96 DC VELOCITY DECEMBER 2013 www.dcvelocity.com YOU MAY NOT KNOW REP. JOHN K. DELANEY (D-MD.). HE’S a freshman U.S. congressman, and backbenchers are generally seen and not heard. But if you are rightly concerned about how the country will pay to improve its infrastructure, his is a name to know.

Last May, Delaney introduced “The Partnership to Build
America Act” to finance infrastructure programs through the tax-
free repatriation of overseas earnings of U.S. corporations. The
legislation so far has 24 cosponsors from each side of the aisle, an
early sign that its merits trump partisanship. It fits with the
Obama administration’s call for job-creating
infrastructure programs and its desire to see
offshore earnings return to the U.S. (though
not tax-free). James H. Burnley IV, a former
transportation secretary, a staunch Republican,
and someone who knows good and bad policy
when he sees it, has called it the “most original,
creative idea on infrastructure financing in the
last 30 years.”
Here’s how it works: An infrastructure fund
would provide loans or loan guarantees to
states and localities to finance qualified infra-
structure projects. The fund would be seeded
by the sale of $50 billion in bonds with a 50-
year maturity, paying a fixed interest rate of 1
percent, and not guaranteed by the govern-
ment. U.S. corporations would be encouraged
to buy the bonds by being able to repatriate, tax-free, part of their
overseas earnings for each dollar they invest; the current tax rate
for repatriation is the prevailing corporate rate of 35 percent, a
key reason U.S. firms keep their money over there rather than
bringing it back here.

A process called a “reverse Dutch auction” would allow the mar-
ket to set the ratio between each dollar invested and each repatri-
ated, up to $50 billion in bonds purchased. Under this formula,
companies bid on the face value of the bonds they would like to
buy relative to the funds they can repatriate, with the lowest bids
winning. Using a ratio of 1: 4, which Delaney believes is realistic, a
bidder repatriates $4 tax-free for every $1 it invests. A company
can use the repatriated funds for anything it wants; the infra-
structure fund, meanwhile, leverages the $50 billion at a 15: 1 ratio
to provide $750 billion in loans or guarantees. Delaney says that
ratio is standard for most conservatively managed insurance com-
panies, and even those with short memories can
recall that Fannie Mae was levered at 99: 1 before it
imploded in 2008.
Delaney offers an example: On Monday,
Company A buys $2.5 billion of infrastructure
bonds at a 1: 4 ratio of investment to repatriation. It
sells the bonds on Tuesday at, say, 25 cents on the
dollar, which Delaney estimated to be the price the
resold bonds would fetch. The seller has a loss of
$1.75 billion, which after a tax write-off, becomes a
net loss of $1.13 billion. At the
1: 4 ratio, the company has repa-
triated $10 billion and thus pays
an “effective tax” of $1.13 billion.
The effective tax rate becomes
11. 3 percent, arrived at by divid-
ing $1.13 billion by $10 billion.

Delaney’s background is in the private sector, and his proposal brings with it an astute businessman’s pragmatism. It requires no federal appropriations and no taxpayer exposure. Delaney knows the scheme is untenable as a pure investment and works only with the repatriation component attached.

Delaney said he’s talked to the White House but wants to marshal broader congressional support before further engaging the administration. U.S. corporations he’s spoken with that have big money overseas support the bill, he said.

Political realities could still get in the way of this. Delaney is a freshman in the minority party of a polarized Congress. Yet his bill represents sorely needed out-of-the-box thinking, and it deserves a serious look.