Water Infrastructure Financing: A Hard Sell in 113th Congress

The 2012 elections meant many things to many people. We saw a progressive president win a second term, taking away what he and his supporters considered a ?mandate? to continue pushing his legislative and regulatory policies in his second term. We saw Democrats pick up seats in both the House and Senate, and although the political dynamic has not changed, the political discourse is heading from bad to worse. Emboldened Democrats, riding the coattails of the president, aren?t likely going to be in a mood for compromise. A new batch of conservative ?tea party? Republicans came into town in January looking for a fight, and it?s becoming clear they?ll get one. The really bad news is that issues that should enjoy bipartisan support, such as water and wastewater infrastructure investment, are threatened to end up a casualty of this hostile political environment.

The good news is that supporters of America?s underground environmental infrastructure are learning to think outside the box. Innovative financing alternatives are being considered and gaining support on and off Capitol Hill. Advancing water infrastructure legislation in the 113th Congress will be no easy sell, but real opportunities exist, and several advocacy groups are jumping in the debate.

Private Investment Sorely Needed

Only 10 years ago the Environmental Protection Agency?s (EPA) State Revolving Fund (SRF) programs were essentially the only game in town when it came to programmatic federal financing of water and sewer projects across the country. The SRF is a very effective program ? it?s just been grossly underfunded for too long. Annual investment of between $2 billion and $3 billion dollars does very little to address the hundreds of billions of dollars in financing needs facing these critical systems. The lack of federal funding has led water advocates to look to the private sector to get in the game.

The Sustainable Water Infrastructure Coalition (SWIC) has led the charge to lift the state volume cap on private activity bonds (PABs) that fund water and wastewater infrastructure projects. PABs provide low-cost financing for public-private partnerships. These agreements allow for significant cost, risk and long-term debt to shift from a public entity to a private partner, while preserving public ownership. Unfortunately current law limits the amount of federal investment through a volume ?cap.? It is estimated that elimination of the cap on PABs for water infrastructure improvements could generate up to $5 billion annually at a cost of marginal loss in federal tax revenue.

Private Activity Bond legislation gained wide support in the 112th Congress, and SWIC is confident to close the deal over the next several months. At a time when there is an increasing call for allowing ?the private sector to create private sector jobs,? the PAB initiative delivers in a big way.

Supplemental Financing through ?WIFIA?

Following the successful ?TIFIA? model for surface transportation projects, Congress is expected to take a serious look at the Water Infrastructure Finance and Innovation Act (WIFIA) this year. WIFIA would establish an authority to provide additional financing tools via federal credit assistance to supplement traditional sources such as the SRF. This credit assistance would likely increase access to capital markets, offer more flexible repayment conditions and possibly obtain lower interest rates than traditionally found in private markets.

In all likelihood, EPA would be charged with administering the WIFIA program, and Congress could require the agency to include a subsidy ?charge? to cover any anticipated credit losses before awarding WIFIA resources. Limits on annual WIFIA subsidies are also expected to be included in the legislation. While gaining support over the past few years, the WIFIA debate must address some sticky issues:

Project Eligibility: Many lawmakers believe WIFIA resources should be reserved for larger, more significant water and wastewater infrastructure projects that often aren?t able to obtain SRF resources because of the high costs associated with them. How large a project must be to obtain WIFIA dollars has, and will continue to be a controversial issue.

Role of the SRF: How much responsibility the SRF programs would have in doling out WIFIA resources is another area of debate. Some believe the SRF programs should be front and center in managing the WIFIA program because of their longstanding role in financing these projects and their knowledge of priority projects in their respective states. Others believe that EPA should loan WIFIA dollars directly, saving the SRFs from leveraging costs and allowing them to provide a larger number of loans.

As always, the amount of federal subsidy, and how it will be paid for, will be the toughest nut to crack. Legislation that provides the biggest bang for the lowest congressional buck will certainly have a leg up in the debate.?

No Shortage of Agendas

Regardless of the contentious environment on Capitol Hill, efforts to establish a dedicated source of revenue through creation of a water infrastructure trust fund will continue, despite the steep challenges facing the initiative. Support for establishment of a national infrastructure bank has gained support in both chambers of Congress, although the recent departures of Sen. John Kerry (D-Mass.) and Sen. Kay Bailey Hutchinson (R-Tex.) leave the infrastructure bank concept needing new champions in the Senate.

This much is for sure: while traditional funding for America?s water infrastructure is endangered at best, financing needs facing this critical infrastructure continue to skyrocket. On top of that, the construction industry continues to face high levels of unemployment. New and innovative ideas need to be introduced, debated, considered in the legislative process, and enacted into law. Let?s just hope lawmakers can put aside partisanship long enough to do something positive.

Eben M. Wyman worked for the National Utility Contractors Association (NUCA) from 2000 ? 2012 and also served as manager of the Clean Water Council (CWC). In May 2012, he founded Wyman Associates, a government relations firm located outside Washington, D.C.?He also serves as co-executive director of the Sustainable Water Infrastructure Coalition (SWIC), a group of more than 40 corporations, national and state associations, and public entities working collectively to increase private sector investment in water infrastructure markets across America.

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