Is WIFIA’s Interest Rate Reset Feature at Risk?

By John Ryan

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In response to the Trump administration’s slowdown of loan processing at the Water Infrastructure Finance and Innovation Act (WIFIA) program, four water advocacy groups sent a letter to EPA Administrator Zeldin in October last year asking for normal processing to resume. In December, a group of Democrat senators sent a similar letter requesting the same thing. The pressure worked – five loans totaling more than $500 million were rapidly approved and closed at the end of 2025.

Such lobbying and political efforts can be quite effective, as they were in this case, when executive branch slow walking cannot be credibly justified. Invited WIFIA loan applications are invariably of very high quality. All five recently closed loans had high investment grade credit ratings and financed low-risk, essential water infrastructure. WIFIA’s statutory framework has not been amended under Trump 2.0, nor has program funding run out. There have been no apparent issues whatsoever in program operation or portfolio credit performance. The WIFIA loan applicants had every right to expect that the new administration would execute their loans as expeditiously as had been consistently done since 2018. There was simply no excuse for further delay.

EPA announces $7 billion in WIFIA funds, five new loan approvals

However, what if a required approval was outside of WIFIA’s statutory framework and, although frequently granted in the past, might now be characterized by the Trump administration as potentially having negative effects? Slow walking – or simply denying – such an approval by the administration might be much harder to counter. Unfortunately, I think there is a risk of this scenario for future approvals of WIFIA’s popular interest rate management feature, resetting an undrawn loan commitment to a lower interest rate.

WIFIA’s Interest Rate Reset

A rate reset is the re-execution of an undrawn WIFIA loan commitment, originally executed at a higher U.S. Treasury interest rate, to the lower rate applicable on the re-execution date. Only the commitment’s interest rate is changed. In effect, it’s a ‘free option’ for the borrower to keep an existing WIFIA loan commitment but reset its interest rate if treasury yields have fallen.

According to the program’s website, WIFIA has done 12 resets to date. Limits apply – a borrower can do only one reset and only if less than 50% of the eligible project costs have been spent. Nevertheless, the feature is immensely valuable, especially for larger borrowers with WIFIA loan commitments for long-term, multi-project construction programs. With the expectation of a future reset, these borrowers can execute a WIFIA loan commitment regardless of then-prevailing rates and finance construction draws with other sources of short-term debt. If rates rise, the original rate acts as a cap. If rates fall, the borrowers can reset the undrawn commitment at a lower rate, ideally at a low point in Treasury yields, as happened for resets done in 2020-2021.

Regardless of value or popularity, however, the reset is a bureaucratic practice subject to administrative approval. WIFIA is not statutorily required to offer it. The expectation that the reset will continue to be available for years into the future is based only on precedent. Presumably, Trump 2.0’s Office of Management and Budget (OMB) could simply discontinue it anytime. But unless OMB could justify such an action, lobbying and political efforts would likely reverse it, as happened with the recent slowdown. Why would the administration burn political capital for a pointless exercise?

Explaining the Decline in WIFIA Loan Volume — Part 1

WIFIA’s Emerging Levels of Mandatory Spending

I can’t see any justification for discontinuing the reset, except one – and unfortunately, it is one which now might have some validity. The problem comes from the cost to federal taxpayers of funding a WIFIA loan commitment when finally drawn. If the commitment rate (say 2%) is lower than the Treasury cost of funding on the drawdown date (say 5%), taxpayers will need to cover the difference (3%) through automatic mandatory appropriations.

WIFIA’s reset option is not the direct cause of the mismatch – WIFIA’s statutory rate lock, long infrastructure construction periods and interest rate volatility are the primary factors. But a downward reset will obviously contribute to the probability that a loan commitment will be funded at a loss to taxpayers, especially if sophisticated borrowers aim to exercise the option at a low point in a rate cycle.

None of this is new. Federal loan program procedures for covering what are called ‘interest rate re-estimates’ with ‘permanent indefinite authority’ for mandatory spending are spelled out in precise detail in Federal Credit Reform Act (FCRA) law, effective since 1991. There is no doubt that the WIFIA program is following FCRA law to the letter, and interest rate re-estimates are a very common occurrence in all federal loan programs. On what grounds would OMB make the reset’s role in FCRA re-estimates an issue now? What has changed?

The answer, and the source of risk for the reset feature, is simply that the scale of WIFIA’s mandatory spending for interest rate re-estimates is now emerging. In the White House FY 2026 Budget Technical Appendix for EPA, WIFIA’s mandatory spending for fiscal years 2024 and 2025 totals about $1.6 billion. When amounts from prior Budget Technical Appendices are included, WIFIA’s total mandatory spending is over $2 billion. That’s about 9% of the program’s $22 billion portfolio, an amount far above WIFIA’s discretionary funding. It is unlikely that this has gone unnoticed by the Trump administration’s OMB – they did the numbers, after all.

As noted above, the reset is only a contributing factor to the program’s high level of mandatory spending. But critically, it is the only factor over which OMB has control. If hard questions about managing WIFIA’s mandatory spending are asked internally at OMB or elsewhere in the administration, any responsive action is likely to include “decline approvals for future resets.”

Explaining the Decline in WIFIA Loan Volume — Part 2

The Path Forward

If this happens, I’m not sure that the type of lobbying and political efforts that successfully countered the unjustified slowdown in 2025 will be effective in restoring WIFIA’s reset feature. WIFIA’s mandatory spending numbers are in fact very big relative to what the program was intended to cost in terms of discretionary appropriations. The logic that the reset contributes to mandatory spending is indisputable, regardless of actual amount. Perhaps most worrying is that simplistic narratives about this issue could get ugly – “the Trump administration is protecting the taxpayer against federal loan programs giving away free interest rate options to AA-rated water agencies” and that sort of thing. A head-on fight is probably best avoided.

Instead, WIFIA stakeholders should consider a more constructive, and in some ways preemptive, path. An amendment to make the reset a statutory feature, like the rate lock, is the obvious permanent solution. But this should be supported in conjunction with other amendments (e.g., the 55-year loan term) that help make a WIFIA loan a unique component of project capitalization and therefore less likely to be the source of FCRA interest rate re-estimates. That way, the overall narrative can implicitly acknowledge the mandatory spending issue but emphasize solutions and improvements that enable the WIFIA program to deliver more value for water sector stakeholders and taxpayers alike.

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John Ryan is principal of InRecap LLC, focused on debt alternatives for the recapitalization of basic public infrastructure. Ryan has an extensive background in structured and project finance, and recently served as an expert consultant to the U.S. EPA. He is a frequent contributor to WFM on EPA’s WIFIA loan program and related topics.