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Water Infrastructure Financing: The Water
Infrastructure Finance and Innovation Act
(WIFIA) Program
Claudia Copeland
Specialist in Resources and Environmental Policy
October 23, 2014April 9, 2015
Congressional Research Service
7-5700
www.crs.gov
R43315
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Water Infrastructure Financing: The WIFIA Program
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Summary
Policy makersPolicymakers have recently been considering several legislative options to help finance water
infrastructure projects, including projects to build and upgrade wastewater and drinking water
treatment systems. This report examines one particular option, a “Water Infrastructure Finance
and Innovation Act,” or WIFIA,” (WIFIA) program, which Congress included in the Water Resources
Reform Reform
and Development Act of 2014 (WRRDA). As enacted (P.L. 113-121), the legislation
creates a created a
WIFIA pilot program based on provisions in Senate-passed S. 601 with some additions
and and
modifications. H.R. 3080 as passed by the House did not include similar provisions.
The WIFIA concept is modeled after a similar program that assists transportation projects, the
Transportation Infrastructure Finance and Innovation Act, or TIFIA, (TIFIA) program. Proponents of the
WIFIA approach, including water utility organizations, cite several potential benefits.:
•
WIFIA could provide credit assistance to large water infrastructure projects that
otherwise have difficulty obtaining financing.
•
Because WIFIA would access funds from the U.S. Treasury at Treasury rates, the
mechanism could lower the cost of capital for borrowers.
•
WIFIA assistance would have much less of a federal budgetary effect than
conventional project grants that are not repaid, because only the subsidy cost of a
loan (representing the presumed default rate on loans) would be scored. Thus, if
only an average 10% subsidy cost is charged against budget authority, a $20
million budgetary allocation theoretically supports $200 million in loans.
•
To be eligible for assistance, projects must be determined to be creditworthy,
with with
a revenue stream for repayment, thus limiting the federal government’s
exposure exposure
to default and also encouraging private capital investment.
On the other hand, opponents of the WIFIA approach, including organizations that represent state
environmental agency officials, cite several concerns, which were raised with policy makers
during debate over the pilot program proposed in S. 601.:
•
Under WIFIA, decision makingdecisionmaking for financing of water infrastructure projects
would shift from the state and local level to federal officials.
•
Funding for a WIFIA program likely wouldwould likely have a detrimental effect on federal
support for established and successful State Revolving Fund (SRF) programs that
provide the largest source of water infrastructure assistance today.
•
While WIFIA is intended to assist large and costly projects, the majority of water
infrastructure needs are for smaller projects. Especially if SRF assistance is
decreased, these smaller projects would face significant financing challenges.
•
The Congressional Budget Office (CBO) has warned that the costs of a WIFIA
program program
to the federal budget may be underestimated.
Implementation of WIFIA will not occur until Congress appropriates funds to cover the subsidy
cost of the program, which has not yet happened. Funding uncertainty is one of several
implementation challenges that have already been identified. Another is restrictions in the law
that bar cities from supplementing WIFIA funds with money from tax-exempt municipal bonds.
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Contents
Introduction...................................................................................................................................... 1
Creation of a WIFIA Program.......................................................................................................... 1
WIFIA Pilot Program in P.L. 113-121 ....................................................................................... 3
Discussion.................................................................................................................................. 4
Conclusion ....................................................................................................................................... 7
Contacts
Author Contact Information............................................................................................................. 8
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Introduction
Policy makers.
Introduction
Policymakers have recently been considering several legislative options to help finance water
infrastructure projects, including projects to build and upgrade wastewater and drinking water
treatment systems. This report examines one particular option, a “Water Infrastructure Finance
and Innovation Act,” or WIFIA,” (WIFIA) program, which was included in the Water Resources Reform
and and
Development Act of 2014 (WRRDA). The President signed the bill into law on June 10 (, P.L.
113-121). Title V, Subtitle C, of the legislation creates a
five-year WIFIA pilot program.1
Localities are primarily responsible for providing water infrastructure services. According to the
most recent estimates by states and the Environmental Protection Agency (EPA), funding needs
for such facilities total $676 billion over the next 20 years.2 While some analysts and stakeholders
debate these estimates, and whether they understate or overstate capital needs, most agree that
communities face formidable challenges in providing adequate and reliable water infrastructure
services.
Capital investments in water infrastructure are necessary to maintain high quality service that
protects public health and the environment, and capital facilities are a major investment for local
governments. Almost all capital projects are debt-financed (not financed on a pay-as-you-go basis
from ongoing revenues to the water utility). The principal financing tool that local governments
use is issuance of tax-exempt municipal bonds—at least 70% of U.S. water utilities rely on
municipal bonds and other debt to some degree to finance capital investments. In 2011, bonds
issued for water, sewer, and sanitation projects totaled $29.6 billion, of which $14.2 billion was
new-money financing and; the remainder was for refunding to refinance prior governmental
bonds.3
Beyond municipal bonds, federal assistance through grants and loans is available for
some projects, some
projects but is insufficient to meet all needs. Finally, public-private partnerships, or P3s,
which which
are long-term contractual arrangements between a public utility and a private company,
provide currently
provide only limited capital financing in the water sector. While they are increasingly used in
transportation and some other infrastructure sectors, especially P3s that involve private sector
debt or equity investment in a project, most P3s for water infrastructure involve contract
operations for operation and maintenance.
Creation of a WIFIA Program
The WIFIA approach for supporting investment in water infrastructure is modeled after an
existing Transportation Infrastructure Finance and Innovation Act (TIFIA) program. As the name
suggests, only transportation projects are eligible for TIFIA assistance, but operation of the TIFIA
1
WIFIA is one of several legislative approaches to help finance water infrastructure that have been proposed. For
discussion of WIFIA and several other options, see CRS Report R42467, Legislative Options for Financing Water
Infrastructure, by Claudia Copeland, Steven Maguire, and William J. Mallett.
2
EPA’s most recent estimate of capital needs for wastewater infrastructure was published in 2010. See U.S.
Environmental Protection AgencyEPA, Clean
Watersheds Needs Survey 2008, Report to Congress, EPA-832-R-10-002,
May 2010. The most recent EPA needs
estimate for drinking water infrastructure was issued in 2013. See U.S.
Environmental Protection AgencyEPA, Drinking Water Infrastructure Needs Survey
and Assessment, EPA-816-R-13-006,
April 2013.
3
Thomson-Reuters, The Bond Buyer 2012 Yearbook, p. 159.
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program over the past 15 years has generated interest in creating a similar program for water
infrastructure.4
TIFIA was enacted in 1998 as part of the Transportation Equity Act for the 21st Century (TEA-21;
P.L. 105-178) and was reauthorized in July 2012 in the Moving Ahead for Progress in the 21st
Century Act (MAP-21; P.L. 112-141). TIFIA provides federal credit assistance up to a maximum
of 49% of project costs in the form of secured loans, loan guarantees, and lines of credit (23
U.S.C. 601 et seq.). Transportation projects costing at least $50 million (or at least $25 million in
rural areas) are eligible for TIFIA financing.5 Projects must also have a dedicated revenue stream
to be eligible for credit assistance. TIFIA can provide senior or subordinated debt. With the
enactment of MAP-21, funding authorized for the TIFIA program has increased from $122
million million
annually to $750 million in FY2013 and $1 billion in FY2014.
Prior to the enactment of MAP-21, a project seeking TIFIA assistance had to satisfy a number of
eligibility criteria, such as project cost and planning requirements. Projects were then selected by
the Department of Transportation (DOT) from among those eligible based on eight weighted
factors: private participation (20%);, environmental impact (20%);, national or regional
significance (20%);, project acceleration (12.5%);, creditworthiness (12.5%);, use of new
technologies (5%);, reduced federal grant assistance (5%);, and consumption of budget authority
(5%). MAP-21 eliminates these selection criteria and now provides TIFIA assistance purely on a
project’s eligibility. One of the key eligibility criteria is the creditworthiness of the project. To be
eligible, a project’s senior debt obligations and the federal credit instrument must receive an
investment-grade rating from at least one nationally recognized credit agency. The TIFIA
assistance must also be determined to have several beneficial effects: fostering a public-private
partnership, (if appropriate;), enabling the project to proceed more quickly;, and reducing the
contribution of federal grant funding. Other eligibility criteria include satisfying planning and
environmental review requirements and being ready to contract out construction within 90 days
after the obligation of assistance.
Since the beginning of the programTIFIA’s beginning in 1998, TIFIAit has provided assistance to 47more than 50 projects, mostly
in in
the form of direct loans. Loan amounts ranged from $40 million to $1.69 billion. Total credit
assistance provided over the life of the program amounts to $19.321.6 billion, as of October 2014.
The as of April 2015. The
amount of credit assistance is much larger than the appropriated amount over this period
because because
the appropriated funds need only cover the administrative and subsidy cost of the
program (see program. (See
below for a more detailed discussion of this point)..) Projects involving TIFIA
amount to $72 79
billion in total financing costs.6 TIFIA typically provides financing to fill a gap in
a much larger
financial package that sometimes involves private equity and private debt. For
example, the $2.6
billion IH-635 Managed Lanes project in Dallas, TX, is being financed with
$615 million in
private activity bonds, a $664 million equity contribution from the private sector
4
partner, $17
million in toll revenues, $490 million in public funds, and an $850 million TIFIA loan.7
4
For example, see American Water Works Association, Water Environment Federation, and Association of
Metropolitan Water Agencies, “A Cost Effective Approach to Increasing Investment in Water Infrastructure, The
Water Infrastructure Financing Innovations Authority (WIFIA),” http://www.awwa.org/portals/0/files/legreg/
documents/wifia.pdf.
5
The threshold for Intelligent Transportation Systems projects is $15 million.
6
Federal Highway Administration, “Projects and Project Profiles: TIFIA Portfolio,” http://www.fhwa.dot.gov/ipd/tifia/
projects_project_profiles/tifia_portfolio.htm.Financed by TIFIA,” http://www.dot.gov/tifia/projects-financed.
7
Federal Highway Administration, “IH 635 Managed Lanes,” http://www.dot.gov/tifia/financed-projects/ih-635managed-lanes.
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partner, $17 million in toll revenues, $490 million in public funds, and an $850 million TIFIA
loan.7.
WIFIA Pilot Program in P.L. 113-121
In the 113th Congress, a WIFIA pilot program was included as part of H.R. 3080, the Water
Resources Reform and Development Act of 2014 (WRRDA).8 Title X of Senate-passed S. 601
included a five-year pilot program, while House-passed H.R. 3080 included no similar provisions.
Under the conference report on H.R. 3080/P.L. 113-121, the bill authorizes a five-year WIFIA
pilot program. Under the bill, The President signed the bill into law on June 10, 2014 (P.L. 113-121). The legislation authorizes
a five-year WIFIA pilot program. EPA is authorized to provide credit assistance (secured loans or
loan guarantees) for drinking water and wastewater projects, and the U.S. Army Corps of
Engineers is authorized to provide similar assistance for water resource projects, such as flood
control or hurricane and storm damage reduction.
Under the legislation as enacted, EPA and the Corps each areare each authorized a total of $175 million
over five years (beginning with $20 million for each agency in FY2015 and increasing to $50
million in FY2019) to provide assistance. Projects are required to be $20 million or larger in costs
to be eligible for credit assistance, except that projects in rural areas (population 25,000 or less)
must have eligible project costs of $5 million or more. WIFIA credit assistance is to be available
to project sponsors (a corporation; partnership; joint venture; trust; or a federal, state, local, or
tribal government) or to state infrastructure financing authorities for a group of projects. In the
case of projects carried out by a private entityentities, such projects are to be publicly sponsored. To meet
the requirement that a WIFIA-assisted project must be publicly sponsoredthis requirement, the legislation allows a
project applicant to demonstrate to the Corps or EPA
that the affected state, local, or tribal
government supports the project. To ensure that ownership
of the water project does not become
private (which would limit availability of some other
sources of federal financing), the maximum
amount of a loan is to be 49% of eligible project
costs, but the legislation authorizes EPA or the
Corps to make available up to 25% of available
funds each year for credit assistance in excess of
49% of project costs. Except for certain projects
in rural areas, the total amount of federal
assistance (i.e., WIFIA and other sources) shall not
exceed 80% of a project’s cost.
Activities eligible for assistance under the WIFIA pilot program include project development and
planning, construction, acquisition of real property, and carrying costs during construction.
Categories eligible for assistance by the Army Corps would include flood control or hurricane and
storm storm
damage reduction projects, environmental restoration, coastal or inland harbor navigation
improvement, or inland and intracoastal waterways navigation improvement. Categories eligible
for assistance by EPA include projects at wastewater treatment and community drinking water
facilities, projects for enhanced energy efficiency of a public water system or wastewater
treatment works, repair or rehabilitation of aging wastewater and drinking water systems,
desalination or water recycling projects, or a combination of eligible projects. The Secretary of
the Army or EPA Administratoradministrator, as appropriate, is to determine eligibility based on a project’s
creditworthiness and dedicated revenue sources for repayment. Selection criteria would include
the national or regional significance of the project, extent of public or private financing in
addition to WIFIA assistance, use of new or innovative approaches, the amount of budget
7
Federal Highway Administration, “TIFIA Project Profiles: IH 635 Managed Lanes,” http://www.fhwa.dot.gov/ipd/
project_profiles/tx_lbj635.htm.
8
authority required to fund the WIFIA assistance, the extent to which a project serves regions with
significant energy development or production areas, and the extent to which a project serves
regions with significant water resources challenges.
8
A standalone measure to create a WIFIA program also waswas also introduced in the 113th Congress. S. 335 would empower
the Administrator of EPAEPA administrator to provide credit assistance to drinking water and wastewater infrastructure projects.
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authority required to fund the WIFIA assistance, the extent to which a project serves regions with
significant energy development or production areas, and the extent to which a project serves
regions with significant water resources challenges.
.
Responding to concerns from some groups that WIFIA could impair and diminish support for
clean water and drinking water State Revolving Fund (SRF) programs under the Clean Water Act
and Safe Drinking Water Act (see discussion below), the legislation includes language requiring
the EPA Administratoradministrator, when the agency receives applications for WIFIA assistance, to give state
infrastructure financing authorities a “right of first refusal” to assist the project through SRF
monies.
WIFIA-assisted projects must use American-made iron and steel products (“Buy America”
provisions), and wastewater treatment works projects must comply with the prevailing wage
requirements of the Davis-Bacon Act, in the same manner that they would under the SRF
provisions of the Clean Water Act.
P.L. 113-121 requires EPA and the Corps to provide information on an Internet website
concerning a website concerning
applications and projects that have received assistance, and it directs the Government
Accountability Office to report to Congress on the pilot programs in four years, along with
recommendations for continuing, changing, or terminating the WIFIA program. EPA recently
announced that agency officials will hold listening sessions in several U.S. cities this summer,
seeking public input about procedures for evaluating WIFIA applications and selection criteria.
Discussion
From the federal perspective, an advantage of TIFIA is that it can provide a large amount of credit
assistance relative to the amount of budget authority provided. The volume of loans and other
types of credit assistance that TIFIA can provide is determined by the size of congressional
appropriations and calculation of the subsidy cost.9 The subsidy cost largely determines the
amount of money that can be made available to project sponsors.10 DOT estimated that after
administrative costs and other deductions, it would have $690 million for credit subsidy support in
in FY2013 and $920 million in FY2014.11 Assuming an average subsidy cost of 10%, this could
provide DOT with the capacity to lend $6.9 billion in FY2013 and $9.2 billion in FY2014. If the
subsidy cost for water projects averages 10% and is the only charge against available budget
authority, a $20 million budgetary allocation theoretically supports $200 million in loans. In
budgetary terms, WIFIA (or TIFIA) assistance has much less of an impact than a water
infrastructure grant, which is not repaid to the U.S. Treasury.
9
Proponents of WIFIA have argued that loans for water projects could be even less risky than
transportation projects, because water rates are an established repayment mechanism; thus the
subsidy cost would be lower and the amount of credit assistance higher (per dollar of budget
authority).12 However, analysts note that, even with stable rate mechanisms, some communities
9
According to the Federal Credit Reform Act of 1990, the subsidy cost is the “estimated long-term cost to the
Government of a direct loan or loan guarantee, calculated on a net present value basis, excluding administrative costs”
(104 Stat. 1388-610). The Federal Credit Reform Act of 1990 was enacted as part of the Omnibus Budget
Reconciliation Act of 1990 (P.L. 101-508).
10
Douglas J. Elliott, Budgeting for Credit Programs: A Primer, Center for Federal Financial Institutions, April 2004, at
http://www.coffi.org/pubs/Budgeting%20Primer.pdf.
11
U.S. Department of Transportation, “Letters of Interest for Credit Assistance Under the Transportation Infrastructure
Finance and Innovation Act (TIFIA) Program,” 77 Federal Register 45411-45415, July 31, 2012,
http://www.fhwa.dot.gov/ipd/pdfs/tifia/fy2013_tifia_nofa_073112.pdf.
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Proponents of WIFIA have argued that loans for water projects could be even less risky than
transportation projects, because water rates are an established repayment mechanism, thus the
subsidy cost would be lower and the amount of credit assistance higher (per dollar of budget
authority).12 However, analysts note that, even with stable rate mechanisms, some communities
12
Testimony of Aurel Arndt, in U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee
on Water Resources and Environment, hearing on Innovative Funding of Water Infrastructure of the United States,
(continued...)
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and water utilities have recently experienced problems with borrowing and bond repayments, so
repayment of a WIFIA loan is not a certainty.13
One of the main benefits of the TIFIA program is that it provides capital at a low cost to the
borrower, because even though the interest on 30-year Treasury securities is taxable, Treasury
rates can be less expensive than rates on traditional tax-exempt municipal debt. Moreover, TIFIA
financing is often characterized as patient capital, because loan repayment does not need to begin
until five years after substantial completion of a project, the loan can be for up to 35 years from
substantial completion, and the amortization schedule can be flexible. In addition, there is less
perceived investment risk, because the project has been determined to be creditworthy (i.e., there
is a revenue stream for repayment). The WIFIA legislation is likewise is intended to provide these
benefits. As total TIFIA assistance cannot exceed 49% of project costs, it is intended to encourage
non-federal and private sector financing. P.L. 113-121, with a similar 49% cap on assistance (and
limits on all sources of federal assistance to no more than 80% of project cost), would likely
encourage some non-federal financing, including from the private sector, but how much is
unclear.
Another possible benefit of the WIFIA program is that it is intended to not duplicate existing
water infrastructure financing tools. Many argue that the principal federal programs that assist
local wastewater and drinking projects—State Revolving Fund (SRF)SRF programs under the Clean
Water Act and Safe
Drinking Water Act—are useful primarily for smaller communities and
smaller projects.14 This
might argue for expanding the SRF program, while keeping the WIFIA
solely for larger projects.
Arguably, then, the $20 million minimum threshold for credit assistance
contained in the new law
could be about the right level so as not to duplicate assistance from
SRFs.15 The legislation,
however, also provides access to WIFIA financing for smaller projects by
grouping, or
aggregating, them through an SRF to meet the $20 million threshold, and it sets a
lower threshold
($5 million) for projects in rural areas. One possible downside of providing
smaller projects
access to WIFIA financing, grouped or not, is the time and expense of
administering the program.
A major source of debate among opponents and proponents is potential has been and continues to be potential
adverse impacts of WIFIA
on funds for the Clean Water Act and Safe Drinking Water Act SRF programs. Several groups
12
U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on Water Resources and
Environment, Testimony of Aurel Arndt, Hearing on Innovative Funding of Water Infrastructure of the United States,
programs. Several groups representing state environmental officials opposed the WIFIA
provisions of the 113th Congress legislation because, they said, it could result in reduced spending
on the SRF programs, which are capitalized by federal appropriations. States are concerned that
WIFIA would likely be funded at the detriment of the SRF programs.16 On the other hand, water
utility groups argue that WIFIA would complement, not harm, existing SRF programs. In their
(...continued)
112th Cong., 2nd sess., February 28, 2012, http://republicans.transportation.house.gov/Media/file/TestimonyWater/
2012-02-28-Arndt.pdf.
13
LaShell Stratton-Childers, “Navigating a Rough Terrain,” Water Environment and Technology, January 2012, pp.
24-29. This article describes the November 2011 bankruptcy filing by Jefferson County, AL, in part resulting from the
county’s inability to cover debts for wastewater system upgrades.
14
For background, see CRS Report RL31116, Water Infrastructure Needs and Investment: Review and Analysis of Key
Issues, by Claudia Copeland and Mary Tiemann.
15
U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on Water Resources and
Environment, Testimony of Aurel Arndt, Hearing on Innovative Funding of Water Infrastructure of the United States,
112th Cong., 2nd sess., February 28, 2012, http://republicans.transportation.house.gov/Media/file/TestimonyWater/
2012-02-28-Arndt.pdf.
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representing state environmental officials opposed the WIFIA provisions of the 113th Congress
legislation because, they contend, it could result in reduced spending on the SRF programs, which
are capitalized by federal appropriations. States are concerned that WIFIA would likely be funded
at the detriment of the SRF programs.16 On the other hand, water utility groups argue that WIFIA
would complement, not harm, existing SRF programs. In their view, WIFIA will provide a new
funding opportunity for large water infrastructure projects that are unlikely to receive SRF
assistance.17 As described above, in part to address concerns about impacts of WIFIA on the SRF
programs, the enacted legislation would give state infrastructure financing authorities a “right of
first refusal” to provide SRF funds for a project when EPA receives an application for WIFIA
assistance.
The WIFIA program may shift some decision makingTestimony of Aurel Arndt.
16
Letter from Association of Clean Water Administrators, Association of State Drinking Water Administrators,
Environmental Council of the States et al. to Honorable Bill Shuster, Chairman, Committee on Transportation and
Infrastructure, and Honorable Nick J. Rahall II, ranking Member, Committee on Transportation and Infrastructure,
October 24, 2013.
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view, WIFIA will provide a new funding opportunity for large water infrastructure projects that
are unlikely to receive SRF assistance.17 As described above, in part to address concerns about
impacts of WIFIA on the SRF programs, the enacted legislation gives state infrastructure
financing authorities a “right of first refusal” to provide SRF funds for a project when EPA
receives an application for WIFIA assistance.
The WIFIA program may shift some decisionmaking for financing water infrastructure projects
from the state and local level to the federal level, specifically to the EPA or the Army Corps, a
change that concerns some stakeholders. Indeed, in a letter to the conferee managers, the
Administration expressed concerns with the WIFIA proposal in S. 601 during Senate
consideration of that bill, “which would expand the Environmental Protection Agency’s and the
Corps’ role in local water infrastructure projects and not provide Federal assistance in the most
efficient manner.”18
Another perceived benefit of the TIFIA program from the federal perspective is that it potentially
limits the federal government’s exposure to default by relying on market discipline through
creditworthiness standards and the encouragement of private capital investment. On the other
hand, the Congressional Budget Office (CBO) argues that the federal government underestimates
the cost of providing credit assistance under programs likesuch as TIFIA.19 This is because it excludes—
excludes
the cost of market risk—the compensation that investors require for the uncertainty of
expected but risky cash flows. The reason is that the FCRA [Federal Credit Reform Act]
requires requires
analysts to calculate present values by discounting expected cash flows at the
interest rate on
risk-free Treasury securities (the rate at which the government borrows
money). In contrast,
private financial institutions use risk-adjusted discount rates to calculate
present values.20
Enacting the WIFIA program raised another federal budgetary and revenue issue. Legislation
reported by congressional committees typically isis typically scored by the CBO for the effects on
discretionary and mandatory, or direct, spending and by the Joint Committee on Taxation (JCT)
for effects on revenue. The initial CBO cost estimate for S. 601, as approved by the Environment
16
Letter from Association of Clean Water Administrators, Association of State Drinking Water Administrators, and
Environmental Council of the States, et al. to Honorable Bill Shuster, Chairman, Committee on Transportation and
Infrastructure, and Honorable Nick J. Rahall, II, ranking Member, Committee on Transportation and Infrastructure,
October 24, 2013.
and Public Works Committee in April 2013, concluded that the WIFIA provisions would cost
$260 million over five years. In addition, it would result in certain revenue loss to the U.S.
Treasury; thus, pay-as-you-go procedures would apply to the bill.21 CBO cited the JCT estimate
that enactment of the bill would reduce revenues by $135 million over 10 years, because states
would be expected to issue tax-exempt bonds in order to acquire additional funds not covered by
17
Letter from American Water Works Association, Association of Metropolitan Water Agencies, and Water
Environment Federation to Honorable Barbara Boxer, Chairman, Committee on Environment and Public Works,
September 9, 2013.
18
Letter from Jo-Ellen Darcy, Assistant Secretary of the Army, Civil Works, to Senator Barbara Boxer, Senator David
Vitter, Representative Bill Shuster, and Representative Nick J. Rahall, II, December 11, 2013.
19
For more on this topic generally, see Congressional Budget Office, Fair-Value Accounting for Federal Credit
Programs, Issue Brief, March 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-05FairValue_Brief05-FairValue_Brief.pdf.
20
Congressional Budget Office (CBO), “Estimating the Value of Subsidies for Federal Loans and Loan Guarantees,” August
August 2004, p. 2, http://www.cbo.gov/ftpdocs/57xx/doc5751/08-19-CreditSubsidies.pdf.
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and Public Works Committee in April 2013, concluded that the WIFIA provisions would cost
$260 million over five years. In addition, it would result in certain revenue loss to the U.S.
Treasury, thus, pay-as-you-go procedures would apply to the bill.21 CBO cited the JCT estimate
that enactment of the bill would reduce revenues by $135 million over 10 years, because states
would be expected to issue tax-exempt bonds in order to acquire additional funds not covered by
21
“Pay-as-you-go,” or PAYGO, is a budget rule requiring that, relative to current law, any tax cuts or entitlement and
other mandatory spending increases must be paid for by a tax increase or a cut in mandatory spending. See CRS Report
R41510, Budget Enforcement Procedures: House Pay-As-You-Go (PAYGO) Rule, and CRS Report RL31943, Budget
Enforcement Procedures: Senate Pay-As-You-Go (PAYGO) Rule, by Bill Heniff Jr.
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WIFIA assistance.22 To avoid the pay-as-you-go problem in the bill, the committee added a
provision to S. 601 to prohibit recipients of WIFIA assistance from issuing tax-exempt bonds for
the non-WIFIA portions of project costs. CBO re-estimated the bill and concluded that, because
the change would make the WIFIA program less attractive to entities, most of whomwhich rely on taxexempt bonds for project financing, the cost of the bill would be $200 million less over five
years. CBO also said that the bill would have no impact on revenues, because the demand for
federal credit would be lower without the option of using tax-exempt financing.23 P.L. 113-121
retains the bar on tax-exempt financing for WIFIA-assisted projects. Thus, the apparent solution
to one problem in the legislation—potential revenue loss to the U.S. Treasury—raises a different
kind of problem for entities seeking WIFIA credit assistance.
Conclusion
Implementation of WIFIA will not occur until Congress appropriates funds to cover the subsidy
cost of the program, which has not yet happened. Funding could be included in final FY2015
appropriations legislation, which has not yet been enacted, but it is not contained in any
appropriations bills that have received congressional attention so far.24In the Consolidated and Further Continuing
Appropriations Act, 2015, enacted in December 2014 (H.R. 83/P.L. 113-235), Congress provided
EPA with $2.2 million for hiring and staffing to implement the new program, but it did not
appropriate funds to actually finance projects. The bill provided no similar start-up funds for the
Corps.
In its FY2016 budget submissions, the Administration did not request funding for either EPA or
the Corps to begin making WIFIA loans. EPA’s budget asked for $5 million to continue preparing
for the new program—in anticipation of funding to make loans—while the Corps’s FY2016
request included no funds to plan for its implementation of WIFIA. As authorized in WRRDA,
WIFIA is a pilot program that is scheduled to expire after FY2019. To the extent that
appropriations for making loans are not provided, the window of time for testing and evaluating
the program will be limited. Supporters could then find it difficult to argue for extending or
making the program permanent.
EPA has been preparing for implementation through meetings with stakeholder groups, including
a series of public listening sessions in several U.S. cities this summer and fallin 2014. The intended
audience of these
sessions iswas municipal, state, and regional water utility officials, private sector
financing financing
professionals, and other interested organizations and parties. The purpose ishas been to discuss
project ideas, potential selection criteria, challenges, and implementation issues. Funding
and evaluation criteria, and numerous other implementation
issues.24 Funding uncertainty is one of several implementation challenges that have already been
identified.
Another major concern raised is the law’s provision that barbars cities from supplementing WIFIA
WIFIA funds with money from tax-exempt municipal bonds, described above. Several groups
have said
that without access to tax-exempt bonds, the 49% WIFIA cap on project costs will
make it very
difficult for municipalities to finance water infrastructure with WIFIA as part of the
financing.
Some observers believe that while WIFIA financing may be helpful in limited
instances, taxexempttax-exempt bonds will continue to be the principal financing tool used by
municipalities for water
infrastructure projects, along with low-interest SRF loans, where
available. EPA is reportedly preparing WIFIA guidance that will address a number of
questions raised during the listening sessions, such as: defining eligible projects, determining
21
“Pay-as-you-go,” or PAYGO, is a budget rule requiring that, relative to current law, any tax cuts or entitlement and
other mandatory spending increases must be paid for by a tax increase or a cut in mandatory spending. See CRS Report
R41510, Budget Enforcement Procedures: House Pay-As-You-Go (PAYGO) Rule, and CRS Report RL31943, Budget
Enforcement Procedures: Senate Pay-As-You-Go (PAYGO) Rule, by Bill Heniff Jr.
22
Congressional Budget Office questions
22
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 9, 2013,
p. 6.
23
Congressional Budget Office p. 6.
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 17, 2013,
p. 7.
24
Congress did not enact FY2015 appropriations before the start of the fiscal year on October 1, but it did enact a
short-term continuing resolution to provide funding at FY2014 levels through December 11, 2014 (H.J.Res. 124/P.L.
113-164).
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Water Infrastructure Financing: The WIFIA Program
selection criteria, developing a ranking system, and how the agency will determine project creditworthiness. Implementation p. 7.
24
Material from one of the listening sessions is available on EPA’s website: http://water.epa.gov/grants_funding/cwsrf/
upload/ChicagoListeningSessionWithQuestions.pdf.
23
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Water Infrastructure Financing: The WIFIA Program
.
raised during the listening sessions, such as defining eligible projects, determining selection
criteria, developing a ranking system, and determining project creditworthiness. Implementation
challenges presented by provisions of the law itself—such as the
49% cap and the tax-exempt
bond restriction—would need to be resolved in new legislation.
Most stakeholders in the debate about water infrastructure financing acknowledge that there is no
single solution or alternative that will fit all needs for all communities and all types of projects.
Most also recognize that financing, including approaches such as WIFIA, is not new revenue.
Investment via a particular financing tool,
such as WIFIA, could simply displace existing
mechanisms, mechanisms rather than increase total investment
in water infrastructure. Whatever the source of
funds for a project, communities and other
sponsors must still identify a stream of revenue to
repay whatever debt is incurred for a given
investment. One of the challenges going forward is to
ensure that financing is available for all
needed projects.
Author Contact Information
Claudia Copeland
Specialist in Resources and Environmental Policy
ccopeland@crs.loc.gov, 7-7227
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