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Water Infrastructure Financing: The Water
Infrastructure Finance and Innovation Act
(WIFIA) Program
Claudia Copeland
Specialist in Resources and Environmental Policy
April 9, 2015February 9, 2016
Congressional Research Service
7-5700
www.crs.gov
R43315
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Water Infrastructure Financing: The WIFIA Program
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Summary
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” (WIFIA) program, which Congress included in the Water Resources Reform
and Development Act of 2014 (WRRDA). As enacted (P.L. 113-121), the legislation created a
WIFIA pilot program based on provisions in Senate-passed S. 601 with some additions 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 (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
a revenue stream for repayment, thus limiting the federal government’s 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:
•
Under WIFIA, decisionmaking for financing of water infrastructure projects
would shift from the state and local level to federal officials.
•
Funding for a WIFIA program would 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 has warned that the costs of a WIFIA 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, but the President’s FY2017 budget requests $15
million for EPA to begin making loans. Funding uncertainty is one of several
implementation 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.been identified.
Although the WIFIA pilot program has not yet been implemented, interest in using it as a model
for other infrastructure financing programs is apparent. For example, several legislative proposals
in the 114th Congress would establish a WIFIA-type program for water reclamation and reuse
projects in western states. These proposals, referred to as “Reclamation for WIFIA,” or RIFIA,
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Water Infrastructure Financing: The WIFIA Program
are included in S. 176/H.R. 291 (the Water in the 21st Century Act) and S. 1894 (the California
Emergency Drought Relief Act of 2015).
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Contents
Introduction ..................................................................................................................................... 1
Creation of a WIFIA Program. ......................................................................................................... 1
WIFIA Pilot Program in P.L. 113-121 ....................................................................................... 3
Discussion ................................................................................................................................. 4
Potential Federal Revenue Loss from Tax-Exempt Bonds ................................................. 6. 4
Conclusion ....................................................................................................................................... 7
Contacts
Author Contact Information ............................................................................................................. 8
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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 systemsfacilities. This report examines one particular option, a “Water Infrastructure Finance
and Innovation Act” (WIFIA) program, which was included in the Water Resources Reform and
Development Act of 2014 (WRRDA, P.L. 113-121). Title V, Subtitle C, of the legislation creates a
created
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 $676655 billion over the next 20 yearsa 20-year period.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; 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 but is insufficient to meet all needs. Finally, public-private partnerships, or P3s, which
are long-term contractual arrangements between a public utility and a private company, 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
program generated interest in creating a similar program for water infrastructure.4
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 20102016. See EPA, Clean
Watersheds Needs Survey 20082012, Report to Congress, EPA-832-R-10-002, May 2010830-R-15005, January 2016. The most recent EPA needs
estimate for drinking water infrastructure was issued in 2013. See EPA, 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
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/
(continued...)
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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 increased from $122 million
annually to $750 million in FY2013 and $1 billion in FY2014 and FY2015. However, the Fixing
America’s Surface Transportation Act (FAST Act, P.L. 114-94), enacted in December 2015,
reduced the amount available to support loans and other credit assistance under the TIFIA
program. Under the FAST Act, the annual amount is $275 million in each of FY2016 and
FY2017, $285 million in FY2018, and $300 million in each of FY2019 and FY2020.
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 eliminateseliminated these selection criteria, and TIFIA 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 TIFIA’s beginning in 1998, it has provided assistance to more than 5058 projects, mostly in
the form of
direct loans. Loan amounts have ranged from $40 million to $1.9 billion. Total credit
assistance assistance
provided over the life of the program amounts to $21.622.8 billion as of April 2015. The
amount February 2016. The amount
of credit assistance is much larger than the appropriated amount over this period because
the the
appropriated funds need only cover the administrative and subsidy cost of the program. (See
below for a more detailed discussion of this point.) Projects involving TIFIA amount to $7983
billion in total financingproject 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 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/
(...continued)
documents/wifia.pdf.
5
The threshold for Intelligent Transportation Systems projects is $15 million.
6
Federal Highway Administration, “Projects Financed by TIFIA,” http://www.dottransportation.gov/tifia/projects-financedprojectsfinanced.
7
Federal Highway Administration, “IH 635 Managed Lanes,” http://www.dottransportation.gov/tifia/financed-projects/ih-635managed-lanes.
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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 the Water Resources
Reform and Development Act of 2014 (WRRDA).8 Title X of Senate-passed S. 601
included a five-year
WIFIA pilot program, while House-passed H.R. 3080 included no similar provisions.
The The
President signed the bill into law on June 10, 2014 (P.L. 113-121). The legislation authorizes
a authorized a
five-year WIFIA pilot program. EPA is authorized to provide credit assistance (secured loans or
loan guarantees) for a range of drinking water and wastewater projects, and the U.S. Army Corps of
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 are 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 private entities, such projects are to be publicly sponsored. To meet
this 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 Corps would include flood control or hurricane and 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 administrator, as appropriate, is to determine eligibility based on a project’s
creditworthiness and dedicated revenue sources for repayment. Selection criteria would include
the 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
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
8
A standalone measure to create a WIFIA program also was was also introduced in the 113th Congress. S. 335 would empower
proposed to
empower the EPA administrator to provide credit assistance to drinking water and wastewater infrastructure projects.
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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
It
was not a pilot program, as in P.L. 113-121.
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and Safe Drinking Water Act (see discussion below), the legislation includesincluded language requiring
the EPA administrator, 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 requiresrequired EPA and the Corps to provide information on a website concerning
applications and projects that have received assistance, and it directsdirected 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 holdAs discussed
below, EPA held listening sessions in several U.S. cities, this summer,
seeking public input about procedures
for evaluating WIFIA applications and selection criteria in anticipation of making loans.
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 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.
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,
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.
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...)
c11173008112th Cong., 2nd sess., February 28, 2012, http://republicans.transportation.house.gov/Media/file/TestimonyWater/
2012-02-28-Arndt.pdf.
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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 iswas likewise 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 projecta project’s 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—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.1514 The legislation,
however, also providesprovided access to WIFIA financing for smaller projects by grouping, or
aggregating, them through an SRF to meet the $20 million threshold, and it setsset 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 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 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(through congressional appropriations) to the detriment of the
SRF programs.1615 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
view, WIFIA will provide a new funding opportunity
for large water infrastructure projects that are unlikely to receive SRF assistance.16 As described
above, in part to address concerns about impacts of WIFIA on the SRF programs, the enacted
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
Testimony of Aurel Arndt.
16Testimony of Aurel Arndt.
15
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
16
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.
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legislation gave 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.”1817
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 ofencouraging private capital investment. WIFIA supporters see the
same benefit from the WIFIA program. On the other On the other
hand, the Congressional Budget Office
(CBO) argues that the federal government underestimates
the cost of providing credit assistance
under programs such as TIFIA.1918 This is because it
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 [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
19
Potential Federal Revenue Loss from Tax-Exempt Bonds
Enacting the WIFIA program raised another federal budgetary and revenue issue. Legislation
reported by congressional committees is 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
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.2120 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 for water projects 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
funds not covered by WIFIA assistance.21 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 which rely on tax-exempt bonds for project financing, the cost of the bill would be $200
17
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.
1918
For more on this topic generally, see Congressional Budget Office, Fair-Value Accounting for Federal Credit
Programs, March 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-05-FairValue_Brief.pdf.
2019
Congressional Budget Office (CBO), “Estimating the Value of Subsidies for Federal Loans and Loan Guarantees,”
August 2004, p. 2, http://www.cbo.gov/ftpdocs/57xx/doc5751/08-19-CreditSubsidies.pdf.
2120
“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
R41510RL31943, 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 which 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. In 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 in 2014. The intended audience of these
sessions was municipal, state, and regional water utility officials, private sector financing
professionals, and other interested organizations and parties. The purpose has been to discuss
project ideas, potential selection 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 is the law’s provision that bars cities from supplementing
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, tax-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
22
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 9, 2013, p. 6.
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 17, 2013, 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.
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.
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 legislationThe Senate Pay-As-You-Go (PAYGO) Rule, by Bill Heniff Jr.
21
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 9, 2013, p. 6.
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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.22 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—raised a different kind of problem for entities seeking WIFIA credit assistance,
because tax-exempt municipal bonds are the principal mechanism used by local governments to
finance water infrastructure projects.
The restriction was widely criticized by potential users of WIFIA assistance. In their view, the
bond financing restriction in WRRDA, together with the provision that caps WIFIA assistance at
49% of project costs, make it very difficult to finance needed projects. Congressional interest in
addressing the tax-exempt bond restriction has been evident. For example, H.R. 1710 in the 114th
Congress would make an exception from the limitation on use of tax-exempt bonds for WIFIA
loans made to finance water infrastructure projects in states in which the governor has issued a
state of drought emergency declaration.
More generally, in July 2015, the Senate passed H.R. 22, a bill to reauthorize highway and
transportation programs for six years. It included repeal of the provision in P.L. 113-121 that
limits any project receiving federal credit assistance under the WIFIA program from being
financed with tax-exempt bonds. However, repeal of the provision raised similar revenue
questions to those that arose in connection with P.L. 113-121. CBO’s report on S. 1647 (the
Senate Environment and Public Works Committee’s bill, which was the basis of Senate-passed
H.R. 22)23 stated that the Joint Committee on Taxation (JCT) estimated that repealing the WIFIA
limitation would increase states’ issuance of tax-exempt bonds for water projects and would
decrease federal revenues by $17 million over the FY2016-FY2025 period. Further, CBO
estimated that the change would increase demand for federal credit under the WIFIA program,
resulting in additional spending stemming from the appropriation levels authorized in P.L. 113121. Consequently, CBO estimated that implementing the WIFIA program would cost $146
million over the FY2016-FY2025 period.
The problem of identifying offsets, or “pay-fors,” for the estimated federal revenue loss was
apparently solved in the conference agreement on H.R. 22, the FAST Act. CBO estimated that the
conference agreement includes offsets to fully cover the cost of the bill by reducing spending or
raising revenues.24 Thus, the conference report retains the provision from Senate-passed H.R. 22
repealing the tax-exempt bond financing restriction on WIFIA assistance.
Conclusion
Implementation of WIFIA—i.e., making project loans—will not occur until Congress
appropriates funds to cover the subsidy cost of the program, which has not yet happened. In the
Consolidated and Further Continuing Appropriations Act, 2015, enacted in December 2014 (P.L.
113-235), Congress provided EPA with $2.2 million for hiring and staffing to implement the new
program. Similarly, in the Consolidated Appropriations Act, 2016, enacted in December 2015
22
CBO, Cost Estimate for S. 601, Water Resources Development Act of 2013, April 17, 2013, p. 7.
U.S. Congress, Senate Committee on Environment and Public Works, Developing A Reliable and Innovative Vision
for the Economy (DRIVE) Act, Report to accompany S. 1647, 114th Cong., 1st sess., July 15, 2015, S.Rept. 114-80
(Washington: GPO, 2015), pp. 27-33.
24
Letter from Keith Hall, Director, CBO, to Honorable Bill Shuster, Chairman, and Peter DeFazio, Ranking Member,
House Transportation and Infrastructure Committee, December 2, 2015, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/costestimate/hr22_1.pdf.
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(P.L. 114-113), Congress again appropriated $2.2 million to EPA to continue preparing for the
WIFIA program. Neither bill provided start-up funds for the Corps, and neither act appropriated
funds to actually make loans or finance projects.
The President’s FY2017 budget, announced on February 9, 2016, seeks $15 million for EPA to
begin making WIFIA loans. The budget estimates that this level of budget authority will support
$980 million in direct loan activity in 2017. The budget also requests $5 million for related EPA
administrative costs. The budget does not include a similar request that would allow the Army
Corps to begin making WIFIA loans.
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, including through a series of public listening
sessions in several U.S. cities in 2014. The intended audience was municipal, state, and regional
water utility officials, private sector financing professionals, and other interested organizations
and parties. The purpose was to discuss project ideas, potential selection and evaluation criteria,
and numerous other implementation issues.25 Funding uncertainty is one of several
implementation challenges that have already been identified. Another earlier concern over the
law’s provision that barred cities from supplementing WIFIA funds with money from tax-exempt
municipal bonds was addressed in the FAST Act, as described above. Nevertheless, some
observers believe that while WIFIA financing may be helpful in limited instances, tax-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 selection criteria, developing a ranking
system, and determining project creditworthiness. Implementation challenges presented by
provisions of the law itself—such as the 49% cap—would need to be resolved in new legislation.
Although the WIFIA pilot program has not yet been implemented, interest in using WIFIA/TIFIA
as a model for other infrastructure financing programs is apparent. For example, several
legislative proposals in the 114th Congress would establish a WIFIA-type program for water
reclamation and reuse projects in western states. These proposals, referred to as “Reclamation for
WIFIA,” or RIFIA, are included in S. 176/H.R. 291 (the Water in the 21st Century Act) and S.
1894 (the California Emergency Drought Relief Act of 2015).
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 is not new revenue. Investment via a particular financing tool,
such as WIFIA, could simply displace existing 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.
25
Material from an EPA presentation on WIFIA is available on EPA’s website: http://www.epa.gov/sites/production/
files/2015-09/documents/wifia-04-01-15-webcast-2.pdf.
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Author Contact Information
Claudia Copeland
Specialist in Resources and Environmental Policy
ccopeland@crs.loc.gov, 7-7227
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