In the same way that water infrastructure isn’t built simply to be financed, WIFIA doesn’t exist simply to make loans. Both the loan program and the infrastructure it finances belong in the context of their ultimate purpose – better water resources for communities. That often involves physical water infrastructure, but not always. WIFIA’s mission should — and can — extend beyond the project itself.

As often noted here, WIFIA loan proceeds must be spent on the infrastructure project, but WIFIA loan benefits can be allocated to other non-infrastructure purposes. In practice, the lower debt service requirements of a WIFIA financing usually end up keeping water rates lower than they would have been otherwise.

Lower water rates are great, of course. But once the non-infrastructure allocation principle is established (and even effectively acknowledged by WIFIA itself), the question arises: What other non-infrastructure purposes within a public water system’s scope of responsibility could WIFIA loan benefits go towards? Water equity initiatives? Specific environmental enhancements? Workforce training? COVID-19 recovery efforts? Like many state & local public agency in these interesting times, public water systems have a big ought-to-do list. WIFIA loan benefits should be seen as part of the solution.

It won’t be easy to get things done in a divided and polarized government. Yet the economic effects of the Covid-19 pandemic are likely to continue — or even intensify — throughout 2021. On top, of course, of everything else.

Infrastructure loan programs aren’t perfect for many wish lists, but they might be one of the few federal policy tools that can expect bipartisan support. The WIFIA Loan Program is a model, both in how it is working now and how it should be expanded. Here’s a recent article in this month’s Water World Magazine that sketches out three specific and realistic actions that will make the program (even) more useful in 2021.

Low-cost federal loans to investment-grade state & local governments and infrastructure agencies are a powerful tool that works well on many levels, including for federal taxpayers. But the potential impact on the municipal bond market needs to be carefully — and explicitly — considered.

The classic role of a federal loan program is to be a lender in situations where borrowers don’t have many cost-effective alternatives, either because their credit isn’t yet good enough (student loans) or there’s something wrong in the capital markets (ARRA loan programs). In those cases, pretty much the whole cost-benefit story is about the impact of the program on two stakeholders – the borrowers and federal taxpayers.

But when a federal program makes loans to investment-grade state & local governments and infrastructure agencies, another stakeholder has to be included in the mix – the municipal bond market. A federal loan that by definition is intended to be advantageous to state & local public-sector borrowers will almost inevitably displace a municipal bond issue that the market would have loved to buy, an outcome that’s clearly disadvantageous to investors and market intermediaries.

New article in Water Finance & Management Magazine.

WIFIA’s recent interest rate resets on loan commitments made a few years ago show that the Program’s real mission includes improving not just physical infrastructure but public water systems’ fiscal condition as well. Very timely in light of the need for post-Covid-19 recovery. The US EPA should explicitly embrace this aspect of WIFIA’s mission. And the proponents of an expanded Fed MLF should take a close look at how a federal loan program for state & local governments and infrastructure agencies can actually work.

We know who lost.

In some fundamental ways, the recent defunding of the WIFIA Loan Program and the decision (so far) not to amend the Municipal Liquidity Facility are similar. Neither action appears to involve the merits of the cases or a cost-benefit analysis. Both instead rely (ostensibly) on principles — a technical accounting issue at WIFIA and a strict interpretation of a lender-of-last-role for the MLF. Both result in less federal lending to sub-national public-sector agencies — public water agencies in WIFIA’s case, state & local governments in the MLF. And both incur what appears to be a significant net cost to the public sector, including federal taxpayers. Pretty expensive principles, it would seem — cui bono, exactly?

Here is a quick estimate of the quantifiable costs and benefits of the decision to defund the WIFIA program for one year. As always, you can look at the Excel model here.

A $55 million appropriation for WIFIA FCRA cost was expected but then effectively rescinded by the House Appropriations Committee in connection with the program being late in publishing federal ownership criteria. The principle of connecting the two is a little obscure — punishment? Of whom — the public water sector? I don’t see any economic or even bureaucratic logic here. Yet on a party line vote it passed, presumably after due consideration for the national welfare. How does that look now?