Save-Us-From-the-CBO-WSJ

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Well, it seems that federal infrastructure finance isn’t the only area of federal policy that has a problem. Much bigger ones have been around for some time.

I’m glad that the article admits, however, “[In CBO’s] defense, it isn’t an easy job.” I’d imagine that it’s even harder for scoring the smaller, highly technical stuff about loan programs that I look at.

But still — it goes with the territory of taking on a hard job that you should be prepared (and to some extent, are entitled) to admit mistakes quickly and reverse course when new analyses or data are presented. In turn, those asking for a change should be prepared to present, not just the ‘pure’ correct case, but one that seeks some common ground with prior scoring whenever possible, even if some superfluous elements are included. These are not academic or moral debates, after all — practical solutions are the goal.

Specifically, I’m thinking about this approach regarding what might become a live scoring matter: New Bipartisan FCRA Bills — But CBO Sees Old Language?

But it also applies to previous JCT’s prior scoring assumption that federal infrastructure loans increase the issuance of tax-exempt debt: CBO/JCT Cost Estimates for HR 8127 It’s not an unreasonable assumption at the outset of a WIFIA-type loan program. But once a program has done a number of deals, it’s up to them to review their portfolio and present the correcting facts to JCT.

In the meantime, we’ll see plenty of monstrosities. Currently onstage are grotesque efforts to pulverize the wreckage of one of the more absurd pieces of the neoliberal camouflage’s prior ‘narrative’ — Biden as ‘sharp-as-tack’ etc. etc., ad nauseum.

This fragile, yet operationally important, part of the narrative was spectacularly disassembled in last year’s debate. But large chunks of its wreckage were still lying around. Such obvious evidence of very consequential trickery might interfere with the formation of the neo-narrative, a process which requires a relatively clean landscape. So, the wreckage itself had to be hit hard with a ‘news-cycle counter-narrative’ that, while temporarily re-drawing attention to the trickery, ultimately results in confusion, fatigue, trivialization, and boredom (e.g., ‘just another media-on-media story’). At that point, likely to be soon, the remaining bits are small enough to stuff down the memory hole.

Such public proactivity about discarded narratives seems unusual. Most parts of the old narrative that didn’t inherently concern economic matters — DEI, ESG and the other woke stuff — were simply abandoned, along with their usefully idiotic proponents. Some of these foot soldiers continue the various ‘fights’ (which were always purely camouflage) at a performative level in the daily political circus, but without relevance or real support they’ll all just fade away. Other parts of the old narrative that have continuing economic potential, especially those related to lucrative climate change initiatives, are being quietly re-worked and will be blended into the future neo-narrative. The ongoing economic rents secured under the old narrative are also being quietly solidified and expanded in the old-fashioned, behind-the-scenes neoliberal way, which includes slipping wonky technical provisions into major legislation, as was recently attempted to give carbon pipelines federal eminent domain (that one got caught — how many get through?).

The Biden ‘sharp-as-tack’ narrative, however, was too wrecked to repair yet too dangerous to abandon. The story could expose the full extent and mechanisms of neoliberal political control; its surviving principal actors, with little left to lose and vengeful motives, could confirm the truth in headline-grabbing ways. Like an advanced fighter jet downed behind enemy lines, its own side, if ruthless enough, will immediately send airstrikes to destroy it — and take out the surviving pilots, too.

As noted, a grotesque performance. But it does highlight something which I think might be important — the functionaries who create and maintain the neoliberal camouflage (call them, the ‘Narrativators’) are (1) painfully aware of their recent failures, and (2) likely to have learned, and are still learning, a lot. I imagine that in other situations where a ‘narrative’ was central to economic and political control, the product was continuously improved. I’m sure early Soviet apparatchiks made rookie mistakes, too. In their case, the prospect of literally being shot likely concentrated remaining minds wonderfully, and the product improved quite quickly. Our current crew of Narrativators don’t face such downsides, but continued employment (even wealth, to a point) and social inclusion (even status, of a sort) are sufficient incentives. Their neoliberal bosses can be vindictive, certainly, but also relatively generous with the loot, at least when there’s plenty to share.

All these monstrosities — the political circus acts of abandoned Woke Last Ditchers, the ultra-cringey own-goal counter-narratives, the sneaky tinkering with bits and pieces of previously established economic rent rackets — are not really important. It’s mostly just noise as the old narrative is dying, and probably doesn’t contain much information about what the neo-narrative will look like, for two reasons: (1) the Narrativators are quick learners and highly motivated; old mistakes will not be repeated, and (2) more importantly, the narrative tools available to them might be undergoing a quantum change — I’m talking about AI, of course.

Like everyone else, it is clear to me that AI LLM, graphics, interactivity etc. will be transformative, but it isn’t clear at all what the overall result will exactly look like. You can be sure that the Narrativators are paying close — as in, professional, expert, motivated — attention and may even be participating in developments. I can imagine various ways that AI tools will be central to the neo-narrative:

• Most obviously, in terms of graphics, communications, LLM and other digital mass media power. This might be in the form of a ‘hyper-charged’ version of what was working for the old narrative. But maybe something completely new will arise.

• More indirectly, AI developments and trajectories will likely be (already are?) a primary component of the neo-narrative’s ‘vision’ for a better future. Original neoliberalism plausibly promised that unleashed private markets would deliver a ‘rising tide lifting all boats’. Original narrative neoliberalism promised (somewhat less plausibly) moral perfection, purification where needed, and happiness — the latter for some achieved by ‘owning nothing’ and for most others by receiving an improved slice of the bread/circus pie. Neo-narrative neoliberalism might be able to convincingly promise the whole lot via AI utopian visions — the Abundance story looks exactly that.

• There’s much synergy and overlap between AI development for real operational profit and its potential for narrative-driven rent extraction. Neoliberal smart money is undoubtedly betting on both. Hence, the Narrativators won’t just be another group utilizing the tools — their narrative skills and capabilities might be somewhat central to parts of the sector’s business strategy itself. They’ll be in the thick of it from the start. The 10-year moratorium on AI regulation in the House bill might be related to this mix.

No doubt there is, and will be, much more. A sense of fear and loathing is not absent. To paraphrase that old movie trope, “It’s all very interesting. Too interesting.”

In some ways, the WIFIA FCRA Criteria are so intricately bad that they’re kind of fun to write about. I’ve been able to use words and phrases that don’t usually come up in federal infrastructure finance: rabbit hole, crooks and imbeciles, jargon-filled word salad, smoking gun, poster child. Even a set of satirical images — Per Criteria Obscura, Convicta et Combusta!

But these are serious times and there are more important things to do. Congress, CBO, OMB, CWIFP and its stakeholders should not have to spend any more time on fixing the Criteria than is absolutely necessary. Even I, probably the only person on earth who found the Criteria occasionally amusing and somewhat edifying with respect to FCRA principles, would now very much rather be thinking and writing about federal infrastructure finance policy.

So, what is the quickest way to fix this issue?

Bipartisan Senate and House amendment bills have been introduced. The facts that (1) unlike past bills on WIFIA amendments, these are solely dedicated to the FCRA issue, and (2) the sponsors and their staffs, who must be incredibly busy right now, took the time to introduce them, indicate serious intent. A realistic threat, as it were, to fix the issue by main force — if necessary.

Perhaps with a bit of additional language, as described here, I think CBO could be brought round one way or another to scoring the proposed amendment correctly this time. Let’s assume that’s the case for now.

That leaves OMB. To start there, we can put aside all the criticism of the current Criteria and just characterize them as a bureaucratic mistake about a highly technical budgeting issue. Happens all the time, right? Once they are fixed, the whole thing will be permanently forgotten in a nanosecond.

I believe — and I’m pretty sure I’m right about this — that as a Federal Register Notice, the current Criteria can simply be amended by OMB and re-published. I don’t see anything in the original Congressional Directive that would prevent this. Consultation with the CWIFP section of WIFIA and CBO, as required in the original Directive, is necessary again this time anyway, for two reasons.

The first is that CBO should be given an opportunity to include something about ensuring that federal sovereign power is not being misused in cost-share situations. This may be highly unlikely to occur in actual cost-share deals, but I think it’s a theoretically valid reason to require specific due diligence with respect to FCRA classification. That standard might be handy to have in place in future if CBO is asked to score a big funding increase for CWIFP cost-share loans. It’s not unrealistic to think that program cost-share loans — which facilitate local funding and reduce federal outlays — will become a popular item in the federal infrastructure policy toolbox. So, for the avoidance of doubt.

Second, the revised Criteria will need to work for CWIFP stakeholders. If they do, the amendment bills can be withdrawn. If they don’t — well, the fight continues. In Congress. In public. At a time when bureaucratic overreach is a political meme (and a Project 2025 thing — just saying). When water sector stakeholders will be increasingly energized about threatened federal support. When extreme weather events involving droughts and floods are in the news every day. When no one has any more time to waste on this pointless issue.

I cannot — I just cannot — see why this kind of fight about so indefensible a thing is in OMB’s interest in any way. When the alternative is simply to meet quietly with other federal officials and work out something that only involves a few amendments to a Federal Register Notice? Most of the original form could be left — even most of the Background Section boilerplate jargon could be left in place as long as long as the reference to ‘assets’ was inserted in the last sentence. A few key word changes, some re-focusing of the questions — maybe half a day of drafting. Probably won’t be a work of art as a government publication — but who cares? As long as the revised Notice works for CBO and CWIFP, the issue will instantly evaporate and everyone will move on.

Looking at all this from the outside, but with some understanding of the specific issue and past-life experience in many deals, were I asked for advice, it’d be simple:

There are no fundamental disagreements about important things here. A mistake was made, which might be embarrassing to admit. But fixing it in a public forum can be done, if necessary, and that will be more embarrassing. There is a much better alternative for all concerned — amend the Criteria. The next step is straightforward — someone with standing in the matter (which I think would include Congress, CWIFP or even OMB’s new political leadership) should contact the relevant group at OMB and offer to quietly work it out.

Super-short summary: (1) Give CBO a win on federal sovereign power because it doesn’t matter, (2) different amendment language allows new CBO analysis and graceful exit, (3) indicate in bill’s introductory language that the Criteria are wrong.

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This looks promising re the FCRA Criteria issue — Utah, Arizona senators launch bipartisan push for water infrastructure funding. (Btw, the article could use a few corrections)

Here’s the Senate text — House is the same.

However, before the amendment language gets included, I hope the sponsors consider what happened to the same amendment re CBO scoring for S.914 (2021) and S.3591 (2020).

In both cases, CBO essentially applied the FCRA Criteria rationale and scored the impact of the amendment as if FCRA accrual couldn’t be applied, hence rendering the amendment pointless. In one sense, it’s simple: CBO was wrong then because the Criteria are wrong. So, point that out and ask again, right?

Maybe. As an outside observer, I’d guess that CBO might be resistant to, in effect, admitting they were wrong before because…they were misled by OMB? Because they didn’t really understand the Criteria or FCRA? But now that they do, they’re agreeing in public that OMB is wrong? All a bit awkward, no? It’s one thing for me to write blistering polemics about the Criteria. But I’d be sympathetic to anyone in the government that would want to avoid awkwardness about such an unnecessary issue.

Well, maybe a quiet agreement about different scoring this time has been, or will be, worked out. Congress and CBO are on the same team, after all, so I imagine such things are possible.

But if not, perhaps because such things are not quite cricket, I have some suggestions. This is explained in depth (with example amendment text) here: FCRA Non-Federal Issue: A New Approach. Yes, I know — TL/DR. So, I’ll cut to the chase by just parsing CBO’s two-sentence rationale for the S.3591 bill:

However, the status of a borrower as a nonfederal entity repaying a loan with nonfederal funds is not a sufficient basis for the loan or loan guarantee to receive FCRA treatment under current law.

I think CBO is correct in a theoretical way here. If somehow the federal government is forcing the non-federal borrower to agree to and then repay the loan, we’re talking about some kind of weird taxation that would go in the cash budget — definitely not FCRA. In practice, I can’t see that ever happening in a cost-share situation, legally anyway. But CBO takes the use of federal sovereign power in projects involving non-federal participants very seriously. So, give CBO the win here and include some language about the WIFIA applicant demonstrating that they’re not being forced by Uncle Sam to do anything, the cost share and the loan are their independent decisions made according to their standard procedures, etc. They’ll have all this paperwork anyway. How easy is that?

In directing this budgetary treatment under S. 3591, EPA could make loans and loan guarantees for federal projects or assets and record the costs on an accrual basis—which would be reflected in a subsidy cost—rather than on a cash basis, thus understating the initial funding required for those commitments.

This is where CBO is wrong because the Criteria are wrong. WIFIA will be making a loan to a non-federal borrower for their own cost-share non-federal asset — obviously, the borrower isn’t agreeing to raise local taxes or water rates on their community to repay a loan that finances a federal asset — what, like a gift or a patriotic donation? Or the local people just can’t wait to pay more federal taxes?

No — unless the borrower is an investment-grade imbecile, they’re financing something of value (you know, an ‘asset’) for their own non-federal community, and hence such asset can be precisely described as a non-federal asset. Yes, that non-federal asset is a cost share, which by definition is a share in a project that has a lot of federal involvement, and such project could be loosely described as a ‘federal project’.

Uh, shouldn’t the federal budget utilize precise definitions and avoid loose ones? Is it okay to override statutory WIFIA eligibility because a bureaucrat expresses an opinion “like, you know, I just feel the cost share is kind of like, you know, too federal, ‘coz it’s right there in the project and everything, and that makes me uncomfortable, I mean like whatever FCRA law says, I’m just uncomfortable…” Spare me.

And so on and on — the Criteria are wrong in so many ways that it’s embarrassing. The problem is that CBO is twice the on record agreeing with the Criteria, so it’s potentially their embarrassment, too. Proposing significantly different and longer amendment text will give CBO an excuse to do a completely new analysis where they can focus on federal sovereign power and just ignore both their prior scoring and the Criteria.

Finally, it might be worth indicating in the bill’s introductory language that the amendment is necessary because the Criteria are wrong. Otherwise, CBO faces a bit of a logical issue: If the Criteria are not officially questioned in some way, they presumably remain the officially correct interpretation of FCRA — which means that the amendment must be incorrect? I don’t know Congressional bill protocol here, but I’d guess that it leans more to a hint than a slam — maybe something like this:

To amend the Water Infrastructure Finance and Innovation Act of 2014 with respect to ensuring the correct budgetary treatment of certain amounts of financial assistance, and for other purposes.

A gentle implication that the current, Criteria-based budgetary treatment needs such correction. And effectively an invitation to CBO to help ensure correct treatment, which of course could include addressing their own scoring concerns about the use of federal sovereign power in projects with non-federal participants.

ChatGPT-on-Public-Sector-Infrastructure-Cartels-05_14_2025-InRecap

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Well, that escalated quickly. The above AI exercise started with a simple question about anti-trust law and went all the way to a ‘Declaration of Infrastructure Sovereignty’. Most of the path there was heavy-duty political science (or so it seems to me– in any case, outside my main expertise), so I don’t know if I was asking the right questions or whether ChatGPT’s answers will stand much scrutiny. But interesting — flip through the PDF and you’ll get the idea (my questions highlighted in yellow).

The simple question to ChatGPT stemmed from some further thought on an off-hand observation I made a few days ago in another AI exercise:

Btw, as the model ‘contemplates’ and slowly scrolls out an answer, you get a visceral sense of physical effort: millions of chips firing away, heat rising from the frames, electricity pouring in and heated cooling water pouring out. All for one question on a free model. Now…how about that essential physical infrastructure again?

In old-time means of production, that physical effort came from human beings, either with their muscles or (increasingly, as technology progressed) with their physical ‘wetware’ brains that controlled the draft animals, steam engines, machine tools, input switches, logistics, and so on. But now, increasingly again, the wetware is replaced by AI software which controls robots doing the physical stuff. People will become marginalized as a primary factor in economic production. Everybody knows that this is a looming social problem of explosive magnitude — nobody has an answer.

But, as I imagined it the other day, there still is physical effort going on (even to produce a purely digital product) and so physical infrastructure (to deliver electricity, communication links, cooling water, transport, etc.) is as essential as it ever was. Oh, you say, how hard is that? Some wires, pipes, asphalt planted on cheap land. And you’d probably be right.

And perhaps so said a Mr. Gradgrind as he planned a factory in mid-19th century England and considered the physical effort then required. ‘We’re going to need a lot of people to operate these new machines. Oh, how hard is that? Some subsistence wages and cheap worker housing planted on non-productive land close to the factory.’ And he was right — until the people organized into trade unions and demanded a bigger cut of the pie. Or organized politically, under a new and radical ideology, and demanded a lot more.

Public Infrastructure Regional Cartels

Now back to our own hard times. The elected officials of a locality might ask the developer of an essentially jobless new data center to cover the cost, in some way, of the additional infrastructure improvements that will be necessary. ‘No problem,’ say the developers, ‘but that’s all you’ll get, or we’ll take our data center to another town.’ Well, that’s how it is.

But something changes. The elected officials of many localities in the region get together — and organize. They know that their local labor is relatively unimportant to data centers and robotic factories, but that their local infrastructure is critical. Their wires, their pipes, their asphalt, their land — low-tech, dull as dirt, but theirs [1]. And what else do they have? A few of their people can move away, but most are stuck. If their communities are going to survive, they have to work with what they’ve got to get what they can out of the new economy — it’s existential. It won’t be easy, but they well know that if they compete with each other, it’ll be much worse.

So, they form…a coalition, a conference, a co-operative, an association, something like that, but regardless of label, in essence and in operation a cartel. The cartel agrees to establish a minimum price for infrastructure access. All costs covered, of course — but more. A chunk of the data center’s profits through special local taxes, obligations to fund local restoration or land improvement, support for local education, maybe environmental remediation — it can be a lot of things, but it will be more. And it will be made clear to the developers that there’s little point in going elsewhere in the region, a region that is so otherwise perfect for the planned development, because all the cartel members have sworn to ask for the same.

Of course, this is classic monopolistic behavior — the cartel is, in effect, a ‘trust’, as the term was used for late 19th century US industrial monopolization. The legality is, at best, ambiguous — hence, the questions for ChatGPT. But the economic effect is straightforward — I won’t sugarcoat this — the owners of the infrastructure, or access to it, are extracting rent from the users.

‘Unconstitutional! Un-American!’ say Classical Liberals. ‘Economic travesty! Incredibly inefficient!’ say the Neoliberals. ‘Heresy! Uncontrolled and rapacious provincialism!’ say the Progressives. Yes, a lot of that is off-the-chart hypocrisy. But each is right in one way — rent extraction by cartel is not pretty.

But what choice did the cartel members have? They wanted their communities to survive and for their people have a decent life, not as pitiful recipients of progressive largesse, or maintained as a sullen reserve army of labor for low-wage services, but because in some way they earned it, and when necessary, by taking it. This kind of story has a moral quality that resonates with many people — a cartel’s rent extraction soon becomes seen as a regional coalition’s righteous actions to preserve and restore local communities, the sacredness of place, continuity of identity and culture, and so on. The regional coalition will inevitably face neoliberal resistance and serious legal challenges, but those battles will be classic morality plays and, successful or not, will only amplify the underlying theme: Physical infrastructure cannot be considered as simply an economic factor, but as subject to the natural rights of people — not just their individual right to electricity, water, etc., but their right to act on a collective basis to gain economic relevance and preserve their local communities by taking control of the value of their physical space.

The Ideological Power of Public Infrastructure Issues

Okay, the above story about public infrastructure cartels is perhaps a bit fantastical. I was spinning it, however, to illustrate an idea that does strike me as realistic: physical infrastructure issues can have an ideological component and, as such, may attract political Ideological Power, as that concept is described in the prior essay, From an Unstable Mix of Forces, a Possible Path. There I sketch out that the path to federal infrastructure finance reform in the current political context requires Ideological Power, which can only be achieved indirectly, by public infrastructure issues themselves becoming ideological. The cartel story and the somewhat extreme ChatGPT ‘discussion’ are explorations of how that might happen.

I’m not sure what the ideological component will exactly look like, but I do think that it’s realistically possible.

• Historically, it seems that ideologies always arise wherever there is a need to change control over critical economic assets. Simply asserting ‘right of conquest’ (e.g., cartels extract rent because they can) usually doesn’t work well or for too long. The increasing marginalization of labor creates the need for change (likely acute in many localities) and local physical infrastructure, which will remain critical, is one of few available means to effect it. So, whatever form the change is forced to take, it’ll probably need ideological cover.

• Even the Administration’s recent crazy-looking tariff actions weren’t pitched completely as a purely economic initiative. Concepts of national renewal, nationalism, self-reliance, and other goals were stated or surfaced in ideological opposition to globalism.

• Maybe most importantly, post-liberalism is an emerging ideological viewpoint (at least to the extent that it explicitly opposes current ideologies) which emphasizes the importance of local community, physical space, and an equitable ‘common good’ standard for economic policy. Local public infrastructure would seem to fit into all of that — and its renewal (especially with reformed federal finance) is a practical, near-term way to demonstrate the principles. More on this topic in future essays.

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Notes

[1] Being rhetorical here. Of course, reality is far more complicated. Much local infrastructure, especially energy and communications, is owned by IOUs. Other stuff crisscrossing the locality is federal, state or regional. The local authorities might have some indirect control (e.g., regulation, special taxes, tolls). But the core point about ‘theirs’ is valid, I think, especially in the context of rent extraction. There was some early economic theory about land in a natural state being developed for agriculture over centuries, and the rent extracted by the current owner somehow reflected the past efforts of development. A legacy of ancestors, and so on, implying a natural right to use the physical space and the improvements on it (regardless of origin) to survive and prosper, even if by extracting a part of the production. A legal or moral right to control the local infrastructure is the sense. But actual ownership would be better.