Obama's single most important reform

[Commentary] Since the 1960s, public and private investment in energy efficiency, infrastructure, schools and the information highway have been underfunded, and absent structural reforms of the way Congress does the nation's business these priorities probably will continue to be underfunded. Devoting short-term stimulus spending to infrastructure and other needs will not address the chronic problem of underfunding. Here the states can show the federal government the way.

Most states, counties and cities, directly or through their agencies, issue municipal bonds to fund long-term, large-scale capital improvement projects like power plants, highways and school buildings. Usually these municipal bonds are tax-free. Most are either "general obligation" bonds, repayable from future general taxation, or "revenue bonds," repayable from a specific stream of income, like highway tolls. When paying for expensive projects with long-term payoffs, it makes sense for governments, like corporations and nonprofits and ordinary individuals, to borrow the money rather than to pay the entire cost upfront out of current revenues. Raising money by means of tax-exempt bonds that are paid back over years or decades permits a government to spread the costs of roads, schools and energy grids among the beneficiaries over many years, instead of forcing today's taxpayers to pay the entire cost of a project that will mostly benefit future taxpayers.

Today the federal government, unlike state and local governments, lacks the capability to borrow money by issuing bonds for particular capital improvement projects like Obama's priorities of infrastructure, school buildings, broadband and energy-efficient retrofitting. Obama knows this. That is why, during the campaign, he called for the creation of a national infrastructure bank. As Obama recognized, a national infrastructure bank would accomplish two goals at once. It would rely on bonds to provide adequate funding for major infrastructure investments without requiring massive initial payments. And an independent, nonpartisan national infrastructure bank, by choosing projects on the basis of merit, could achieve Obama's insistence that decisions should "be determined not by politics, but by what will maximize our safety and homeland security, what will keep our environment clean and our economy strong."

In order to achieve the economic goals the president-elect has announced, the new administration and Congress should act rapidly to create a national infrastructure bank.