Infrastructure Sticker Shock: Financing Costs More than Construction

Funding infrastructure through bonds doubles the price or worse. Costs can be cut in half by funding through the state’s own bank.

“The numbers are big. There is sticker shock,” said Jason Peltier, deputy manager of the Westlands Water District, describing Governor Jerry Brown’s plan to build two massive water tunnels through the California Delta. “But consider your other scenarios. How much more groundwater can we pump?”

Whether the tunnels are the best way to get water to the Delta is controversial, but the issue here is the cost. The tunnels were billed to voters as a $25 billion project. That estimate, however, omitted interest and fees. Construction itself is estimated at a relatively modest $18 billion. But financing through bonds issued at 5% for 30 years adds $24-40 billion to the tab. Another $9 billion will go to wetlands restoration, monitoring and other costs, bringing the grand total to $51-67 billion – three or four times the cost of construction.

A general rule for government bonds is that they double the cost of projects, once interest has been paid.

The San Francisco Bay Bridge earthquake retrofit was originally slated to cost $6.3 billion, but that was just for salaries and physical materials. With interest and fees, the cost to taxpayers and toll-payers will be over $12 billion.

The bullet train from San Francisco to Los Angeles, another pet project of Jerry Brown and his administration, involves a bond issue approved in 2008 for $10 billion. But when interest and fees are added, $19.5 billion will have to be paid back on this bond, doubling the cost.

And those heavy charges pale in comparison to the financing of “capital appreciation bonds.” As with the “no interest” loans that became notorious in the subprime mortgage crisis, the borrower pays only the principal for the first few years. But interest continues to compound; and after several decades, it can amount to ten times principal or more.

San Diego County taxpayers will pay $1 billion after 40 years for $105 million raised for the Poway Unified School District.

Folsom Cordova used capital appreciation bonds to finance $514,000. The sticker price after interest and fees will be $9.1 million.

In 2013, state lawmakers restricted debt service on capital appreciation bonds to four times principal and limited their term to 25 years. But that still means that financiers receive four times the cost of the project itself – the sort of return considered usurious when we had anti-usury laws with teeth.

Escaping the Interest Trap: The Models of China and North Dakota

California needs $700 billion in infrastructure over the next decade, and the state doesn’t have that sort of money in its general fund. Where will the money come from? Proposals include more private investment, but that means the privatization of what should have been public assets. Infrastructure is touted to investors as the next “fixed income.” But fixed income to investors means perpetual payments by taxpayers and rate-payers for something that should have been public property.

There is another alternative. In the last five years, China has managed to build an impressive 4000 miles of high-speed rail. Where did it get the money? The Chinese government has a hidden funding source: it owns its own banks. That means it gets its financing effectively interest-free.

All banks actually have a hidden funding source. The Bank of England just admitted in its quarterly bulletin that banks don’t lend their deposits. They simply advance credit created on their books. If someone is going to be creating our national money supply and collecting interest on it, it should be we the people, through our own publicly-owned banks.

Models for this approach are not limited to China and other Asian “economic miracles.” The US has its own stellar model, in the state-owned Bank of North Dakota (BND). By law, all of North Dakota’s revenues are deposited in the BND, which is set up as a DBA of the state (“North Dakota doing business as the Bank of North Dakota”). That means all of the state’s capital is technically the bank’s capital. The bank uses its copious capital and deposit pool to generate credit for local purposes.

The BND is a major money-maker for the state, returning a sizable dividend annually to the state treasury. Every year since the 2008 banking crisis, it has reported a return on investment of between 17 percent and 26 percent. While California and other states have been slashing services and raising taxes in order to balance their budgets, North Dakota has actually been lowering taxes, something it has done twice in the last five years.

The BND partners with local banks rather than competing with them, strengthening their capital and deposit bases and allowing them to keep loans on their books rather than having to sell them off to investors or farm the loans out to Wall Street. This practice allowed North Dakota to avoid the subprime crisis that destroyed the housing market in other states.

North Dakota has the lowest unemployment rate in the country, the lowest default rate on credit card debt, one of the lowest foreclosure rates, and the most local banks per capita of any state. It is also the only state to escape the credit crisis altogether, boasting a budget surplus every year since 2008.

Consider the Possibilities

The potential of this public banking model for other states is huge. California’s population is more than 50 times that of North Dakota. California has over $200 billion stashed in a variety of funds identified in its 2012 Comprehensive Annual Financial Report (CAFR), including $58 billion managed by the Treasurer in a Pooled Money Investment Account earning a meager 0.264% annually. California also has over $400 billion in its pension funds (CalPERS and CalSTRS).

This money is earmarked for specific purposes and cannot be spent on the state budget, but it can be invested. A portion could be invested as equity in a state-owned bank, and a larger portion could be deposited in the bank as interest-bearing certificates of deposit. This huge capital and deposit base could then be leveraged by the bank into credit, something all banks do. Since the state would own the bank, the interest would return to the state. Infrastructure could be had interest-free, knocking 50% or more off the sticker price.

By doing its own financing in-house, the state can massively expand its infrastructure without imposing massive debts on future generations. The Golden State can display the innovation and prosperity that makes it worthy of the name once again.


Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

32 Responses

  1. Ms. Brown, I am reading your books and hope you become Treasurer over there

    • Thanks!

  2. […] Ellen Brown Web of Debt […]

  3. Good luck, Ellen. Your intelligence and example are needed to reform the present corrupt system of government.
    You are a wonderful example to everyone – not just women.

    • Thanks! I was going to write a book called “Men Go to War, Women Go to Lunch,” but never got farther than the title!

  4. Interest is only half the problem. The other half is how money is created. Have you heard of Mutual Credit Systems in which the money supply automatically expands and contracts as needed? They are immune to credit crunches because credit is controlled by the actors in the system rather than banks or investors.

    There is an interesting book from 1944 called “Private Enterprise Money” ( ) by E. C. Riegel. It describes a mutual credit system with its own currency that could work on a national level. Beware though, the system described would transfer power over individual credit from the bankers to business owners, so read carefully. However, the author makes many astute observations.

    Now that the Bank of England has come clean, so to speak, isn’t it time to start removing the last vestiges of the feudal system?

    • Thanks Eric, that’s actually what I’ll be discussing with Tom Greco on our next PRN radio show on Wednesday!

      • There are still discrepancies with mutual credit systems. One is that some parties can charge for the bounty of Nature. Another is that consumers are still treated as an export market rather than participants in the system. Yet another is that profits inflate the money supply unless they are externalized as exports. My intuition says that these problems can be overcome but my intellect is not up to the task.

    • That’s why banks should be owned and operated by the State and all interest used to fund government instead of taxes.

  5. Ms. Brown,
    I just marked my ballot for you for California State Treasurer. Would you please give me the arguments AGAINST a California State Bank? What are they? Gov. Brown, who must be aware of this idea, needs to answer this, but I am sure you know all his arguments. I would appreciate your clarification.

    • Thanks Pamela! I honestly think they just don’t understand what banks can do — create money as credit on their books. I’m going to keep hammering away till they get it. Why be less than we (California) can be?

  6. […] By Ellen Brown Funding infrastructure through bonds doubles the price or worse. Costs can be cut in half by funding through the state’s own bank. “The numbers are big. There is sticker shock,” said Jason Peltier, deputy manager of the Westlands Water District, describing Governor Jerry Brown’s plan to build two massive water tunnels through the California Delta. […] …read more […]

  7. If North Dakota has successfully run a State Bank imagine what California can do, with it’s much larger population. Open and run the Bank California, and KEEP the profits, instead of “feeding the beast”.

  8. […] …read more […]

  9. It is simply amazing that you can write this and not have it catch on instantly such that California would be all set up with its own public bank by this time next year or even sooner.

    Why hasn’t this idea gone totally viral? You’ve been pushing it and pushing it and pushing it for years now.

    Who’s against it in California, and why do they have the clout to keep it from gaining huge mainstream traction? Are the mainstream media opposed?

    Do the Wall Street bankers have that much power in California that California’s elected officials won’t do what’s best for the people of California but rather do what will keep Wall Street bankers and shareholders rolling in it off the sweat of Californians?

    • This is what I just wrote above — I honestly think they just don’t understand what banks can do — create money as credit on their books.

      There are 37 million people in CA, and most vote by checking the R’s or D’s beside the boxes. It’s very hard to reach enough people to make a difference.

      An LATimes reporter told me that she had asked Jerry Brown what he thought of a state bank, and he said he wasn’t opposed to it; he just didn’t know much about it. John Chiang responded to a mutual friend that he was interested in exploring the idea, but he needed a proposal and more data.

      So I do think there’s hope there. We just need to keep pounding away at it. My next project is going to be to come up with a proposal. The proposal in the bill that Jerry Brown vetoed was for a feasibility study. The bill wasn’t drafted by us. I think we need to draft a bill for a bank, and come up with the data to validate it.

      • Ellen,

        You can create a funding source for a State bank in California by monetizing the future income tax liabilities. The State offers a tax rate reduction for pre-payment by businesses or individuals. You assign a tax I.D. number to each individual, any business already has one the State has on file, then you offer a 5% reduction in their annual tax rate in the form of an end-of-the-year refund for each person or entity that prepays their projected tax liability during the current fiscal year.

        Major corporations will do it immediately but single individuals on fixed incomes will need a monthly contribution system, preferably online, that allows them to use the prepayment essentially as a savings account because they end up with money in the refund at the end of the year. This will give you the money to start the bank without having to borrow money from people at interest.

        You offset the 5% refund cost by charging simple interest on loans direct to consumers in fixed assets like housing. The State cannot morally operate a bank which makes a profit for private investors. It must make a profit competing with private banks for consumer loans.

      • Ellen, you wrote, “My next project is going to be to come up with a proposal.”

        May I suggest you begin by proposing a governmentally sponsored commission.

        If you were named as Chair or at least co-Chair, you’d have some funding, perhaps deeper data access, and some professional-staff assistance for drafting, etc.

        A drawback might be that the commission require members who are currently opposed to a State of California public bank. You might be able to turn that to your advantage.

        Winning over converts on an official state-chartered commission would help preempt the naysayers later. It could move the goal post closer sooner.

        “California Public Banking Feasibility Study and Recommendation,” The California Public Banking Commission?

      • “The proposal in the bill that Jerry Brown vetoed was for a feasibility study.” I’m assuming you may not want to go down that path, but what were his objections to the study? Overcoming those might be an easy target.

        Ordinarily, I wouldn’t suggest a commission because so many things are simply studied to death; but it seems that the powers that be in California may lack even fundamental knowledge about public banking despite your herculean efforts, Ellen, and fairly widespread coverage, even in The New York Times.

  10. […] Infrastructure Sticker Shock: Financing Costs More than Construction […]

  11. Great work, Ellen; thank you. The mechanics of public credit and debt-free money solve almost all our economic problems, including hiring any surplus labor for infrastructure investment. In addition, about a 5% public credit card and mortgage would fund all California state taxes, as best I can tell from ballpark public records.

    • It’s not debt-free … it’s interest free.

  12. Good on you, Ellen, for your drive and persistence. In Aus` we are being taken down by the Banksters too.
    An .01% turn over tax would turn things around and make the speculators pay their FAIR SHARE of tax! This tax would pay for all our costs- if only we had a Gov` for the people,that would implement it.
    Too simple I surpose!

    • What a pity it is that even in a country like Australia the government has been coopted by the “banksters.” Running a country for its own people seems to be the great impermissible transgression. Chile, Iraq, Libya,and many others have been attacked for it. And now Iran, Russia, and China are targeted. With the BRICS countries–plus Iran and Argentina, etc.– pooling their strength, we can hope that the “bankster” crime syndicate has met its nemesis and the earth can look forward to a new era of peace, prosperity, and freedom.

  13. I’ve followed your argument for some time now, and the approach seems so obvious! Is the problem that the Wall Street banksters are so powerful, or the (bought and paid for, sadly) politicians don’t understand that banking is no longer a la “It’s a Wonderful Life”? Or, both????

  14. […] Infrastructure Sticker Shock – Financing Costs More than Construction […]

  15. […] READ MORE HERE […]

  16. Ellen,
    Here is a plan to deal with what you describe:

    The Four New Laws to Save the USA NOW!
    1. FDR’s Glass Steagall
    2. National Banking a la Abraham Lincoln’s Greenback Policy through the US Treasury
    3. A Federal Credit System to Generate High Productivity Trends in improvement of employment.
    4. A Crash Effort Driver program for Fusion Power
    The full plan with elaboration can be accessed at under the title “Four New Laws to Save the USA NOW.” See what you think!! Take care, Gerald

  17. While public bankers might charge a lower interest, that rate could also be lowered by law, as old laws against usury used to. And however much the rate, the interest could be returned to the state not just by owning the bank that does the lending but also by taxing interest rather than exempting it as is now the case.

    Bigger picture, some of that interest paid by governments goes to seniors, retired government workers, and others who own the bonds and need the income. If they lose that income, from where will they get replacement income?

    Bonds could play a vital role in eliminating wasteful public spending. What if bonds had to be paid back only from any resultant rise in land value near the new infrastructure? If the proposed project looked like a bad idea, nobody would buy its geo-bonds, and white elephants like bridges to nowhere would not get built; only truly useful infrastructure would get built.

    Often one of the biggest costs in new infrastructure is buying up the land. However, if the local government is recovering land value, then land price is nil. The project would only have to pay for any buildings on the land.

    Establishing a public bank, or empowering the public treasury with banking functions, is not a bad idea but it might not be a necessary idea either, once the public recovers its own location value that its presence creates. More at

    • A ‘Land Tax’ on the increased value of the land, from year to year, would eliminate almost all other forms of tax but I still want a massive tax on ALL forms of speculation and excessive incomes (over $250K).

      • I get your point, Vox, but if an ounce of prevention … we’d want to prevent the concentration of wealth in the first place, so there would not be those massive fortunes to envy. That means, zero corporate welfare, fees and fines for all extractions and pollutions, and no taxes on wages to up the demand for employees and their wages, too. That will avoid the issue of figuring out what’s speculation vs. investment. Best,

  18. This so needs to happen!

    Wake up public.

    Great article.

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