bps below the 10-year historical average of 5.60 percent and 267bps below the 25-year historical average of 7.23 

percent. 2

The construction industry has been among the hardest hit in the 

economic downturn and the costs of key inputs for construction 

(concrete, steel, etc.) have also come down. 

• The Dodge Construction Index that tracks total U.S. construction contract/pipeline value has decreased 25 percent from September 2008. 3

• The Dow Jones Global Building Materials and Fixtures Index 

has declined nearly 30 percent from September 2008. 4

• According to the Bureau of Labor Statistics, the construction 

industry has an unemployment rate of 17.2 percent as of September 2010. 5

In addition to the costs of financing and constructing infrastructure now at historically low levels, there is currently over $180bn 

of equity capital looking to invest in infrastructure. 6

• This private capital will be invested wherever private sector infrastructure investment opportunities develop (primarily in the 

OECD), and will be invested abroad if investment opportunities are not available in the U.S. 

Given the low interest rate environment and high unemployment 

in the construction sector, now would be an optimal time to create 

jobs through infrastructure investment. 

• Jack Wells, chief economist at USDOT, estimates that $1bn of 

Federal funding for transportation infrastructure would create 

34,800 jobs. 7

• The Milken Institute estimates that $1bn of transportation infrastructure spending would create 27,400 jobs. 8

Q.2. Merit-Driven Selection Process. One of the benefits of creating 

a National Infrastructure Bank is the fact that we create a competitive, merit-driven process that leads to selection of those 

projects with the best returns. How can we design a bank to ensure 

that we make the best use of Federal dollars and fund the projects 

with the highest rates of return and the greatest public benefits? 

A.2. The NIB must allocate funds based on rigorous cost-benefit 

analysis conducted by experienced industry experts and should 

focus on those projects that will deliver the highest value for 

money. 
99 

9Federal Highway Administration, TIFIA Projects and Case Studies, October 2010. 

10Federal Highway Administration, TIFIA Projects and Case Studies, October 2010. 11Preqin, September 2010. 

• The decision-making process must be totally transparent and 

open to public scrutiny. 

• The decision to fund selected projects will be independent of 

the appropriations process or other partisan constraints and 

free of the election and budgetary cycles. 

• To help select the best projects, the NIB should have a broadbased board of governors, representing various infrastructure 

stakeholders and comprised of members with demonstrated 

sector expertise and private and public sector experience. 

• It should be noted that the NIB should be policy driven, which 

means it will consider nonmonetary cots and benefits alongside 

monetary ones as part of its cost-benefit analysis. 

USDOT’s existing TIFIA program provides an example of how a 

National Infrastructure Bank would use merit to determine project 

funding. 

• The TIFIA process uses pre-agreed criteria to determine which 

projects receive loans; these criteria include innovation, safety, 

livability, sustainability, economic competitiveness, and State 

of good repair. 

• Since its inception in 1998, TIFIA has made $7.9bn of loans, 

$1.6bn of which have already been repaid with interest. 9

• TIFIA-assisted projects have created over $29.4bn of total infrastructure spending; an example of the potential to leverage 

Federal dollars with local government and private sector investment. 10

Q.3. Public–Private Partnerships. What is the potential for public– 

private partnership in infrastructure? What is the evidence that 

private capital is available for the kinds of significant regional 

projects that the NIB would be designed to support? 

A.3. Private–public partnerships can be a viable tool in infrastructure investment because they: 

• Mobilize private sector capital to fund projects alongside Government funding. 

• Shift elements of the project risk from the public sector to the 

private sector. 

• Allow for greater participation of the private sector in the development and financing of infrastructure and provision of 

services. 

There is currently over $180bn of equity capital looking to invest 

in infrastructure and there is over $55bn of new equity capital 

being raised by infrastructure investors today. 11

• If this $180bn of equity capital comprised 30 percent of project 

costs, it could generate $600bn of infrastructure investment. 
100 

12Dealogic Database, InfraAmericas, Infrastructure Journal. 13Dealogic Database, InfraAmericas, Infrastructure Journal. 14 U.K. National Audit Office, ‘‘PFI: Construction Performance’’, February 2003. 

Since 2005, over $38.1bn of public–private partnership transactions have been undertaken in the U.S. transportation sector 

(road, rail, and port). 12

• Of this, over $13.6bn has been invested in greenfield projects, 

the majority of which would not have been completed without 

the use of private sector equity. 

• An additional $24.5bn has been invested in brownfield projects, 

which have helped reduce Government debt burdens and allowed these governments to redeploy capital into new infrastructure projects. 

An example of one such project is the North Tarrant Express in 

Texas that reached financial close in November 2009: 

• This project was financed using $1,048mm of private sector 

debt, $600mm of TIFIA loans, $573mm of contributions from 

TxDOT, and $426mm of private sector equity. 13

• Of these funds, the Federal Government contributed only 

$600mm (22 percent of project cost) for the TIFIA loan which 

is expected to be paid back with interest over 40 years. 

The track record for public–private partnerships globally is very 

strong. 

• U.K. National Audit Office studies have found that privately 

developed infrastructure projects are delivered on-time and onbudget with much higher frequency than similar publicly procured projects. 14

• 73 percent of public procurements ran over-budget vs. only 22 

percent of privately financed projects. 

• 70 percent of public procurements ran over time vs. only 30 

percent of privately financed projects. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR VITTER 

FROM ROBERT WOLF 

Q.1. How would you suggest funding the proposed infrastructure 

bank? 

A.1. The NIB could leverage its initial funding with private sector 

equity and debt to maximize value for money. To provide an example, an initial NIB funding of $25 billion could be leveraged two 

times by issuing debt to private sector investors, creating $75 billion of NIB capital that could be used to fund as much as $375 billion in infrastructure funding (while maintaining only a 20 percent 

NIB stake). A primary advantage of involving private equity is that 

private equity takes the first loss on projects in the event of distress, thereby shielding the Federal Government’s investment in 

the project. The NIB would be subject to strict leverage limits to 

be set forth in its establishing legislation. 
101 

Q.2. Do you believe any new funding used to create the proposed 

infrastructure bank should be offset with corresponding decreases 

in Federal spending elsewhere? 

A.2. We believe that infrastructure spending is critical to the economic growth of this country and that a National Infrastructure 

Bank would increase the overall pool of capital available for infrastructure investment. The creation of an infrastructure bank as we 

have outlined would be advantageous for the country because it 

would leverage Federal dollars with funds from private sector debt 

and equity investors, thereby reducing the reliance on the Federal 

Government to fund infrastructure improvements. However, I 

would not advocate reducing the Federal Government’s overall 

spending on infrastructure. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM DONALD SHUBERT 

Q.1. Ideal Time To Invest in Infrastructure. I have heard that given 

today’s low interest rates and the excess capacity available in the 

construction industry that now is an ideal time to be investing in 

infrastructure. Please comment on the efficiencies that we can realize by increasing our Nation’s investment in infrastructure right 

now, in the midst of the current economic downturn. 

A.1. As far as low interest rates are concerned, if the question is 

regarding Government’s ability to borrow, reports show that current market interest rates are at low levels. This means that the 

Government can obtain the same amount of bonding, paying far 

less over the debt service period. If the question goes to producers’ 

and contractors’ ability to finance new equipment purchases, the 

same holds true. However, access to capital is tight making it harder for companies to finance new equipment and plant purchases. 

There are two primary efficiencies that can be realized now. First 

there is a skilled workforce sitting idle. That workforce is fully 

trained and can return to work on short notice. Hiring unemployed 

construction workers would impose lower training costs on firms 

that would be incurred by hiring and training new workers, because these workers already have the requisite skills and experience in construction. This lower training cost is one factor that is 

keeping construction costs low, which leads to the second efficiency. 

Second, the fierce competition between contractors seeking work 

due to the excess capacity in the construction industry is driving 

down prices, making current construction costs low. In a report 

issued on October 11, 2010, the Department of the Treasury with 

the Council of Economic Advisors provided that: ‘‘Construction 

costs and other costs associated with building projects are especially low in the current environment. The Department of Transportation’s (DOT) experience with Recovery Act funding has shown 

that more than 2,000 additional airport, highway, bridge, and transit projects were funded because of low bids, or projects being completed under budget. DOT also reported that among its $1.1 billion 

in aviation investments, winning bids for the projects came in $200 

million below their initial engineering estimates.’’ 

A recent bid opening in Connecticut provides an example. On October 13, 2010, the Connecticut Department of Transportation held 
102 

a bid opening for the Reconstruction of the I-95/I-91/Route 34 Interchange Project that was estimated to cost over $500 million. The 

low bid was $356.8 million. 

Q.2. Merit-Driven Selection Process. One of the benefits of creating 

a National Infrastructure Bank is the fact that we create a competitive, merit-driven process that leads to selection of those 

projects with the best returns. How can we design a bank to ensure 

that we make the best use of Federal dollars and fund the projects 

with the highest rates of return and the greatest public benefits? 

A.2. CCIA does not have the type of data to sufficiently advise you 

on the design of a bank to ensure that we can make the best use 

of Federal dollars and fund projects with the highest rates of return and the greatest public benefits, however, we believe that effective measures to ensure those important results would be to 

identify specific goals and set objective selection criteria to meet 

the goals. Goals could include economic competitiveness, safety, 

state of good repair, and other critical national goals. Criteria to 

meet those goals could include items such as job creation, reduced 

carbon emissions, and public health and safety benefits. 

It is important to set high standards of transparency and accountability. One way to do this may be to require that those goals 

and the selection criteria be set forth for all applicants to understand prior to the acceptance of proposals and conducting evaluations. 

Q.3. Effects of Prolonged Unemployment. Prolonged unemployment 

can have significant negative impacts on construction workers and 

the construction industry. Can you discuss what impacts prolonged 

unemployment can have on the skills of construction workers and 

the long-term impacts of substantial prolonged unemployment on 

the construction industry? 

A.3. Prior to the economic downturn, the construction industry was 

facing a workforce challenge. The workforce was aging, and the industry was having problems attracting and retaining younger employees. At that point, the industry was investing in workforce development initiatives such as annual Construction Career Day programs for high school juniors and seniors. 

With the economic downturn, and resulting high unemployment 

in the industry, the large number of unemployed skilled trades-people is limiting contractors’ and apprenticeship training programs’ 

ability to bring new people into the industry and train them. Employers will only hire and invest in training new employees when 

there are long-term prospects of work available. Likewise, it is difficult to conduct apprenticeship training programs when there are 

many skilled people looking for work. It makes no sense to train 

people for unemployment. 

The current situation is exacerbating the challenge of replacing 

our aging workforce. If and when construction employment rises 

again, we will be worse off, because we have fallen behind in our 

efforts to replenish a skilled productive workforce. 

Retaining management employees and office staff presents another challenge. Many contractors have had staff reductions during 

the economic downturn. Many of the newly unemployed high-level 

employees and staff have transferable skills and are seeking work 
103 

in other industries and sectors of the economy. This will present a 

significant challenge for construction companies when they begin 

taking on new work and rebuilding their companies. 

Q.4. Leveraging. One of the goals of an infrastructure bank is to 

leverage new State, local, and private funding. Some studies have 

found that previous increases in Federal transportation funding 

have led to reduced State and local funding. How can we best design an infrastructure bank to ensure that it leverages new public 

and private funding rather than simply substituting for existing 

funding? 

A.4. From CCIA’s viewpoint, a National Infrastructure Bank will 

almost certainly supplement rather than replace core Federal 

transportation funding streams. We believe that there are a significant number of mega- and multi-modal projects that are too expensive for a State or region to fund, and are too large for the core 

funding program to support. We believe that alternative funding 

sources such as an infrastructure bank will be used to meet those 

needs, leaving the core funding programs to fund the mounting 

number of regular program projects. 

Again, Chairman Dodd and Ranking Member Shelby, the Connecticut Construction Industries Association applauds your leadership and looks forward to working with the Committee to develop 

meaningful legislation to invest in infrastructure, create jobs and 

grow the economy. 
104 

1 Information technology, human resources, and certain I-Bank accounting services are provided by other departments. In a few cases, a bond that was issued by the I-Bank and later 

defeased by the I-Bank are both shown as financing work by the I-Bank and counted in the 

overall total. Removing those few examples, the money that I-Bank has placed is approximately 

$28 billion. 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

PREPARED STATEMENT SUBMITTED BY THE CALIFORNIA 

INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK 

Chairman Dodd, Ranking Member Shelby, and distinguished Members of the 

Committee my name is Stanton C. Hazelroth, and it is a privilege to offer my testimony concerning the need for the creation of a National Infrastructure Bank. 

As you know, a discussion has been taking place ranging far and wide about the 

need for and the make-up of a National Infrastructure Bank. I believe you have 

heard testimony about successful examples in other parts of the world. I am here 

to testify that such a bank has existed in California for over 15 years, providing financing for over $31 billion of infrastructure and related governmental needs. I suggest that you only have to look as far as California to find a working model that 

proves, albeit on a State-sized scale, the potential impact of such a bank. 

I serve as the Executive Director of the California Infrastructure and Economic 

Development Bank (California I-Bank). The California I-Bank was created by the 

California Legislature in 1994. The Legislation was approved by a vote of 67 to 1 

in the Assembly and 30 to 3 in the State Senate illustrating the potential bipartisan 

appeal of this concept. The mission of the California I-Bank is to finance public infrastructure and private development that promote economic growth that is the sine 

qua non for creating new jobs for Californians. I am here to tell you that a national 

I-Bank is not only feasible, but a must if our Nation is going to rebuild the infrastructure that our economy relies upon to compete globally. While it cannot and 

should not supplant our current systems of financing infrastructure, it can supplement them in a most powerful way. 

The California I-Bank is the State of California’s only general purpose financing 

authority and has extremely broad statutory powers to issue revenue bonds, make 

loans and provide credit enhancements for a wide variety of infrastructure and economic development projects. It received an initial one-time net appropriation of $181 

million in 1999. The California I-Bank does not receive annual appropriations from 

the State; its operations are funded solely from fees, interest earnings and loan repayments. The I-Bank began full operations in 1999. Over the last decade we have 

steadily grown from $6.0 billion to approximately $30 billion in debt financings with 

a staff of 25 positions. 1 Most of the projects financed by the California I-Bank also 

receive funding from additional sources, multiplying the impact of the I-Bank financing. Working with a National Infrastructure Bank as a member of the team 

would allow project proponents to make effective use of multiple sources of financing 

in creative, innovative ways that allow more and even larger regional projects to 

happen and on extremely favorable terms. 

When considering a National I-Bank, it is helpful to understand how the California I-Bank is organized. It is similar to the many of the proposals currently before this Congress. Both Infrastructure Banks would be governed by a five-member 

board of directors. In California, the board consists of four Governor’s appointees 

and the California State Treasurer. Three of the Governor’s appointees sit as a result of their appointed positions with the Governor, like the Secretary of Business, 

Transportation and Housing, and one is directly appointed by the Governor. 

The Board is statutorily required to approve all financing by the California IBank. Staff is not free to make loans and investments on their own unless by specific delegations from the Board. The daily affairs are managed and conducted by 

an Executive Director, who is appointed by the Governor and confirmed by the Senate. The California I-Bank Executive Director and staff were responsible for developing the structure, departments and employees needed to carry out their mandate. 

The Congressional proposals commonly include a detailed and sophisticated ‘‘ready 

to go’’ organizational structure, taking many successful ideas from the European Infrastructure Bank. A strong, independent board and staff is essential. The I-Bank 

recently received ratings upgrades from Standard and Poor’s (S&P) and Fitch Ratings, Inc. (Fitch). S&P cited, ‘‘[p]rogram oversight and loan screening provided by 

State infrastructure bank’’ staff as well as a key factor in the upgrade. Moody’s cited 

‘‘strong management with rigorous and detailed credit reviews of new and existing 

borrowers’’ as a key consideration in their rating assessment. 
105 

2 Includes the sale of Tobacco Settlement Bonds for which the I-Bank was responsible for creating a special purpose trust, selling the tobacco assets to the special purpose trust, and working 

with the Department of Finance to oversee the sale of the bonds. 3On April 25, 2006, $1,160,435,000 of Toll Bridge Seismic Retrofit Revenue Bonds issued by 

the I-Bank was defeased and $80 million in related commercial paper was repaid. 

Like the Congressional proposals, the California I-Bank can issue debt, make 

loans and loan guarantees, among other powers. Both the California I-Bank and the 

Federal proposals require the development of objective selection criteria. After consultation with all interested parties and technical experts, a series of public hearings was held throughout the State to insure that criteria were developed leading 

to the selection of only the best projects. Due to the diversity required by the financing model, the projects over the last 10 years in the direct loan program are 50 percent rural projects and 50 percent urban projects. The I-Bank statute requires special efforts to provide technical assistance to those in need and often those are rural 

projects. 

The following table lists the cumulative totals by fiscal year in which the I-Bank 

has loaned, issued debt, or played a significant role as a member of the financing 

team. 

Fiscal Year Cumulative Financing Totals 

1997–1998 ...................................................................................................................... $6,022,000,000 

1998–1999 ...................................................................................................................... $6,086,580,000 

1999–2000 ...................................................................................................................... $6,533,692,050 

2000–2001 ...................................................................................................................... $6,852,267,350 

2001–2002 ...................................................................................................................... $7,621,646,205 

2002–20032 .................................................................................................................... $11,550,160,105 

2003–20042 .................................................................................................................... $15,642,301,155 

2004–2005 ...................................................................................................................... $18,134,898,155 

2005–20063 .................................................................................................................... $23,146,452,663 

2006–20072 .................................................................................................................... $28,431,501,828 

2007–2008 ...................................................................................................................... $29,492,415,314 

2008–2009 ...................................................................................................................... $30,764,252,814 

2009–2010 ...................................................................................................................... $31,757,137,814 

The diversity of the I-Bank’s programs has also expanded and now includes the 

following primary programs: 

• Infrastructure State Revolving Fund (ISRF) Program (provides low-cost financing to local agencies for public infrastructure projects); 

• Industrial Development Revenue Bond (IDB) Program (provides tax-exempt revenue bond financing for eligible small- to mid-size manufacturing companies); 

• 501(c)(3) Revenue Bond Program (provides tax-exempt revenue bond financing 

for certain nonprofit public benefit corporations); 

• State School Fund Apportionment Lease Revenue Bond Program (provides taxexempt revenue bond financing for school districts needing emergency apportionment loans); 

• Public Agency Revenue Bond Program (provides tax-exempt revenue bond financing for governmental entities, including the I-Bank’s ISRF Program); and 

• Other Tax-Exempt Revenue Bonds (this category captures I-Bank projects that 

don’t meet the criteria of any of the four bond programs listed above). 

(The IDB Program, the 501(c)(3) Revenue Bond Program, the State School Fund Apportionment Lease Revenue Bond Program, the Public Agencies Revenue Bond Program and Other Tax-Exempt Revenue Bonds are collectively the Bond Financing 

Programs.) 

The I-Bank statute has allowed a broad and creative range of economic development financings. Below is information on each of the programs. 

Infrastructure State Revolving Fund Program 

The Infrastructure State Revolving Fund (ISRF) Program is a direct revolving 

fund loan program created by the I-Bank that can directly serve as a model for the 
106 

4 ‘‘Loans’’ is generically used to mean loans, leases/leaseback agreements and installment sale 

agreements. 5 Each of the categories is further defined in Government Code Section 63010. 

6This number includes seven approved loans that were withdrawn by the borrower. 

7While the I-Bank has broad authority as a conduit bond issuer for nonprofit entities, it is 

statutorily prohibited from financing housing projects. Additionally, the I-Bank’s board of directors has adopted a policy to not issue bonds for nonprofit health facilities or nonprofit higher 

educational facilities and other projects that are eligible for financing through other State financing authorities that were created specifically to finance those types of projects. 

national I-Bank. It is a statewide program that provides low-cost loans 4 up to $10 

million per project for the following 16 statutorily designated categories 5 of public 

infrastructure: (1) city streets; (2) county highways; (3) drainage, water supply and 

flood control; (4) educational facilities; (5) environmental mitigation measures; (6) 

parks and recreational facilities; (7) port facilities; (8) power and communications; 

(9) public transit; (10) sewage collection and treatment; (11) solid waste collection 

and disposal; (12) water treatment and distribution; (13) defense conversion; (14) 

public safety facilities; (15) State highways; and (16) military infrastructure. ISRF 

Program eligible applicants include local government entities such as cities, counties, redevelopment agencies, special districts, assessment districts, and joint powers 

authorities. Since June 2000, the Board has approved ninety-five (95) ISRF Program 

loans totaling nearly $417.6 million. 6

While the appropriated funds have been committed to ISRF Program borrowers, 

additional ISRF Program financing is available because of an innovative ‘‘leveraged 

loan program’’ structure which involves the issuance of revenue bonds secured by 

the repayments from previously approved loans. To date, the I-Bank has issued 

three series of revenue bonds totaling roughly $153 million to provide additional 

funding for the ISRF Program (Program Bonds). As noted above, the I-Bank recently received ratings upgrades from S&P and Fitch. The Program Bonds are rated 

‘‘AA+,’’ ‘‘Aa2,’’ and ‘‘AA+’’ by Fitch, Moody’s Investors Service (Moody’s) and S&P, 

respectively. Moody’s cited ‘‘strong management with rigorous and detailed credit reviews of new and existing borrowers’’ as a key consideration in their rating assessment. S&P cited, ‘‘[p]rogram oversight and loan screening provided by State infrastructure bank’’ staff as well as a key factor in the upgrade. 

Industrial Development Revenue Bond Program 

The I-Bank is authorized to issue Industrial Development Bonds (IDBs), which 

are tax-exempt bonds issued by governmental entities to small- to mid-size, privately owned manufacturing and processing businesses to provide low-cost financing 

of up to $10 million for the acquisition, construction, rehabilitation, and equipping 

of the business. The purpose of IDBs is to promote economic development and job 

creation or retention. The I-Bank is a conduit issuer of IDBs. IDB bonds are payable 

solely from the revenues generated by the privately owned business and are neither 

backed nor guaranteed by either the State or the I-Bank, and do not involve the 

use of State funds. The eligibility requirements for IDBs are governed by provisions 

in the Internal Revenue Code and U.S. Treasury regulations. Since 1999, the I-Bank 

has issued forty-eight (48) IDBs totaling approximately $235 million to businesses 

located throughout the State. 

501(c)(3) Revenue Bond Program 

The I-Bank is authorized to issue 501(c)(3) bonds, which are tax-exempt bonds 

issued by governmental entities to federally approved tax-exempt nonprofit corporations to provide low-cost financing for capital improvement projects. Similar to IDBs, 

the eligibility requirements for 501(c)(3) bonds are governed by the Internal Revenue Code and U.S. Treasury regulations. The I-Bank serves as the conduit issuer 

of 501(c)(3) bonds, which are payable solely from the revenues of the nonprofit entity, are neither backed nor guaranteed by either the State or the I-Bank, and do not 

involve the use of State funds. As a result, the I-Bank typically issues bonds for the 

following types of nonprofits located throughout the State: 7 (1) research institutions 

(e.g., Scripps Research Institute, Gladstone Institute, RAND Corporation, and Buck 

Institute for Age Research); (2) cultural organizations (e.g., Asian Art Museum, San 

Francisco Ballet, California Academy of Sciences, and Getty Museum); (3) charitable 

organizations (e.g., Salvation Army and Goodwill Industries of Orange County); (4) 

recreational facilities (e.g., YMCA); and, (5) other unique nonprofits that provide a 

defined public benefit (e.g., Society for the Prevention of Cruelty to Animals, the 

Academy of Motion Picture Arts and Sciences and Learning With a Difference, Inc. 

d/b/a The Westmark School). Since 1999, the I-Bank has issued ninety-three (93) 

501(c)(3) bonds totaling approximately $5.8 billion. 
107 

State School Fund Apportionment Lease Revenue Bond Program 

Emergency Apportionment Lease Revenue Bonds. In December, 2005, the I-Bank 

issued $97 million of State School Fund Apportionment Lease Revenue Bonds in 

three series. In April, 2010, the I-Bank issued an additional series totaling $13 million for a fourth district. The bonds, which were initially authorized by Chapter 263, 

Statutes of 2004 (AB 1554), as amended, will reimburse the State’s General Fund 

for long-term emergency loans made to four school districts experiencing severe financial distress. The bonds will be repaid through a direct intercept of State School 

Fund monies designated for apportionment to the four districts. To the extent any 

school district in the future obtains approval by the Legislature for an emergency 

loan, it is anticipated that the I-Bank will issue bonds to fund the loan using the 

model developed for the bonds issued in December 2005. This occurred as mentioned 

above, in April, 2010. 

Public Agency Revenue Bond Program 

Because the I-Bank is the Governor’s only general purpose financing authority 

and has extremely broad statutory powers to issue revenue bonds and act on the 

State’s behalf in certain statutorily authorized circumstances, the I-Bank has been 

involved in the following financings and activities to support various State entities 

and programs. 

Infrastructure State Revolving Fund Program. As mentioned above, on March 1, 

2004, the I-Bank issued its initial series of ISRF Program revenue bonds, the Series 

2004 ISRF Bonds, in the amount of $51.37 million. On December 14, 2005, and September 24, 2008, I-Bank issued the 2005 and 2008 ISRF Bonds, totaling $52.8 million and $48.375 million, respectively, to provide additional funding for loans under 

the ISRF Program. 

Energy Efficiency Bonds. In April 2003, the California Consumer Power and Con- servation Financing Authority (CPA) issued $28,005,000 of 2003A Energy Efficiency 

Bonds on behalf of the California Energy Commission (CEC). On October 25, 2004, 

the CPA assigned its rights and responsibilities for these bonds to the I-Bank when 

the CPA’s operations were closed down as a result of budget elimination. In May 

2005, the I-Bank issued a second series of revenue bonds in the amount of $37 million to provide additional funding for the CEC’s Energy Efficiency Financing (EEF) 

Program, which provides low-cost loans of up to $3 million to schools, hospitals and 

local governments for the installation of energy-saving measures. The bonds are repaid from previously approved EEF Program loans. Eligible projects include heating, ventilating, air conditioning, equipment control, small cogeneration and photovoltaic systems. 

California Insurance Guarantee Association Bonds. In August 2004, the I-Bank issued $750 million of revenue bonds for the California Insurance Guarantee Association (CIGA) pursuant to authorization contained in Chapter 645, Statues of 2003 

(AB 227). CIGA is an organization created by the California Legislature in 1969 to 

pay claims of insolvent insurance carriers that are licensed to do business in the 

State of California. The proceeds of the bonds were used by CIGA to pay claims and 

related expenses that arose as a result of the insolvencies of insurance companies 

providing workers’ compensation insurance. The bonds are repaid solely by special 

and regular premium assessments on worker’s compensation premiums paid by insurance companies to CIGA. 

Toll Bridge Seismic Retrofit Bonds. In August 2003, the I-Bank issued $1.1 billion 

of long-term fixed rate revenue bonds for the California Department of Transportation (Caltrans) pursuant to authorization in Chapter 907, Statutes of 2001 (AB 

1171). The bonds were rated in the ‘‘AA’’ category by all three rating agencies and 

were repaid solely from revenues and related interest earnings generated by the $1 

per vehicle seismic retrofit surcharge collected on the seven Bay Area State-owned 

toll bridges. Caltrans used the bond proceeds to fund a portion of the construction 

of the new East Span of the San Francisco–Oakland Bay Bridge (Bay Bridge), which 

is one of the largest public works projects in Northern California history. In March 

2005, the I-Bank also authorized the issuance of up to $400 million of commercial 

paper for the program, with Caltrans using the proceeds for the continued construction of the Bay Bridge. In March 2006, the Toll Bridge Seismic Retrofit Bonds were 

defeased by bonds issued by the Bay Area Toll Bridge Authority (BATA). BATA also 

paid off the related I-Bank commercial paper notes at that time. BATA was given 

the financial responsibility of continuing the Bay Bridge seismic upgrades and for 

the costs thereof pursuant to Chapter 71, Statutes of 2005 (AB 144), which also authorized BATA to collect the seismic surcharge revenue generated from tolls collected on the State-owned Bay Area toll bridges. 

Clean Water State Revolving Fund (CWSRF) Bonds. In August 2002, the I-Bank 

issued $300 million of fixed-rate revenue bonds to provide additional funding for the 
108 

CWSRF Program. The CWSRF, which is administered by the State Water Resources 

Control Board (SWRCB), provides low-cost loans up to $25 million per year to local 

agencies throughout the State for the construction of wastewater treatment and 

water recycling facilities. The bonds, which are repaid by 98 previously approved 

CWSRF loans from 50 different borrowers, received natural ‘‘AAA’’ ratings from all 

three rating agencies. The bond issue also represented the first time that the State 

had leveraged one of its Federal Environmental Protection Agency-funded State revolving fund programs, and added California to the ranks of over 20 other States 

that have utilized this innovative financing technique to expand lending capacity. 

In addition to the above programs, the I-Bank has also been involved in other 

unique financings listed below. 

Tobacco Securitization Bonds. As part of the State’s solution to provide funds to 

address the Fiscal Year 2002–2003 budget deficit, the Legislature and the Governor 

authorized the issuance of bonds secured solely by tobacco settlement revenues. 

Chapter 414, Statutes of 2002 (SB 1831) authorized a special purpose nonprofit corporation (Corporation) to serve as the issuer of the tobacco settlement bonds and 

authorized the I-Bank to sell for, and on behalf of, the State, all or any portion of 

the tobacco settlement revenues to the Corporation necessary to issue the bonds. In 

January 2003, September 2003, August 2005 and most recently in March 2007, the 

I-Bank sold the tobacco settlement revenues to the Corporation, and the Corporation 

issued bonds totaling over $13 billion to be repaid from tobacco settlement revenues. 

Recovery Zone Economic Development Bonds Pool Finance Program (RZEDBs). On 

February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (Recovery Act), which contains a number of new financing tools 

valuable for counties and cities to achieve short-term economic stimulus and support 

long-term economic recovery. RZEDBs are taxable governmental bonds that must be 

issued before January 1, 2011, and are principally used in designated recovery zones 

after designation as such for qualified economic development purposes. RZEDBs can 

be used to pay costs associated with public infrastructure or facilities that promote 

development or other economic activity in a recovery zone, or for expenditures for 

job training and educational programs. RZEDBs provide either a 45 percent interest 

rate cash subsidy from the Federal Government to the bond issuer, or bondholders 

can receive a tax credit equal to 45 percent of each bond interest payment (unused 

credits may be carried forward to successive years). 

As a conduit bond issuer, the I-Bank may sell RZEDBs, which are payable solely 

from the revenues of the participating eligible cities and counties, are neither 

backed nor guaranteed by either the State or the I-Bank, and do not involve the 

use of State funds. The I-Bank intends to offer a pooled bond program to aggregate 

RZEDB financings from several cities and counties into one large bond issuance to 

facilitate efficient and cost effective access to this new type of taxable bond with 

lower interest costs, lower bond issuance costs and a ready-assembled bond financing team. 

Tribal Compact Asset Securitization Bonds. Chapter 91, Statutes of 2004 (AB 687) 

ratified amended State-tribal gaming compacts (Compacts) with five recognized Native American tribes (Tribes). Each Compact allows the Tribe to increase the authorized number of gaming devices it operates and also enhances the Tribe’s exclusivity 

over gaming activities. In return, the State receives, among other things, two new 

income sources from the Tribes derived from the increased gaming devices (Compact 

Assets). AB 687 authorizes the I-Bank to sell for and on behalf of the State some 

or all of the Compact Assets to a special purpose trust created by the I-Bank as 

a not-for-profit corporation (Trust). The Trust is authorized to issue bonds, the repayment of which is limited to the Compact Assets sold to the Trust by the I-Bank. 

The I-Bank works closely with the Department of Finance and the State Treasurer’s 

Office to issue the bonds, with the bond proceeds intended to be used to fund transportation projects. 

Imperial Irrigation District Preliminary Loan Guarantee. On April 29, 1998, the 

Imperial Irrigation District (IID) and the San Diego County Water Authority 

(SDCWA) entered into a 45-year water conservation and transfer agreement (Transfer Agreement) for the transfer of up to 200,000 acre-feet per year of water supply 

to SDCWA based upon IID water conservation. The Metropolitan Water District of 

Southern California (MWD) and the Coachella Valley Water District (CVWD) challenged the IID/SDCWA transfer, resulting in Key Terms of a Quantification Settlement Agreement (QSA), which outlined a series of agreements to settle disputes and 

allow the Transfer Agreement to proceed (QSA together with the Transfer Agreement, collectively the Agreements). 

IID did not initially approve the QSA due to concerns about two early termination 

provisions contained therein and expected potential environmental mitigation costs 

associated with actions undertaken pursuant to the Agreements. Early termination 
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would eliminate the contract revenues that IID and its landowners would rely upon 

to finance the capital investments enhancing water supply based upon IID water 

conservation. A preliminary loan guarantee, approved by the I-Bank Board on June 

27, 2003, addressed the financial risks involved with early termination and enabled 

IID to issue sufficient revenue bonds to finance the water supply project. The Board 

of Directors of the IID approved the QSA on October 2, 2003. 

On December 15, 2009, the I-Bank Board approved a 1-year extension of the 2003 

Preliminary Commitment, subject to certain clarified terms and conditions and to 

further negotiations on a few remaining terms and conditions consistent with the 

2003 Preliminary Commitment. 

Other Tax-Exempt Revenue Bonds 

The I-Bank has issued bonds for projects that do not fall into any of the above 

categories of bonds. These include Rate Reduction Bonds, Exempt Facility Revenue 

Bonds, Enterprise Zone Facility Bonds and Economic Development Facility Bonds. 

The I-Bank’s activity related to rate reduction bonds (RRBs) involved the issuance and ongoing administration of $6.046 billion of bonds by special purpose trusts in 

1997 and 1998. The RRBs were related to the restructuring of the electric utility 

industry. 

Exempt Facility Revenue Bonds are a category of bonds created by special provision of the Internal Revenue Code which allow private, for-profit companies, typically located at ports and airports, to utilize the proceeds of tax-exempt bonds to 

finance limited types of projects. California I-Bank is currently processing a bond 

to finance $530 million for Poseidon, a desalinization plant to be located in Carlsbad, California. A National I-Bank could finance such projects, serving the driest 

regions in the States, making a huge positive impact on water supply. 

Enterprise Zone Facility Bonds are issued for projects that meet the definition of 

26 United States Code, Section 1394. An ‘‘Enterprise Zone’’ means any area within 

a city, county, or a city and county that is designated as an enterprise zone by the 

California Department of Housing and Community Development in accordance with 

the provisions of Section 7073 of the California Government Code. Economic Development Facility Bonds are issued for projects that meet the definition of Economic 

Development Facilities as defined in the I-Bank’s statutes. 

National I-Bank Project Example 

Earlier this year, the Mayor of Los Angeles came to Washington with an unusual 

financing request. According to press reports, he was not looking for a grant or other 

handout. He simply needs a loan or loan guarantee. He has obtained local voters 

approval to collect funds for transportation. A one-half cent sales tax was passed 

by the voters in a recent election to be collected for 30 years. Some experts say the 

total amount that will be collected over 30 years is approximately $40 billion. 

The City also has a very detailed, shovel ready plan to use the money for transportation projects-mostly rail. If the City builds and finances the projects on a payas-you-go basis, it will take 30 years to put these critical transportation improvements in place. If it can borrow the money, secured by the ongoing payment of this 

tax, the City estimates that all of the projects can be complete within 10 years. 

Think of the reduction in traffic, increases in air quality, and all the other massive 

environmental benefits that could take place in 10 years: one-third of the time it 

would otherwise take. 

The initial reaction to the Mayor’s request was that such a program doesn’t exist. 

That is exactly my point. A National Infrastructure Bank is designed to respond to 

just this kind of need. Los Angeles has a huge infrastructure and environmental 

need, as do many communities throughout the Nation. We have the solution. 

PREPARED STATEMENT SUBMITTED BY THE CONSTRUCTION 

MANAGEMENT ASSOCIATION OF AMERICA 

The Construction Management Association of America welcomes this opportunity 

to comment on current proposals to create a National Infrastructure Bank. We have 

long supported this concept and I would like to commend Chairman Dodd on taking 

the initiative to explore this important and innovative idea and move it toward enactment. CMAA joined with the Chairman and other Senate leaders last January 

in a news conference in support of the Infrastructure Bank and other proposals. 

We were also encouraged by President Obama’s recent announcements of support 

for the National Infrastructure Bank and his intention to seek additional short-term 

funding for infrastructure investment. 

CMAA would like to commend Pennsylvania Governor Ed Rendell of Building 

America’s Future for his eloquent and consistent leadership in this effort. 
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CMAA is a national organization of more than 6,200 members, including both 

owners of construction projects and individuals and organizations providing professional construction and program management services for our Nation’s infrastructure. 

CMAA’s owner members are predominantly in the public sector and include such 

organizations as the U.S. Army Corps of Engineers, the U.S. General Services Administration, the State Department’s Overseas Building Operations, the Department 

of Veterans Affairs, the Department of Homeland Security’s Customs and Border 

Protection agency, and numerous State Departments of Transportation, city and regional transit agencies, ports, school districts, airports, and other entities. 

Our service provider members include virtually all of the leading companies in 

this industry. Although CMAA members are active across all types of construction, 

it is fair to say that public sector infrastructure projects account for a very significant portion of their total business. 

CMAA develops and maintains the Construction Management Standards of Practice and administer the Certified Construction Manager (CCM) program, which has 

been accredited by the American National Standards Institute under International 

Organization for Standardization norm ISO 17024. 

Our entire focus as an organization is on bringing professional discipline to the 

management of every phase of a construction project or program. The goal is the 

most successful project possible, as measured by the achievement of schedule, budget, quality, and safety goals and the avoidance of delays, claims, and disputes. 

Sound professional construction management protects the interests of owners and 

their projects, saving tax dollars while providing quality buildings and infrastructure. 

We believe the concept of a National Infrastructure Bank is fundamentally in harmony with this focus, and creating the Bank will be a powerful step toward assuring 

America of the infrastructure we will need to continue to grow and prosper. Moreover, the Bank concept may also provide a new level of oversight and accountability 

in infrastructure construction. 

The National Infrastructure Bank will replace our current, politically driven process for selecting projects with a process based on clear cost-benefit analysis conducted by impartial experts. The best projects—those that serve clear public needs 

and are planned and implemented effectively—will promise sufficient returns to attract investment dollars. 

The discipline imposed by ROI metrics will drive steady improvement in design, 

construction techniques, procurement policies, adoption of new technology, and other 

areas. Projects will be selected for funding based on merit-based criteria rather than 

geography or political considerations. This strategy will also foster development of 

clear performance measurement standards such as completing projects on time and 

within budget, with high levels of quality and safety. 

All of these values are the fundamental goals of professional Construction and 

Program Management. As we continue to work in an environment of constrained resources, these basic values will become ever more critical. Getting the most from 

the available resources will be the key challenge of the years ahead. 

In our advocacy of a new multiyear Surface Transportation Authorization, as proposed by Rep. James Oberstar, as well as legislation to improve our Nation’s drinking water and wastewater systems, develop high speed rail initiatives, and promote 

other forms of infrastructure investment, one question comes to the fore again and 

again: How are we going to pay for these improvements? 

Nobody doubts that our infrastructure needs are real and urgent. But we all also 

recognize that the potential cost of meeting these needs is immense. Both in our 

present budgetary and economic climate, and in any likely near-future scenario, this 

price tag is simply beyond our ability to pay . . . if we continue to rely on our traditional funding mechanisms. 

This is why the Bank is so critical, and why the new resource must be conceived 

and structured as a bank and not simply a new Government fund. 

The Highway Trust Fund, based chiefly on the gasoline tax, will never again be 

adequate to fund even ongoing maintenance of our roads and bridges, let alone expansions. We see similar situations with a wide range of revolving funds and other 

methods that, in one form or another, channel tax revenues into infrastructure. 

This is the linkage that we must leave behind. We must move away from complete reliance on public funding for infrastructure and forge a new, stronger connection between private capital and infrastructure needs. Many innovative new financial methods are being employed in the United States today, from Public Private 

Partnerships to Design-Build-Operate-Maintain contracts. CMAA members are often 

in the forefront of these efforts, both as owners and as providers of services that 

range from predesign planning to ongoing operation of buildings and other struc-
111 

tures. These new tools are being improved through practical experience, evolving 

steadily into systems that deliver good value to taxpayers and users as well as to 

investors. 

There will always be a role for direct Federal spending, of course, because not 

every infrastructure project will attract private investment, and because certain 

public assets and resources must be supported whether they generate revenues or 

not. But using a National Infrastructure Bank to finance a large part of our infrastructure needs means we will be able to target Federal spending more efficiently 

and realize more benefits from it. By introducing a major new source of funds that 

have not previously been available, the Bank will make it possible for Federal, 

State, and local funds to be directed to other projects—projects that might have 

been squeezed out of budgets by larger-scale undertakings. 

In addition, the Bank will always be able to lend out far more money than it has 

on hand. Initial Federal funding, together with funds deposited by private investors, 

will serve as the reserves on which a significantly larger lending volume can be 

based. A funding system based on tax revenues and Federal borrowing will never 

be able to generate the same amount of money as a true banking system. 

The National Infrastructure Bank should be invested with authority to use a wide 

range of proven financial tools, including grants, credit assistance, low interest 

loans, tax incentives, Build America Bonds, Private Activity Bonds and other resources. The Bank should also have the broadest possible focus on infrastructure, 

financing not only roads by water and wastewater systems, electric power, ports, 

airports, broadband, and other forms of infrastructure. 

CMAA is also organizationally dedicated to transparency and accountability in 

construction management. We believe these values thrive in an environment in 

which objectives and metrics are clear; in which risk is realistically and reasonably 

shared, and in which performance is measured with the goal of continuous improvement. Funding infrastructure projects through Bank investments will contribute to 

creating this kind of environment. 

America must be able to repair, maintain, and expand all kinds of infrastructure 

in order to support future economic growth. The National Infrastructure Bank provides a means for the business community to fund this infrastructure in the same 

way it would fund any other similarly critical asset. Creating a National Infrastructure Bank is a key step away from viewing infrastructure as an expense and toward 

seeing it as an investment. Expenses are incurred and never recovered, while investments can continue to pay off for years or decades to come. 
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LETTER SUBMITTED BY THE NATIONAL ASSOCIATION OF 

MANUFACTURERS 
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LETTER SUBMITTED BY THE ASSOCIATION OF METROPOLITAN 

WATER AGENCIES 
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