Congress Creates New "Pilot" Water Infrastructure Financing Agency

July 2014, Vol. 69 No. 7

Congress set up a new federal financing authority for water infrastructure construction.

In the area of sewer and drinking water pipe instillation and replacement, the Water Infrastructure Finance and Innovation Authority (WIFIA) would supplement the grants provided to states and their local subsidiaries by the Clean Water and Drinking Water State Revolving Funds (SRFs). Congress has steadily been reducing funding to those grants, with the Obama administration's compliance.

Congress established a "pilot" WIFIA but before it can begin to operate Congress needs to appropriate the $20 million authorized in the Water Resources Reform and Development Act (H.R. 3080). A number of water infrastructure groups called authorization of the WIFIA a good first step, but also cited limitations on its financing imposed by Congress. The WIFIA will be able to extend loans and loan guarantees. There is a ceiling of $20 million on what Congress can appropriate to WIFIA in fiscal 2015 (starting Oct. 1). That increases each year until it hits $50 million in fiscal 2019. Loans are limited to 49 percent of the total cost of the project, although the WIFIA can use up to 25 percent of its funding for loans exceeding 49 percent.

“WIFIA will be most effective when communities can fund 100 percent of project costs, and any non-WIFIA share should be allowed to be financed with tax-exempt debt,” says David LaFrance, chief executive officer of the American Water Works Association. “We are committed to working with our leaders in Congress and our colleagues in the water community to build off today’s success.”

A large variety of water infrastructure projects could be funded through WIFIA, including those having been caused by storm damage, irrigation control projects, harbor maintenance and other water problems. There will be competition for the fairly small amount of financing that will become available should Congress appropriate the $125 million over five years. The WIFIA concept is very similar to a parallel financing authority already operating for highway projects called the Transportation Infrastructure Finance and Innovation Authority. The WIFIA would borrow funds from the U.S. Treasury at low rates, provide that money in some form of concessionary financing to either a local government or even a private party, with the "subsidy" for that low rate covered by a congressional appropriation. Then the loan is paid back, and the funds are returned to the Treasury. This "credit assistance," with its subsidy built in, allows a city getting a loan to leverage loan dollars many times.