In 2018, three water advocacy organizations opposed the SRF-WIN Act. The underlying dynamics were probably more complex, but they stated their nominal objections in a letter to the Senate committee holding hearings on the Act and other water legislation being considered at the time. One of the letter’s points is that loans with the sub-Treasury rates proposed for smaller SRFs in SRF-WIN would have very much lower credit subsidy leverage ratios (loan amount/cost) than the current WIFIA program — about 3.7 and 8.5 times for the Act’s 50% and 80% Treasury rates, respectively. This was contrasted (with the usual rhetoric) to WIFIA’s 100:1 ratio for its highly rated loans executed at rates reflecting full Treasury cost. (Well, executed at full hypothetical cost on the day but not actually funded until years later — you know where this is going, right?)

How’s that looking now? On the surface, WIFIA’s $16 billion portfolio at FYE 2022 did indeed only cost about $160 million of discretionary credit subsidy appropriations. And, if calculated at current rates, those SRF-WIN sub-Treasury would result in leverage ratios about what the statement predicted — 3.8x and 8.7x, respectively, assuming that the SRF loans were as highly rated as those of WIFIA, almost certainly the case.

But what’s missing is the elephant — the cost of WIFIA’s mandatory appropriations to cover Treasury’s funding losses due to interest rate re-estimates. The average interest rate of WIFIA’s undrawn loan commitments at FYE 2022 was about 2%. If those loans were drawn on 9/30/22, when the 20Y UST was about 4%, the cost would have been $3.3 billion. As the loans are actually drawn, the cost might be lower — or it might be higher. But it will certainly be far more than the discretionary appropriations allocated to the portfolio.

The chart above shows the economic cost and leverage ratio of WIFIA’s portfolio at FYE 2022 compared to those of the SRF-WIN alternatives on the same day. WIFIA’s mandatory appropriations are now included. It can be assumed that the SRF-WIN alternatives would have used only discretionary appropriations because the SRF loans would have been drawn shortly after execution, whether Treasury rates had risen or fallen. Far from being 100:1, WIFIA’s actual leverage ratio is about 4.8x — a little better than the Act’s 50% Treasury option but much worse than the 80% option, which was more likely to be utilized.

Ah, the elephant. It was perhaps predictable in 2018. But now it’s obvious in the actual results of WIFIA’s current $16 billion portfolio of sub-Treasury loan commitments. Once pointed out, it’s hard not to see it as a major policy error. Hard, but not impossible — just don’t talk about it, okay?