Federal loan sale plan to pay for infrastructure funding gains traction

18 June 2018
The US Congress took up legislation last week that would sell federally-held distressed debt and use the proceeds to help fund infrastructure improvements, said municipal advisors Larry Kidwell and Robbi Jones.
 
The bipartisan legislation, House Bill 6104, would sell United States Department of Agriculture (USDA) distressed debt to the market. The USDA would then use half of the proceeds to fund infrastructure, and half to reduce the national deficit. The USDA has USD 155bn in non-guaranteed debt on its books, some subset of which would be used in a sale, said Mike Williams, a partner at lobbying firm United by Interest, which promoted the legislation.
 
“[The legislation] is a lead-in to what would hopefully be a much larger initiative,” said Jones, who, along with Kidwell, has been promoting the sale of federal loans to fund infrastructure needs.
 
Ultimately, Jones and Kidwell foresee the possibility of selling the federal government’s entire loan portfolio—which might go for as much as USD 2trn—to help fund infrastructure needs that total USD 4.6trn, according to the American Society of Civil Engineers. The government loans are across myriad departments, and include items such as student loans and National Oceanic and Atmospheric Sciences fisheries loans, according to a spreadsheet Kidwell provided.
 
CLICK HERE to see outstanding amounts in federal agency loan portfolios in a spreadsheet provided by Kidwell.
 
The federal government could leverage proceeds from the loan sales by requiring a state or local match, which could double the amount of financing available. Private funds from public private partnerships could provide the rest of the needed capital.
 
State match money could come through a Water Infrastructure Finance and Innovation Act or Transportation Infrastructure Finance and Innovation Act program, where federal and state funds are used to fund critical infrastructure, as well as through traditional municipal bond sales, Jones said.
 
The current legislation is much less ambitious—but it paves the way for something bigger. Under the legislation the US comptroller general would provide a recommendation in a Government Accountability Office report on whether a similar sale should be undertaken by other federal agencies.
 
President Donald Trump (R) has proposed USD 200bn in funding to improve the country’s aging infrastructure, but so far, increases in infrastructure funding have not materialized, especially after Congress passed a tax bill incorporating large-scale cuts late last year.
But selling loans wouldn’t cost the federal government any money out of pocket and would, instead, increase tax revenue by creating jobs that would generate tax revenue, said Kidwell.
 
This wouldn’t be the first time the US government has sold federal loans to fund infrastructure projects. The offset, however, would be that the federal government would no longer hold the loans, and so would no longer receive a revenue stream as the loans were paid back. That money typically goes into the Treasury and can be spent on other programs. But the up-front payment and the additional tax revenue would more than make up for that loss, Kidwell claimed.
 
In the 1980s, the administration of President Ronald Reagan (R) required federal agencies to sell some of their outstanding loans, according to a press release from US Representative Mike Kelly (R-PA), one of the current bill’s sponsors. But the federal government has since changed the way it values loans, and there have been no further sales as a result, said Kidwell.
 
Representatives William Lacy Clay, Jr (D-MO) and Ted Budd (R-NC) also introduced the bill on 14 June.
 
by Simone Baribeau