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Friday, December 6, 2013

Water Infrastructure Financing: Proposals to Create a Water Infrastructure Finance and Innovation Act (WIFIA) Program - R43315

Claudia Copeland
Specialist in Resources and Environmental Policy

Policymakers have recently been considering several legislative options to help finance water infrastructure projects, including projects to build and upgrade wastewater and drinking water treatment systems. This report examines one particular option being debated, creation of a “Water Infrastructure Finance and Innovation Act,” or WIFIA, program. Although several other approaches have also been proposed, much of the recent legislative and policy attention has been on WIFIA, because legislation passed by the Senate in the 113
th Congress (S. 601, the Water Resources Development Act of 2013, or WRDA) includes a WIFIA pilot program.

The WIFIA concept is modeled after a similar program that assists transportation projects, the Transportation Infrastructure Finance and Innovation Act, or TIFIA, program. Proponents of the WIFIA approach, including water utility organizations, cite several potential benefits.

  • WIFIA could provide credit assistance to large water infrastructure projects that otherwise have difficulty obtaining financing. 
  • Because WIFIA would access funds from the U.S. Treasury at Treasury rates, the mechanism could lower the cost of capital for borrowers. 
  • WIFIA assistance would have much less of a federal budgetary effect than conventional project grants that are not repaid, because only the subsidy cost of a loan (representing the presumed default rate on loans) would be scored. Thus, if only an average 10% subsidy cost is charged against budget authority, a $20 million budgetary allocation theoretically supports $200 million in loans. 
  • To be eligible for assistance, projects must be determined to be creditworthy, with a revenue stream for repayment, thus limiting the federal government’s exposure to default and also encouraging private capital investment in the project. 
  • On the other hand, opponents of the WIFIA approach, including organizations that represent state environmental agency officials, cite several concerns. 
  • Under WIFIA, decision making for financing of water infrastructure projects would shift from the state and local level to federal officials. 
  • Funding for a WIFIA program likely would have a detrimental effect on federal support for established and successful State Revolving Fund (SRF) programs that provide the largest source of water infrastructure assistance today. 
  • While WIFIA is intended to assist large and costly projects, the majority of water infrastructure needs are for smaller projects. Especially if SRF assistance is decreased, these smaller projects would face significant financing challenges. 
  • The Congressional Budget Office (CBO) has warned that the costs of a WIFIA program to the federal budget may be underestimated. 
In the 113th Congress, the debate over these issues is centered on the WIFIA provisions included in S. 601. Similar House-passed WRDA legislation, H.R. 3080, does not contain WIFIA provisions.

Date of Report: November 19, 2013
Number of Pages: 10
Order Number: R43315
Price: $19.95

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