This is the sixth post in the FCRA Non-Federal Series

In June 2022, HR 8127, The Water Infrastructure Finance and Innovation Act Amendments of 2022, was introduced in Congress.  Section 7 of this bill proposes a simple statutory fix to WIFIA’s FCRA issue based on the non-federal sources of loan repayment:

SEC. 5037 BUDGETARY TREATMENT OF CERTAIN AMOUNTS OF FINANCIAL ASSISTANCE. If the recipient of financial assistance for a project under this subtitle is an eligible entity other than a Federal entity, agency, or instrumentality, and the dedicated sources of repayment of that financial assistance are non-Federal revenue sources, such financial assistance shall, for purposes of budgetary treatment under the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.) — (1) be deemed to be non-Federal; and (2) be treated as a direct loan or loan guarantee (as such terms are defined, respectively, in such Act).

This admirably lapidary language goes right the core of the FCRA non-federal issue and is consistent with everything I’ve reviewed so far.  It closely tracks the stated criteria outlined in the prior post in this series:

• The “recipient of financial assistance… other than a Federal entity, agency, or instrumentality” is essentially what I mean by a ‘non-federal entity’ in Criterion B, with the consistent implication that it is also the ‘primary beneficiary’ of such financial assistance in Criterion D.

• Criterion B’s requirement for non-federal repayment sources is then captured by the next condition: “…and the dedicated sources of repayment of that financial assistance are non-Federal revenue sources”.

• Criterion E’s requirement for a siloed approach to FCRA treatment is I think also subtly reflected by this part: “…for a project under this subtitle is an eligible entity…”.  In other words, a WIFIA-eligible project can be a federal entity, but it won’t pass the two conditionals (non-federal entity and non-federal repayment) and therefore won’t get the FCRA treatment specified in the (1) and (2) clauses.  The proposed amendment doesn’t mess with WIFIA’s statutory eligibility, it simply clarifies budgetary treatment.

Perhaps some parts could be expanded for the avoidance of doubt – a confirmation that the non-federal recipient’s decision was not federally coerced (Criterion C), an explicit connection between the use of the program loan for non-federal recipient’s part of project construction and non-federal repayment (Criterion D) and may even a requirement for budgetary consistency from the project’s federal participants (Criterion F). But these details are optional in a statutory approach and could be addressed separately elsewhere.

Resistance to a Statutory Fix

In an ideal world, a statutory fix for the FCRA non-federal issue is the optimal approach and I think HR 8127’s proposed amendment works very well for that purpose.  On the surface, FCRA law’s silence on program loans to federally involved projects looks like a difficult problem.  But as I’ve plowed through the primary sources in this series, I’ve seen that it really isn’t.  The budgetary principles behind the creation of FCRA are clear and consistent with those of the overall federal budget.  They can be applied to federally involved projects in a straightforward way, as the proposed amendment does effectively and efficiently.  If explained carefully, surely everyone will see this and agree that the amendment is a simple fix that allows WIFIA and especially CWIFP to get on with the critical mission of improving US water infrastructure?

Maybe not.  In the real world of political and bureaucratic processes, I foresee resistance to this statutory fix, regardless of its clarity and correctness:

• The biggest one is that HR 8127’s amendment for WIFIA’s FCRA treatment is in effect an amendment of FCRA itself.  How can the central definition in a law that is meant to determine the uniform budgetary treatment for all federal credit programs be effectively re-defined per a statutory requirement at a particular program?  That’s not to say that the amendment’s definition wouldn’t work for FCRA (it simply clarifies what I think is already implied by the language of FCRA’s direct loan definition) but as a matter of process, I don’t think it’s easy to change a big, well-established law in a piecemeal way.  This kind of objection can’t be answered by pointing out the substantive merits of the proposed amendment.  If it is raised, the likely outcome is only an agreement that, ‘yes, that’s a good idea for amending FCRA someday, but for now we can’t do it just for WIFIA’.

• I expect OMB will defend their work. HR 8127’s amendment will not only replace OMB’s published ‘criteria’ for WIFIA, explaining why the amendment is correct will expose their ‘criteria’ as hopelessly wrong.  As criteria they are in fact hopeless but trying to prove that will be difficult precisely because they are only implied, never clearly stated.  Even basic definitions of ‘borrower’, ‘project’, ‘beneficiaries’, etc. can slip and slide all over the place.  And OMB, as the agency responsible for federal budget accuracy, will have the high ground at every turn.   Their real motives might be closer to saving face and maintaining bureaucratic authority in all technical budget matters, but does that ever matter? If you can’t prove why WIFIA’s current ‘criteria’ are inadequate in the elevated context of budget theory, you can’t show why the amendment is necessary without some appeal to real-world expediency. The optics of that aren’t great.

• OMB won’t be the only one defending the status quo.  As noted in the introductory post of this series, it’s hard to tell why a technical clarification of FCRA for federally involved projects became such a heated issue.  But it did, and the parties involved will have a stake in maintaining that their solution, however imperfect in reality, is the right one.

An Alternative Approach

A statutory fix for WIFIA’s FCRA non-federal issue is likely to be a tough fight.  Again, it won’t have much to do with the merits of HR 8127’s amendment but with other factors that are irrelevant to the objective, which is to permit the full and efficient implementation of WIFIA’s and CWIFP’s policy mission.  Is this a fight worth having now?  Perhaps it is – I don’t know the complete story.

But if a multi-factor fight is not in fact useful to HR 8127’s stakeholders, I think there may be another approach that avoids unnecessary confrontation and focuses instead on ensuring that the essence of the amendment becomes the de facto interpretation of FCRA at WIFIA and CWIFP.

In the prior post in this series, I showed that WIFIA’s eighteen questions posing as ‘criteria’ could be interpreted and answered in the context of guidance for six stated criteria solidly based on the primary sources mandated in the Congressional directive.  Although some of the guidance had to work around the implied (but erroneous) intent of the questions, I think the answers would lead to the right conclusion for federal involved projects with genuinely non-federal entities and repayment sources.  It was not a difficult exercise – primarily because, as mentioned above, FCRA treatment for federally involved projects is not a difficult issue. In this approach, the fact that the published ‘criteria’ are questions is useful because guidance for potential WIFIA applicants to answer them is justified — and that’s where the real criteria can be placed.

The HR 8127 amendment is completely consistent with the six criteria I was using, so the same guidance exercise will work as well.  Why not make it official?  As opposed to an amendment with the criteria, HR 8127 could include an instruction that requires WIFIA and CWIFP to develop guidance for applicants in answering the questions in OMB’s published ‘criteria’.  The need for such guidance in a technical area can be demonstrated without any reference to budget principles or even criticism of the current ‘criteria’ – what might look like expediency in a budget context is now simply evidence of the necessity to improve the implementation of statutory policy objectives.  OMB’s approval of the guidance will be required one way or another, so their involvement should be mentioned in the instruction. That might mean a fight.  But it will be on a much smaller, quieter scale, without face-saving and authority factors being involved.  Or perhaps OMB will have little interest in dealing with this issue once again and tacitly agree with the guidance’s criteria, especially if there’s a possibility that a more public resolution will be necessary if the guidance approach doesn’t work.  

Maybe something like this, referencing back to the sources mandated by the Congressional directive:

SEC. [  ] WIFIA CRITERIA GUIDANCE  Not later than [90] days after the date of enactment of this Act, the Secretary of the Army, acting through the Chief of Engineers together with The Administrator of the Environmental Protection Agency and the Director of the Office of Management and Budget, shall jointly develop guidance for loan program applicants in answering the questions listed in WIFIA Criteria Pursuant to the Further Consolidated Appropriations Act, 2020 as published in the Federal Register June 30, 2020, such guidance being consistent with the requirements for the budgetary treatment provided for in section 504 of the Federal Credit Reform Act of 1990 and based on the recommendations contained in the 1967 Report of the President’s Commission on Budget Concepts.