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Green Banks Are Not Infrastructure Banks

Samuel Staley
May 15, 2010, 9:26am

On Thursday, May 13th, Congress asked a number of elected officials and experts to provide testimony on the potential and limits of a national infrastructure bank before the U.S. House Ways and Means Committee's Subcommittee on Select Revenue Measures. The hope was to provide information about how a national infrastructure bank might help fill the funding gap between scarce federal revenues and physical needs. My testimony focused on physical infrastructure such as roads, bridges, water, and sewer, where I pointed out that a bank if properly structured could leverage private resources through public private partnerships. If bank focused on revolving loans, and were self-sustainng, we could improve the efficiency of targeted federal investments (although subject to a number of caveats outlined in my testimony.

The committee members also heard a report on Kentucky's "Green Bank" from Jonathan Miller, the state's Secretary of Finance and Administration. Mr. Miller highlighted the bank's mission of using a revolving loan fund to finance upgrades in energy-efficient renovations of public buildings in Kentucky. The idea is that the loan will be paid back through the savings from increased energy efficiency. The bank, funded from a $14 million grant from the federal government throught the Stimulus Program, made its first loan in December 2009. (I'll leave aside for the moment the issue of whether this is really a worthy use of Stimulus dollars, or why the fedeal government needed to capitalize this bank if in fact it provides the benefits it claims.)

What I found interesting was the Green Bank testimony was provided in the same hearing as one on infrastructure banks. While a Green Bank and an infrastructure bank might approach financing projects in similar ways, they aren't the same thing. A Green Bank really isn't focused on providing core infrastructure. It has a different mission: upgrading bricks and mortar facilities to meet environmental objectives and to implement an industrial policy focused on building a "green" employment sector and industry. As Mr. Miller explained:

"The Green Bank's primary mission is to promote energy efficiency in public buildings, by providing public agencies access to low-interest loans in order for them to reduce operating costs and energy use, protect the environment, save taxpayer dollars, promote economic development, and create new green collar jobs."

If Congress is serious about meeting the nation's physical infrastructure needs, it will have to be careful about what it considers infrastructure. The nation could benefit from a national infrastructure bank if the investment decisions focus on core physical infrastructure, meet clear federal (or national) needs, is grounded in revolving loan philosophy independent of annual appropriations, and explicitly recognizes, encourages, and leverages the use of private capital and user fees to finance these physical infrastructure projects.

Kentucky's Green Bank, in contrast, has little to do with providing high quality core public services at the least cost for citizens and businesses. It also doesn't focus on upgrading existing infrastructure to meet core service needs, whether it's high quality drinking water, efficient water & sewer treatment, or a road that improves mobility and access for citizens and businesses. Yet, these are the goals of a properly constituted infrastructure bank.


Samuel Staley is Research Fellow


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