AMWA and the water utility community secured a notable achievement this month when Congress approved water resources legislation that includes a long-sought “Water Infrastructure Finance and Innovation Act” (WIFIA) pilot program. Unfortunately, the potential benefits of the new program are likely to be undercut by several provisions added by lawmakers – most notably a ban on the use of tax-exempt financing to supplement any WIFIA loan dollars awarded to a project.
As agreed to by lawmakers negotiating the conference report for H.R. 3080, the “Water Resources Reform and Development Act” (WRRDA), the WIFIA pilot reflects AMWA’s long-stated priorities of keeping a new financing program for major water infrastructure projects separate from the existing State Revolving Fund (SRF) programs, tasking EPA (and not individual state SRF administrators) with the job of selecting loan recipients, focusing WIFIA on major water projects generally too large to compete for meaningful SRF assistance, and offering loan eligibility to a wider range of infrastructure projects than are eligible for SRF loans. A two-page summary of the WIFIA provisions was made available to AMWA members.
Overall, the bill authorizes $175 million each to EPA and the Army Corps of Engineers to spend on WIFIA pilot programs over the next five years. If fully funded by Congress, the program’s anticipated 10-1 leveraging ratio could lead to about $3.5 billion worth of loans being issued over the course of the pilot. Projects eligible for WIFIA funding through EPA will include any community water system or treatment works “repair, rehabilitation, or replacement” project, brackish seawater or desalination, projects to enhance a water system’s energy efficiency, or any project eligible for assistance through the existing SRF programs.
In general, the WIFIA pilot will offer low-cost financing for qualifying projects (selected on a competitive basis by EPA and the Corps) that are expected to cost more than $20 million. An exception is made for projects that serve communities of fewer than 25,000 people, however, as those projects need only to cost more than $5 million. Each year, EPA and the Corps must reserve at least 15 percent of their WIFIA appropriation to support loans to these small projects, though these funds may be redirected to larger WIFIA-qualifying projects if they remain unobligated after June 1 of that fiscal year.
House and Senate conferees added a provision intended to prevent projects from bypassing the existing SRF programs in favor of WIFIA loans. This language specifies that an otherwise qualifying project may not receive a WIFIA loan if a state infrastructure financing authority, within 60 days of receiving notification that a project within the state has applied for WIFIA assistance, advises EPA that the state intends to commit to the project “an equal or greater amount” of funding than it sought from WIFIA. A state infrastructure financing authority that announces this intention must then enter an assistance agreement with the project in question within 180 days – at an interest rate at least as favorable as that offered by WIFIA – or else the project may once again receive WIFIA funds. Communities are not required to separately seek SRF funds for a particular project before applying for a WIFIA loan.
Most problematic, however, are provisions retained by conferees that will limit WIFIA loans to covering a maximum of 49 percent of the cost of most projects, while also barring the use of tax-exempt financing to pay for the remainder. The tax-exempt financing restriction originated in the Senate last year after the Joint Committee on Taxation (JCT) determined that WIFIA would lead communities to undertake additional water infrastructure projects that would require supplemental funding – most likely through tax-exempt debt issuances. JCT determined this additional tax-exempt debt would reduce federal revenues by $135 million over ten years, thus causing WIFIA – and the entire WRRDA legislation – to violate congressional pay-go rules.
In response, last year members of the Senate developed the tax-exempt financing restriction to allow WIFIA and WRRDA to proceed with a clean budget score (because barring the use of tax-exempt debt to supplement WIFIA would eliminate projected federal revenue losses). At the time, Senate staff told AMWA that conferees would work to develop an alternative solution that allowed the use of tax-exempt debt, but this ultimately did not occur when the House-Senate conference committee negotiated the final WRRDA legislation.
Conferees did insert one provision that will allow EPA and the Corps to each use up to 25 percent of their annual WIFIA appropriation to offer loans that cover more than 49 percent of a project’s cost. But based on WIFIA’s authorization levels, this would provide full funding to only a handful, at best, of large projects each year.
Looking ahead, AMWA and other WIFIA supporters are already discussing ways to fix the tax-exempt financing restriction. Options are somewhat limited because the most direct solution – simply striking out the tax-exempt financing restriction – would require an offsetting increase in federal revenues or a cut in mandatory spending. Both of these options are politically fraught propositions on Capitol Hill.