On March 18, 2015 in Washington, D.C., over 130 infuriated water leaders from across the country protested Congress’ prohibition on combining tax-exempt debt with loans under the Water Infrastructure Finance and Innovation Act (“WIFIA”). Congress originally enacted WIFIA in 2014 to provide “low-cost, long-term federal loans for major improvements to the nation’s drinking water and wastewater systems, as well as water resources projects for flood control and navigation.” Through WIFIA’s repayment terms and Treasury interest rates, the federal government has lowered the overall cost of borrowing for large water infrastructure projects, allowing for accelerated water infrastructure improvements due to the increase in funding now available for states. WIFIA is eligible to finance 49 percent of approved projects costing $20 million or more. However, by preventing WIFIA from being combined with tax-exempt debt, many fear WIFIA’s overall purpose is severely threatened.
While WIFIA may still be effective for some communities, the prohibition on combining WIFIA loans with tax-exempt debt significantly undermines the fundamental purpose of the program. The prohibition will require project sponsors to use cash, taxable municipal debt, or private sources in order to pay for the remaining 51 percent of project costs not covered by WIFIA. Repealing the ban would allow the use of lower-cost tax-exempt debt for the non-WIFIA share of project costs, lowering the overall cost of using the WIFIA program. As a result, WIFIA would be a cost-effective option for the much broader range of utilities it was intended to serve.
Many water utility leaders, such as the American Water Works Association CEO David LaFrance, believe the prohibition on the use of tax-exempt bonds is “an unnecessary barrier that impairs WIFIA’s effectiveness,” and urge Congress to repeal the prohibition.
“Let’s free WIFIA to reach its full potential,” said LaFrance. “The water and wastewater infrastructure needs in the United States will likely top two trillion over the next 25 years, and WIFIA is an important tool to help communities manage those costs.”
Many in opposition, like LaFrance, turn to the Transportation Infrastructure Finance and Innovation Act (“TIFIA”) as evidence to support the repeal. The TIFIA program acted as a model example during the creation of WIFIA. It was enacted to help project sponsors finance highway and transit projects that could not move forward as expeditiously and cost-effectively without federal credit assistance, similar to the current situation with water infrastructure. Currently 65 percent of TIFIA-funded projects also rely on tax-exempt debt. The success of the TIFIA program in its ability to leverage additional sources of investment, including tax-exempt bonds, serves as evidence that WIFIA and tax-exempt bonds could coexist.
The solution posed by water leaders across the U.S. is to repeal the prohibition on combining WIFIA assistance with tax-exempt bonds. Doing so allows WIFIA to achieve its true purpose and enable states to create the needed water infrastructure.
Written by Stratecon Staff