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.

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