New Federal Water Infrastructure Funding Mechanism Proposed

May 2012, Vol. 67 No. 5

With congressional funding of the state revolving funds likely to continue to decline, water infrastructure groups are pushing an alternative funding mechanism -- meant to serve as a supplement to the SRFs, not a replacement -- called a Water Infrastructure Finance and Innovation Fund.

The Fund was discussed at two recent House Transportation Committee hearings. Rep. Robert Gibbs (R-OH), chairman of the Water Resources and Environment Subcommittee, has prepared a draft bill authorizing the new water infrastructure fund which is a carbon copy of an existing fund for transportation projects. However, Gibbs must wait before he introduces an actual bill until the full Transportation Committee acts on an important highway bill. In addition, Rep. Timothy Bishop (D-NY), the top Democrat on Gibbs' subcommittee, has introduced a broader bill reauthorizing the Clean Water SRF. His bill includes a Water Infrastructure Fund proposal.

Here is the potential political problem. Democrats want to reauthorize the Clean Water SRF and set up the new Infrastructure Fund, and do so in the same bill. However, reauthorizing the CWSRF means Congress would have to find $18 billion over five years (that is the authorization level in the Bishop bill) in cuts to the federal budget to offset that $18 billion in spending. Republicans are opposed to finding those offsets. Some Democrats are opposed to supporting a Water Infrastructure Fund-only bill.

A Water Innovation Fund would borrow money from the Treasury at low Treasury Department interest rates and then lend that money to cities and counties for important regional water infrastructure projects likely to cost more than $20 million. Those interest rates could be a tad higher than the interest rates offered by state SRFs; but SRF loans are generally available to small and medium-sized projects only. The water fund would be based on an existing Transportation Infrastructure Finance and Innovation Act (commonly called TIFIA).

The advantage of these infrastructure funds is that Congress only has to appropriate enough money to cover the "subsidy" cost of providing the low-interest Treasury loan. "Consequently, WIFIA – because it involves loans that are repaid with interest – involves minimal risks and minimal long-term costs to the federal government," says Aurel Arndt, general manager and chief financial officer of the Lehigh County Authority based in Allentown, PA.

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