Infrastructure Bank: Fixing how we fix roads

NEW YORK (CNNMoney) -- It sounds like the latest Apple product, but it has the power to create far more jobs with little government money.

The I-Bank, or infrastructure bank, has support of both Democrats, Republicans and big business. Legislation has been co-sponsored in the Senate by Democrat John Kerry of Massachusetts and Republican Kay Bailey Hutchinson of Texas.

It is likely to once again get support from President Obama when he lays out his jobs agenda.

The idea is to create a government agency to help arrange financing for infrastructure projects using investments from private investors.

Working through the I-Bank, the government would encourage private investment by providing cheap loans and loan guarantees. But it would only fund a fraction of the overall cost, just enough to attract private investors who would provide most of the financing.

States and municipalities would get much needed upgrades of bridges and roads. The local economies would get a stimulus boost from more people working.

And the lion's share of the money would come from major institutional investors -- pension funds, hedge funds and sovereign wealth funds from other countries.

What businesses want from Obama

Many don't invest now because even when municipal bonds are sold to help fund a project, those tax-free offerings are not attractive to many deep-pocket investors not subject to income tax, such as pension funds. Even when a project is expected to generate tolls or other revenue, there is little way now to offer investors a piece of that action to attract them in.

Michael Likosky, senior fellow at New York University, said an I-Bank is the only way to generate the funding for needed infrastructure projects in this time of tight government spending.

"We have to grow the pie of capital," Likosky said. "We're going grow it with private capital and use the public money in a much more targeted way."

The idea of trying an I-Bank here is not a new one. Some proposals go back to the 1950s.

There has been a state infrastructure bank operating in California for 12 years, and it was something President Obama was talking about on the campaign trail four years ago, and proposed as part of the jobs program that he unveiled a year ago.

The California Infrastructure and Economic Development Bank was funded with $161 million in 1999, and has helped fund $32 billion in public works projects since then, said Stan Hazelroth, its executive director.

Its bonds have a AA+ rating from Standard & Poor's, the same rating as U.S. Treasuries.

America's Jobs Crisis

But despite support from such typical adversaries as the U.S. Chamber of Commerce and the AFL-CIO, getting I-Bank legislation through Congress will not necessarily be easy.

One problem is that it's not fast-acting. As a result, those who argue for immediate stimulus would much rather pursue projects that are ready to go.

"An I-Bank will not create any jobs on day one; it probably won't create jobs on day 365," said Janet Kavinoky, executive director of transportation and infrastructure for the Chamber of Commerce. "In my view it could take three years."

Another problem is that the cost, though limited, isn't nothing. It could take $5 billion in seed money to get the I-Bank rolling. Some proposals call for $5 billion of seed money every year for several years.

"It may be an idea whose time has come," said Kavinoky. But there's also a good chance it gets crowded out by what's going on with debt and deficit reduction."

And conservatives don't like government's involvement in the I-Bank, even as facilitator. They think it will merely add more bureaucracy.

"The President's ongoing obsession with an infrastructure bank as a source of salvation from the economic crisis at hand is - to be polite about it - a dangerous distraction and a waste of his time," said Ronald Utt, a senior research fellow at the Heritage Institute, a conservative think tank. "Obama's infrastructure bank would likely yield only modest amounts of infrastructure spending by the end of 2017 while having no measurable impact on job growth or economic activity -- a prospect woefully at odds with the economic challenges confronting the nation."

But advocates say an I-Bank will bring in a flood of private sector money fairly quickly. Likosky said there are a lot of projects that could start as early as next year if the bank can be approved this fall.

"The U.S. has one of the highest percentage of projects in the world stuck in planning," Likosky said. "There is probably $500 to $600 billion sitting on the sidelines...that want to move into this sector. We'll actually have to be careful we don't bring too much in too quickly."