Federal loan programs like WIFIA and impact investors share important common goals. The investors need bigger scale to connect with US essential public infrastructure. WIFIA needs innovative proposals.
Realizing better outcomes in US infrastructure renewal through innovative financing won’t be easy. But it’s a critical path in real-world decisions about funding and consensus building. A long road — WIFIA and impact investors should go together.
US essential public infrastructure will be renewed, no question. Because otherwise it won’t work or will fall down, a reality-based fact that a Pittsburgh bridge apparently decided to remind us about last week.
The real question is whether or not the rebuilt projects will include innovative approaches to climatic, environmental and social issues.
The answer to that depends on an even realer question: How to pay for the additional cost? Sure, almost everybody agrees on the ESG objectives. But there’s much less consensus paying to achieve them. That creates a strong bias for a minimal cost, business-as-usual approach just to get the job done. The community needs this bridge now, right? Hard to argue with that.
One way out of this conundrum, I think, is to address the heart of the matter — the universal issue of paying for stuff — before rebuilding decisions are forced to be made. If you want innovative approaches to be included in essential public infrastructure, you’ll need to have innovative approaches to funding and financing it in order to achieve a consensus quickly. Not theoretical or legislative aspirations. But on the shelf, in sufficient scale and ready to go.
It’s probably too late for this Pittsburgh bridge. But don’t worry — efforts to develop innovative funding and financing won’t be wasted. Plenty more stories like this to come.
Yes, I know. Direct loans are so much easier. Borrowers prefer them. The cost to federal taxpayers is the same as with guarantees, at least as measured by FCRA scoring for discretionary appropriations. And they make for great press releases, because everybody knows what a loan does, but guarantees are a bit more obscure.
Really, I get it. But for WIFIA and its highly rated public agency borrowers, try and answer these questions:
What’s the point of a federal program making direct loans to a large Aa2/AA- public water agency that has complete access to a well-functioning capital market? Why is a federal program duplicating all the mechanics of financing that are available (and delivered a lot more efficiently) in the market? Do you think capital markets stakeholders (and their lobbyists) are justified in opposing unnecessary federal competition? How are direct loans in this case consistent with OMB Circular A-129’s requirement that “private lending is displaced to the smallest degree possible by agency programs“?
Why are highly rated water agencies even applying to WIFIA? Might it be primarily the free interest rate option? Sure, that makes WIFIA look successful, but what does it accomplish for infrastructure? Is the value enough to change project design — or does it just go to reduce water rates a little, often for rich communities?
What’s the cost to federal taxpayers of the free options? Federal funding losses caused by interest rate re-estimates don’t show up in the FCRA score. Instead they’re dumped in an off-budget account with Permanent Indefinite Authority that eventually will be settled with mandatory appropriations. But if huge funding losses are nearly certain, is the apparent low cost of WIFIA’s direct loans relying on a kind of FCRA accounting loophole? Do you think that’ll end well?
I don’t think there are good answers to any of these questions and the implications aren’t positive for the program’s future. But I also think there’s a path forward: WIFIA should begin to develop its guarantee capabilities to support highly rated public water agencies in another way, by enabling innovative projects and funding sources. That’s the point.
