At a time of soaring deficits and deep budget cuts, the notion that the government can address national challenges by effectively harnessing public and private investment may seem counterintuitive. Indeed, there is widespread skepticism about the government’s capacity to do anything well at all. But public investment is a powerful way to make progress on a range of seemingly intractable social challenges. The government’s role as an investor and market shaper, not just a spender, is an old American tradition overdue for revival.
A recent illustration comes from New York City, where the $4 billion NYC Housing Investment Initiative announced this month points to the ways government can harness investment to address national challenges.
The initiative makes good on Comptroller Mark Levine’s campaign pledge to direct the city’s roughly $300 billion public pension fund to invest in affordable housing. It commits to investing $1 billion annually over four years in affordable housing production and preservation, doubling the pension system’s housing exposure. The initiative is expected to finance tens of thousands of new mixed-income developments, office-to-residential conversions, and preservation of existing affordable homes across all five boroughs.
Using public pension assets, the initiative will seek to generate risk-adjusted financial returns and address financing gaps that slow housing development and preservation despite a deregulatory push to make homebuilding easier in New York City.
These tools are not about government replacing the market. They are about government working alongside it, shaping incentives so that private capital flows to places and people that markets, left alone, tend to overlook. Used well, they allow government to steer investment without picking winners, to share risk without socializing losses, and to expand opportunity without running up the federal credit card.
How public policy moves private investment
The government has five major tools it can pull when harnessing private investment for public good.
1. Directing public pension and treasury assets. The New York housing announcement is a clear recent example of this tool. State and local public pension systems now hold more than $6.5 trillion in assets, roughly twice the size of the entire US private equity industry. Directing even a modest slice of that capital toward economically targeted investments can move markets.
The California Public Employees’ Retirement System, or CalPERS, pioneered this approach in the late 1980s, first targeting allocations to California generally, and later to local affordable housing and urban redevelopment. Beyond the public pension assets they control, government officials also invest billions from state Treasury assets. Illinois State Treasurer Michal Freirichs, bolstered by supportive legislation, uses public balance sheets for investments in small business lending, agricultural finance, affordable housing, and education, including with guarantees and deposits. In a similar vein, Vermont’s state treasurer committed $50 million to affordable housing preservation in 2024.
2. Providing concessional capital to private fund managers. Rather than picking individual companies or borrowers, government can provide low-cost capital to specialized private fund managers who agree to invest in priority areas. The model is the Small Business Investment Company program, created in 1958, that today supports roughly 300 active funds managing more than $50 billion. Licensed managers can borrow long-term, fixed-rate capital from the US Treasury at rates close to the 10-year Treasury yield, enabling them to attract institutional investors while serving job-creating small businesses in markets that commercial lenders overlook.
This structure is now being adapted for new priorities: the bipartisan American Ownership and Resilience Act proposes $5 billion in similar low-cost loans for fund managers financing worker ownership transitions. In 2024, the Department of Defense launched a joint venture with SBA to provide similar loan incentives to funds investing in critical infrastructure. Crucially, programs like SBIC are designed to be self-sustaining. Fees cover losses, and the SBIC has returned $1.5 billion to the US Treasury over the last 24 years.
3. Providing guarantees. The 30-year fixed-rate mortgage is now so familiar it seems like a natural feature of American life. But it did not exist before the federal government created it during the Great Depression by guaranteeing housing loans and committing to buy mortgages that banks originated. The same logic built the Farm Credit System, privately run but implicitly government guaranteed, which now holds more than $500 billion in assets supporting farmers and rural infrastructure. The SBA’s 7(a) program guarantees up to 85% of qualifying small business loans, enabling lenders to sell the guaranteed portion and recycle capital into new lending.
The principle is consistent across all of these programs: when government absorbs a defined slice of the risk, private capital flows to places it would not otherwise reach.
4. Offering tax incentives. Investors do not typically avoid underserved markets out of lack of patriotism. They avoid them because projected financial returns often do not warrant the risk. Tax incentives can change that math. The Low-Income Housing Tax Credit, created in 1986 and made permanent in 2025, has financed roughly 4 million affordable homes by offering investors a dollar-for-dollar credit against federal tax liability in exchange for equity in income-restricted housing developments.
The bipartisan Opportunity Zone program, created in 2017 and also made permanent last year, has mobilized more than $100 billion in investment into low-income communities by allowing investors to defer and partially exclude capital gains taxes when reinvesting in designated areas. Though the evidence on community outcomes remains controversial, the OZ program’s permanence creates an opportunity to strengthen guardrails. The 2022 CHIPS and Science Act, meanwhile, used a 25% manufacturing investment tax credit to help unlock hundreds of billions in private semiconductor investment.
5. Lending directly. The United States has a long tradition of direct government investment to shore up companies and industries at moments of crisis. During the Great Depression, the Reconstruction Finance Corporation lent directly to banks, railroads, and industrial companies when private credit collapsed. The Department of Energy’s Loan Programs Office made a $465 million loan to Tesla in 2010, which was repaid in full and helped anchor a domestic electric vehicle supply chain. Spirit Airlines is reportedly in talks to secure a $500 million federal bailout. Interest in extending this approach is now bipartisan, repackaged as a “sovereign wealth fund.”
But what about using this tool proactively to support strategic priorities, rather than just address crises?The Trump administration in 2025 directed the Treasury and Commerce Departments to develop a fund proposal, reflecting the same underlying logic that animated Franklin Roosevelt’s RFC: some strategic investments will not get made by private markets alone, and that government sometimes must step in.
Putting your money where the policy is
These levers for harnessing private investment for public purpose offer an approach that should be compelling for elected officials and candidates of both political parties. They are a way to expand the money available to tackle political priorities while also supporting private sector action and limiting taxpayer costs.
At the state and local level, Governors, Treasurers, and Comptrollers control large sums of private investment—a capacity they can turn into a political platform. A candidate for New York State Comptroller, the sole trustee of almost $300 billion in pension assets, last month proposed a plan to create a $20 billion version of the New York City Housing Initiative. For members of Congress, these approaches stand out as a rare opportunity to garner bipartisan support for tackling issues their constituents prioritize.
The savviest people making investments or building businesses that seek to use private enterprise to address priority national challenges are figuring out how to work with government support. Of course, shifts in political winds can precipitously change the terms of these programs, as we’ve seen especially in recent years. But when they are sustained, concessional capital programs can lower your cost of funds. Guarantees can reduce the risk that makes impact-first deals hard to close. Tax incentives can make the numbers work for LPs. And public pensions represent perhaps the largest untapped pool of potential co-investment capital.
Voters can make clear that we want more government officials who understand these tools and have the courage to use them well. You can find the state treasurer, pension trustee, or city comptroller in your town and make the case for targeted investments that generate returns and serve communities. As the New York City Initiative shows, elected officials are looking for credible investment partners who can demonstrate that doing well and doing good are not in conflict.
America has built the world’s most dynamic economy and deepest capital markets. Citizens, investors, and government officials can build an American economy that harnesses its vast investment resources to expand access to fair financing for more families and communities.
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Antony Bugg-Levine is the author of Investing in America (Wiley, June 2026) from which this article is adapted. Learn more at investinginamerica.us.
