INFRASTRUCTURE:

Potential funding mechanism for water projects divides experts as Congress seeks WRDA compromise

As House and Senate negotiators work behind closed doors to hammer out differences between their two versions of a major water resources bill, a quiet brawl has erupted in the water infrastructure community over a provision that would create a new funding mechanism for water utilities.

Proponents of the Senate's "Water Infrastructure Finance and Innovation Act," or WIFIA, say it could lower the cost of infrastructure projects for wastewater treatment plants, drinking water facilities and others that are facing massive looming needs and dwindling federal and local resources to help pay for them.

"A couple years ago, we issued a report that found a $1 trillion need for repairs and new demands; you'll hear different numbers out there, but they're all big," said Tom Curtis, deputy executive director of government affairs for the American Water Works Association, which has been leading the charge for WIFIA on Capitol Hill.

"We looked at different options," Curtis said, "and concluded that a loan-based program like WIFIA was both something that would be easier to get done in the current political climate and, in some sense, preferable to any other alternative because it leaves responsibility for water and wastewater where we think it belongs, and that's at the local level."

But states and rural community groups are raising the alarm, warning that a flashy new program would likely be the "death knell" for the embattled state revolving funds whose low-interest loans are one of the prime tools that cash-strapped communities rely on for upgrades.

The Clean Water and Safe Drinking Water state revolving funds have regularly come under the knife in tough budget times with the White House last year proposing a combined cut of $472 million in its budget blueprint, dropping their total to $1.9 billion. The House Appropriations Committee's fiscal 2014 Interior, Environment and Related Agencies spending bill proposed even steeper cuts -- 69 percent beyond the Obama administration proposal (Greenwire, July 22).

Groups representing state and local environmental officials say a new WIFIA program could provide just the excuse that budget slashers are looking for to further target the state revolving funds.

"Once there's something like a WIFIA, which will only help certain large projects, I think we can anticipate a very quick demise of the SRFs," said Alexandra Dunn, executive director of the Association of Clean Water Administrators. "It's a way to appear to create a win-win -- reduce EPA's program and create this new program to address infrastructure needs -- but it's an illusion."

Transportation program serves as model

The WIFIA program proposed in the Senate's Water Resources Development Act, passed by the upper chamber in May, is modeled on a similar program for transportation, called TIFIA, passed in the surface transportation bill last year. It would create a pilot program to provide loans or other credit support for water projects with funds from the U.S. Treasury set at the Treasury's long-term rates.

A utility that took out a $100 million loan through WIFIA under May 2011 rates would save more than $1 million a year over what it would have cost to go through the municipal bond market at the time, an AWWA white paper argues.

Those loans would come at little cost to the federal budget, proponents point out, since there is a low historical default rate for water infrastructure and Congress need only appropriate enough budget authority to cover the risk of default. Under TIFIA, the government set aside $1 in subsidy appropriations for every $10 in credit assistance offered, and stakeholders say it could be even lower for water infrastructure.

The pilot program proposed by the Senate is targeted at large infrastructure projects that cities say are given short shrift by the state revolving funds. Under the Senate bill, only projects that cost $20 million or more would qualify for WIFIA funding unless they serve communities of less than 25,000 people.

Environmental groups and rural interests argue that this cuts at the heart of how the nation's clean water spending priorities are currently set.

"If you look at the criteria for allocating funding through WIFIA, the wrong priorities are set," said Mary Grant, a researcher with Food and Water Watch, a consumer rights group. "It's not focused on public health benefits, but opaque terms like 'innovative projects' -- which is a buzzword on the Hill, but what does it really mean?"

WIFIA supporters, however, emphasize that the program is meant to be an additional tool, not a replacement to the state revolving funds (SRFs).

"We support the SRFs as strongly as anybody -- always have and always will -- and we will fight in future Congresses to keep the appropriations up for state revolving funds because they do things WIFIA can't do, shouldn't do," Curtis said.

Indeed, Curtis contends that the argument that WIFIA would be competition to the SRFs is not only "misplaced" but "frankly, a little bit self-serving," because state authorities get a slice of the SRF money for implementing their own programs.

Some version likely to emerge

At this point, stakeholders on both sides of the debate are expecting that some version of the Senate's WIFIA is likely to end up in a final bill.

Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) called out her bill's WIFIA provision as one of the items she hopes will be included in a final bill during the kickoff meeting of House and Senate WRDA conferees before Thanksgiving.

And while the House's Water Resources Reform and Development Act (H.R. 3080), cleared by the lower chamber in October, includes no such provision, no staunch opponents to WIFIA have emerged among conferees, either.

House Transportation and Infrastructure Water and Environment Subcommittee Chairman Bob Gibbs (R-Ohio) floated his own version of a WIFIA bill last Congress and was rumored to be mulling filing a new version of the bill this year.

Water and Environment Subcommittee ranking member Tim Bishop (D-N.Y.), meanwhile, has filed the "Water Quality Protection and Job Creation Act of 2013" (H.R. 1877), which would capitalize the SRFs at $13.8 billion over five years, while also creating a Clean Water Trust Fund and a version of a WIFIA program.

The primary question for WIFIA supporters, now, is whether negotiators will make one key change.

The Senate WIFIA proposal includes a 49 percent cap on WIFIA funding for any given project, the same as was the case for TIFIA, the transportation program it is modeled on. But legislative drafters feared that the Congressional Budget Office would see WIFIA as funding projects that wouldn't otherwise have been built and tap the tax-exempt municipal bond market for more money than would otherwise have been the case. So, to avoid receiving a higher CBO score, the provision bars facilities from paying for the other 51 percent of projects with tax-exempt bonds -- utilities' favored mode.

"That's a terrible provision," Curtis said, noting that he hopes lawmakers will simply remove the 49 percent cap on WIFIA funding. But, he said, even if it stays in, WIFIA could still be of use to utilities, for instance, if they received private equity funding to help cover the other 51 percent.

Ultimately, it would be a number-crunching calculation, said George Hawkins, general manager of DC Water, the Washington, D.C., utility, which has been going to the market for roughly $300 million in financing in recent years.

"It would just be a straight calculation," he said, but with the tax-exempt bond prohibition, "it would be far less likely to be desirable, that's for sure."

Hawkins and others who are concerned with the daily, on-the-ground operations of water infrastructure describe themselves as guarded supporters of WIFIA, if for no other reason than that it has brought attention to the nation's massive infrastructure needs.

The pilot program envisioned by the Senate provision is exactly that, they say: a small, tailored program, unlikely to provide real competition to the SRFs. But, they say, lawmakers and policymakers can't lose sight of the big picture.

"We're supportive of the notion of new tools in the toolbox," said Adam Krantz, managing director of government and public relations for the National Association of Clean Water Agencies. "Tools are great, but you still have to have the toolbox."

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