The United States’ infrastructure is eroding and the nation’s public capital remains underfunded. The American Society of Civil Engineers (ASCE) gave the U.S. infrastructure a D+ in their 2013 report card and estimated the nation needs $3.6 trillion of investment by 2020 to address the shortfall. The inability of the United States to keep pace with needed infrastructure investment has real economic impact.  According to ASCE, the “nation’s deteriorating surface transportation infrastructure will cost the American economy more than 876,000 jobs, and suppress the growth of the country’s Gross Domestic Product (GDP) by $897 billion by 2020.” 

The majority of state and local infrastructure spending is financed through tax-exempt bonds, with $1.6 trillion coming from bonds within the last decade. While the Federal government has spent over $100 billion per year, Federal spending has remained relatively constant as a percentage of GDP for 20 years. Therefore, a new framework must be constructed to provide greater private investment to restore America's infrastructure.

In addition to municipal bonds, localities may issue bonds on behalf of nonprofit organizations. 501(c)(3) revenue bonds, or conduit bonds, are issued by municipalities or states and are the sole debt of a nonprofit. These bond revenues allow nonprofit organizations to finance projects on property owned by the organization or by government, and must further the nonprofit’s tax-exempt mission. 

501(c)(3) revenue bonds share similar advantages to municipal bonds, such as tax-exempt status, low interest rates, and long terms. Conduit bonds are generally exempt from Federal taxes which make them an attractive investment vehicle for private actors. The accompanying low interest rates and long repayment terms allow a nonprofit the ability to invest greater amounts in capital improvements incurring manageable, incremental bond repayments over several decades. Therefore, this paper will advocate for the utilization of 501(c)(3) revenue bonds by government entities as a means of generating greater capital for essential infrastructure investment.

The paper will support the establishment of a national nonprofit organization which would utilize bond revenue to provide grants directly to the issuing localities for infrastructure projects. Business and private actors need to take a greater role in facilitating the nation’s infrastructure restoration. According to a recent study, 1,600 U.S.-based companies had $1.2 trillion in cash on hand at the end of 2010. If these companies contributed approximately .5% of said cash, they could help establish a national infrastructure fund (“Fund”), as a for-profit subsidiary of the proposed nonprofit, capitalized at $6 billion. Interest on the Fund’s investments and loans would facilitate repayment of outstanding conduit bonds. A 3% return on the Fund’s assets could provide $180 million toward infrastructure restoration annually.

Lastly, this paper will address the critique of the aforementioned concept and consider other policy alternatives. Specifically, the paper will assess proposals to establish a government-owned National Infrastructure Bank, in addition to opportunities to expand the utilization of public-private partnerships.