Steve Wilson posted on April 23, 2012 07:38
WIFIA stands for Water Infrastructure Finance and Innovation Authority. AWWA, WEF and AMWA are supporting a new bill to establish this Authority as a funding mechanism for large water and wastewater infrastructure projects. When you read the summary they have put together that explains what WIFIA will be able to do, it seems like a cost effective approach for helping systems deal with their infrastructure needs. You can read the summary here.
But, And There Is Always A But...
WIFIA could end up being a problem for the current DW and CW SRF programs. WIFIA is meant to be a more open access sort of loan program whereby large projects can get low interest loans that save the utility and their customers money. It doesn't specify that the loans go to the systems with the greatest needs or those that are out of compliance. Thus, in some cases the funding could go for expansion projects that benefit the utility, rather than the intended use of dealing with the massive infrastructure problems being predicted for this country. On the other hand, SRF funds are directed toward those projects with the greatest need, with the goal being to protect public health and maintain compliance with the SDWA and CWA. This difference is important, especially in some states that have many small, rural systems.
Another difference between WIFIA and SRF are the use of cross-cutter rules. SRF requires utilities receiving money to meet certain federal requirements that limit how the funds can be used and requires the utilities to meet certain standards. The framers of WIFIA would prefer that the program not require many of those rules, which would make it easier for the utilities to receive funding, but reduce the oversight to ensure that the funding is being used for its intended purpose.
Lastly, SRF programs include set-aside monies that provide funding for the states to administer their programs and provide for state-managed activities that include things like technical assistance to small systems. WIFIA doesn't provide for these state resources.
Some Possible Advantages
The WIFIA summary points to lower overall costs for consumers, based on current rates, as compared to the bond market. It also points out that there are 27 states that currently leverage their SRF funds on the bond market and this would allow them to borrow from WIFIA instead with potentially 16% savings long term. I've also heard that because private companies can't get SRF funds in some states, WIFIA would be an option over corporate bonds that would lower overall costs for customers at these systems.
Some Possible Disadvantages
The biggest concern with WIFIA is how it will affect the SRF programs. The SRFs are successful programs with a strong track record that provide funding for water and wastewater system projects. SRF programs are managed at the state level by the agencies that regulate the utilities, work with them to stay in compliance, and know them best. States use the SRF programs to increase compliance and to protect public and environmental health. WIFIA would be a national program, managed at the national level that has the intended purpose of reducing the overall cost for infrastructure projects. Will national rules affect loan approval? Will the states be involved in decisions or the process for the WIFIA program? What about the small struggling system that doesn't have the ability to raise capital for infrastructure projects and is too small for a WIFIA loan?
When you read the SRF example in the summary, you might ask yourself why even have SRFs if WIFIA funding is available. The example basically says that the state financing authority could apply for WIFIA funding instead to fund its program, and indicates the cost savings over leveraging bonds instead. SRF costs the federal government about $2 billion dollars each year. WIFIA is being promoted as potentially having no long term cost to the federal government, so why would Congress want to keep both programs? That's the unintended consequence that many are worried about, and the reality that we could soon be faced with if a WIFIA bill doesn't have provisions to maintain the SRF program.
Loans For Small Systems
AWWA just released an infrastructure report that says funding for small system projects is going to cost much more per capita compared to larger systems that have the customer base to spread out infrastructure upgrade costs. Because WIFIA funds are meant for large projects, small systems would often not be eligible for WIFIA funding themselves. Asking small systems to bundle their projects, or asking the state to bundle the projects for them, also creates some questions. What if a loan is bundled for 5 projects and one of the projects defaults? What does that mean for the other 4 systems and what does that mean for the state if they applied for the loan? Will the state have to cover the defaulted loan?
If WIFIA replaces SRF, will the states be provided funds for staff to help small systems develop applications? Small systems often lack the managerial capacity to develop applications and instead use engineering firms and planning grants to get that task accomplished. Will those options still be available? They must be or some small systems will be left coming up with those funds themselves. What about states with very few, if any, systems that would qualify for WIFIA funding? If SRF goes away, what will they do to find funding for projects? Could they be out of luck until enough projects could be bundled to meet the WIFIA requirements?
What Needs To Happen
WIFIA is a great concept for dealing with the huge anticipated costs we expect to see for infrastructure upgrades in the next 25 years. As currently proposed, it will make it easy for large systems to get cheaper funding, even though those systems currently have more options available to them already. However, it could potentially have the unintended consequence of reducing or eliminating the SRF programs that support compliance and help small systems that might not have other options. Losing SRF funding would also reduce a state's ability to manage their SDWA and CWA programs because the states rely on the SRF set-asides for part of their program implementation. The SRF's are necessary and must be maintained - and, we would hope, at least at current funding levels.
Recently, AWWA sent out an email asking its members to support WIFIA, encouraging utilities to contact their senators and representatives to seek their support in co-sponsoring the WIFIA bill. If you are so inclined to get involved, be sure to stress the importance and differences between the SRF programs and WIFIA, and that any reduction in SRF will lead to unintended consequences that include reduced compliance and public health protection for small systems, and could leave many small systems with no options for dealing with their infrastructure needs. Make it clear that you only support a WIFIA bill that leaves the SRF programs intact and fully supported.