A traditional way to generate jobs in a struggling economy is for the government to invest in public works, such as highways, railroads, airports or water projects. The difficulty in this struggling economy is paying for it.

A second economic stimulus package with money for public works is probably out of the question, given the political hazards and inflationary risk of all that government borrowing. The Highway Trust Fund is a logical source for more infrastructure spending, because it is supposed to cover highway and transit projects. But the fund doesn't have enough revenue now to sustain even routine projects for any length of time.

The solution, then, might be something between the two: a mechanism to combine some government borrowing and private investment to build selected projects whose users then would help pay back the cost. It's called a National Infrastructure Bank. The European Union has one, as does California, and the idea is a favorite of President Obama. He endorsed it during the campaign, particularly as a way to build inter-city, high-speed rail lines, another of his favorites.

Legislation to create such a bank was introduced in the House last spring by Connecticut Democrat Rosa DeLauro, but it has languished in committee despite 43 cosponsors.

Rising unemployment has given new urgency to infrastructure investment and, perhaps, to an infrastructure bank. In late October, hoping to get the ball rolling, two Democrats -- Senate Majority Whip Richard J. Durbin and Pennsylvania Gov. Edward G. Rendell -- met with a group of reporters to sketch out their financing plan. They emphasized that the proposed bank could attract significant private investment, something that could make the scheme more affordable and therefore more attractive to Republicans and conservative Democrats.

"We're going to be looking for the most bang for the buck," Durbin said. "Turning to infrastructure is one thing that's going to have broad bipartisan support."

Fiscal conservatives of both parties, though, are bound to be suspicious. Even limited borrowing to leverage outside investment would add to the budget deficit. And if the projects don't produce the revenue they promise, the government would be left holding the bag.

There's also a political risk. Because the bank would pick and choose transportation investments, some states that benefit from today's formula funding and congressional earmarks might feel shortchanged.

The growing consensus, however, is that economic help is needed and that transportation projects, particularly long-range projects, are an important part of the answer.

There is some thought that Congress will pass a two-year transportation authorization bill, instead of the customary but politically more complicated six-year plan, in order to get more money flowing to states faster. That bill could be a vehicle for an infrastructure bank, which the administration has called for "as soon as possible."

DeLauro, for one, says investors have an appetite for infrastructure projects that have government backing. "The way we've talked about setting up the bank allows us to leverage hundreds of millions," she said. "There is a real interest; people are looking for safe investments."
Highway Banking

An infrastructure bank operates much like a Wall Street investment bank, except with government participation. Projects are proposed, the bank assesses them and picks the most promising, then marshals the public and private investments to get them built. Those who drive the roads or ride the trains, for example, would pay extra in taxes or fees, with the money used to repay the investors.

Several variations exist, although all follow this basic formula. New York investment banker Felix Rohatyn co-chaired an infrastructure commission for the Center for Strategic and International Studies in 2004 that came up with an infrastructure bank plan introduced as a Senate bill in 2007 by Connecticut Democrat Christopher J. Dodd and Nebraska Republican Chuck Hagel, who has since retired.

"Infrastructure investment," Rohatyn said in a recent interview, "provides two things: One is employment and the other is capital." An infrastructure bank is one of the few institutions that can supply both. "There are a number of people who think a development bank should be examined to push this employment question more," he said.

The bank, he explained, would be structured along the same lines as the World Bank, which funds international development projects. It would have a board of directors that would accept applications for funding for transportation projects. Once the board deemed a project to have regional or national significance, the state or city proposing it could receive support from the bank in a number of ways. The bank could provide a direct subsidy, could purchase credit guarantees for bonds that finance roads or could provide interest rate subsidies. Another option could be a direct loan to be repaid through tolls or other user fees.

The Dodd-Hagel bill called for up to $60 billion in long-term federal bonds to get the bank started. Obama, during his campaign, suggested that the bank would borrow $60 billion from the Treasury to invest in infrastructure projects over 10 years.

In his first budget request as president, Obama asked for $5 billion to get a bank started. DeLauro's bill would authorize that amount each year, with $250 billion in total subscribed capital available from the Treasury. However, House appropriators, in their fiscal 2010 transportation spending bill, would provide just $2 billion if the bank is authorized. And the Senate would provide nothing except $1.1 billion in grants for transportation projects of regional or national significance.

That drew an admonition from the White House in September to support the infrastructure bank "and not substitute in its place a national infrastructure grant program in conjunction with increases for transportation infrastructure credit."

Obama has asked Congress to hold down transportation spending because he does not want to raise taxes to pay for it in this economy. But he considers infrastructure spending a means of creating jobs. To that end, he continues to prod Congress toward the idea of the infrastructure bank.
Difficult Road to Travel

There are few options for making such investments in the current economic climate. Revenue from gasoline taxes and truck sales that goes into the Highway Trust Fund has been diminished by the recession and a consequent reduction in driving. The remaining options are to raise taxes -- all but impossible with congressional elections coming up next year -- or to borrow from the Treasury.

If borrowing is inevitable, then advocates of the infrastructure bank argue that the government might as well try to get more for its money by leveraging private investment. But that, critics say, would require Congress to forego the earmarked spending and state-by-state formulas that have controlled highway, rail, aviation and transit spending for decades.

Although the bank's intended purpose, as described by supporters, is to provide funding where there is the greatest need, some think the money will eventually be divvied up equally among states by formula or earmark anyway.

"There is a fundamental tension between performance-based funding and creating these new kinds of funding vehicles that seem much more likely to continue politicized funding," said Robert Poole, a transportation expert at the Reason Foundation, a pro-business, libertarian policy think tank.

The money in the economic stimulus bill went out to states by formula regardless of the state's needs or the merits of its projects, Poole noted. Although a needs-based program would be a better use of the funds, he said, lawmakers from rural states will argue against it because it would favor metropolitan areas.

Some who have studied the issue also worry there are not enough worthy projects that could pay back the bank's investments. Brian Grote, who sits on a commission on transportation financing, said he's always been skeptical that the bank could fund as many projects as proponents promised.

"A major consideration is not the supply of capital -- it never has been," Grote said. "It's the supply of projects that can repay that capital."

If the bank is going to provide investment without a concern for repayment, then skeptics like Poole say it's just a glorified grant program. The only way it would work, Poole said, is if it operates as a revolving-loan fund -- investment repayments would be loaned out again in a self-supporting cycle.

But it can work, said Stanton Hazelroth, executive director of the infrastructure and economic development bank California started in 1994. After initial funding from the state, he said, the bank is now self-sufficient.

One thing that is clear is that an infrastructure bank would require a big political commitment to get started. Right now, support is mostly being driven by a need to generate jobs without major government borrowing.

"There is clearly a lot of conversation around the need to create jobs, and I hope that's a sign that Congress is going to move quickly on infrastructure measures to create those jobs," said Janet Kavinoky of the U.S. Chamber of Commerce.

"An infrastructure bank has been discussed very conceptually for quite a while, but I have not seen a real detailed proposal lately,'' Kavinoky added. "It would not surprise me if DeLauro, Rendell, Dodd really get to work on that."