In prior posts, I’ve been generally critical of OMB’s WIFIA FCRA criteria. In this one, I’ll focus on a specific point — that the published criteria failed to comply with the requirements of their Congressional directive. Not by a little or in a few details — the non-compliance is fundamental and pervasive.

The Wrong Question

The Congressional directive is relatively clear. Congress wanted to clarify the FCRA issue for federally involved projects with criteria that “…limit Federal participation in a project consistent with the requirements for the budgetary treatment provided for in section 504 of the Federal Credit Reform Act of 1990.” Since FCRA law is solely about loans, this is obviously talking about WIFIA loans to projects, and the limitations on Federal participation in a project with respect to those loans. For example, the most basic limiting criterion here is that the Federal participant can’t directly or indirectly guarantee the loan since FCRA is limited to non-federal borrowers. See? It’s not that hard.

Additional, more nuanced criteria can be developed along these lines with the principles outlined in the 1967 Budget Report, as the directive required. It’s straightforward if you’re asking the right question — FCRA law and the relevant principles in Chapter 5 of the 1967 Report are grounded in the calm rationality of the Enlightenment, not impenetrable Medieval theology or ancient pagan mysteries. I think correct criteria would look something like this: Six Criteria for Federally Involved Projects. Read Chapter 5 and you can try it yourself.

But OMB asked the wrong question. From the Background section of the Federal Register publication:

The question of whether or not to include a project or asset in the budget hinges on whether the project or asset in question is Federal or non-Federal in nature.

How to interpret this statement? What is the ‘project or asset’ here? The specific issue the criteria are meant to address is about budgeting for WIFIA loans — nothing else. The only ‘asset’ involved is a WIFIA loan which is indisputably a federal asset and unquestionably will be included in WIFIA’s federal budget. The question that requires clarification is which bucket of the federal budget the loan belongs in — FCRA or cash-based.

But apparently that wasn’t the question that OMB wanted to answer. The above statement only makes sense if their criteria are focused on classifying the federally involved project itself, not a WIFIA loan to it. Perhaps that classification is relevant for some reporting purposes (CBO scoring or economic impact data?) but if so, that’s a matter for the federal participant’s budgeting, not the WIFIA loan program. More importantly, that classification is not what the Congressional directive asked for, which is criteria to “limit Federal participation in a project”. They didn’t ask for a way to “limit WIFIA participation in a project that OMB determines to be a ‘Federal Project'”.

Still, OMB’s singular determination to classify Federal Projects instead of loans did require some connection to FCRA law, at least nominally, to appear to comply with the directive. That was accomplished with confusing subtlety by this free-floating assertion further on in the Background section:

Regardless of the identity of the borrower, however, requiring that a Federal project
or asset be recorded in the budget on a net present value basis would be inconsistent with 31 U.S.C. 1501

Since the ‘identity of the borrower’ doesn’t matter (yet), a WIFIA loan to a project can only be classified with respect to the use of loan proceeds, right? If OMB has deemed the project as ‘Federal’, those proceeds are also ‘Federal’ and therefore the loan’s borrower can now be identified — as a ‘Federal’ borrower! And FCRA treatment is statutorily only available for non-federal borrowers! See what was done there? OMB is conflating the project assets created with WIFIA loan proceeds with the financial asset that WIFIA creates by making a loan, thereby dragging WIFIA’s FCRA asset budgeting into OMB’s project’s classification.

This legerdemain neatly sidesteps FCRA law’s actual definition of an eligible loan as one to a “non-federal borrower under a contract that requires the repayment of such funds” (where the repayment obligation is integral to the borrower’s identity) and substitutes for it a novel definition of ‘borrower’ that is determined by where the loan proceeds are spent. However, the same word, ‘borrower’, can be used in the phrase ‘non-federal borrower’ and OMB’s project classification approach can apparently be connected to FCRA law. This would be impressive in a twisted way if intentional — but I suspect, per Occam’s Law, it was largely the result of a combination of wishful thinking and genuine confusion.

Cutting through the confusion, it turns out that OMB’s criteria are not in fact based on FCRA law but — something else. That’s the first failure to comply with the Congressional directive.

Down the Rabbit Hole with OMB.

The directive has another hurdle for OMB’s project classification approach to clear — using the 1967 Report’s principles and recommendations. Fortunately for the approach, it’s easy to find one if you only read Chapter 3, ‘Coverage of the Budget’, which is largely about inclusion in ambiguous situations. The Report’s authors admit that this area is a rabbit hole. And OMB enthusiastically jumps right in — a perfect context to keep things vague and mysterious. The sole principle cited for the criteria from the 1967 Report basically says, ‘when in doubt about an activity with some federal involvement, include the whole thing’. How handy for the classification of a complex, multi-party project with a federal participant and practically guaranteed to get the desired result — an entirely Federal Project!

Still, the rabbit hole is not all fun and games. It’s inherently difficult to develop clear criteria in such a context and, after all, that’s what Congress asked for. I imagine it could be done with some creative effort, but the inadequacy of the result for an intrinsically unrelated FCRA issue might be obvious and, in any case explicit criteria for Federal project classification would take away large parts of OMB’s ‘eye of the beholder’ option — where’s the fun in that?

Well, in the rabbit hole all challenges of logic or even the meaning of words can be overcome! Perhaps the Congressional directive should have added this source:

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

‘Criteria’ are ‘questions’ and vice versa, ok? The Red Queen can therefore decide that the requirements of the Congressional directive are fully satisfied.

In the Real World

Of course, back in the real world, all of this is nonsense. Questions, which OMB is entitled to ask anytime, are not criteria. They don’t clarify the FCRA issue for the applicant, who is left guessing as to what the result will be when OMB applies its own undisclosed criteria. Congress specifically asked for criteria to be published in the Federal Register — a public document meant to inform the relevant stakeholders. That’s the second, and perhaps most obvious even to a casual observer, failure of OMB to comply with the directive.

More substantively, if OMB had read (or didn’t willfully ignore) Chapter 5 of the 1967 Report, unambiguously titled ‘Federal Credit Programs’, they’d have seen the principles of what later became FCRA law outlined in great detail and with clarity. There are no rabbit holes there. The primary principle outlined is that federal loans require special budgeting treatment due to a substantive obligation for repayment from non-federal sources – something that is echoed in FCRA law’s definition of a FCRA loan. An exercise in ‘Federal project classification’ doesn’t belong here — but budgeting for WIFIA loans, the explicit topic of the directive, clearly does.

OMB failed to utilize the obviously relevant principles of the 1967 Report in their criteria. That’s the third area of non-compliance with the requirements of the Congressional directive.

Footnote Diktats

Finally, the criteria’s two footnotes should be mentioned briefly. This is where OMB’s desire to classify projects as ‘Federal’ and thereby render them (using OMB’s own special logic) ineligible for WIFIA loans is most unambiguously expressed. For projects with Army Corps or Bureau of Land Management involvement, OMB skips the weak sauce of ‘criteria’ and cuts to the chase with diktats. They’re all Federal! WIFIA loans to such projects are never eligible for FCRA treatment! Don’t even think about applying!

I have to think that after trudging through all the tortuous language of the rest of publication, they enjoyed writing these clear statements of reference-free bureaucratic power. However, the footnote diktats are of a piece with the rest of the work — not based on statute, relevant principles, or the requirements and purpose of the Congressional directive. Nothing — just more free-floating assertions. Compliance failure number four? Yes, if going far beyond the scope and intention of the directive counts.

Junk the Lot

I was more optimistic about OMB’s criteria when I started the FCRA Non-Federal Series late last year. I thought that they would probably require some important clarifications and refinements but had to be at least roughly compliant with the Congressional directive to be published. I assumed OMB would defend their work on that basis. That’s why I thought it worth exploring alternatives to the heavy lift of actually amending the WIFIA statute.

I don’t see it that way anymore. The current criteria are irredeemably flawed, probably influenced by some hidden bureaucratic agenda, and entirely non-compliant with the directive. The current lot should simply be junked completely — rescinded, perhaps by another Congressional directive or re-instruction. Or more realistically, since Congress will be involved either way, get ready to battle it out with an amendment that, as law, will presumably supersede OMB’s nonsense. HR 8127 is soon to be re-introduced and will again contain FCRA amendment language for WIFIA.

Doing nothing and simply living with the current criteria is not an option, even though relatively few infrastructure projects have direct federal involvement. There’ll be plenty of other FCRA-type budgeting and oversight issues that need correct and workable interpretations going forward as federal infrastructure loan programs develop — as they must. OMB’s current criteria for this issue set a harmful precedent for that critical process. They’ve got to go.