A New Way to Finance Water Infrastructure

A federal mechanism used to help finance big transportation projects is being viewed as a model.
by | February 28, 2012

Local leaders are rallying behind a proposal that could make it easier for municipalities to upgrade their water and wastewater infrastructure by getting loans and guarantees from the feds.

Several members of the House subcommittee that deals with water issues touted the proposal, dubbed the Water Infrastructure Finance and Innovation Act (WIFIA), which would expand the federal role in financing water infrastructure improvements.

The concept is based on the popular TIFIA program, which the federal government uses to help finance large-scale transportation projects.

Federal and local officials alike acknowledge that the country's aging water infrastructure -- much like its aging transportation infrastructure -- is in dire need of repair and upgrade. The subcommittee, citing other federal agencies' estimates, says the cost of the country's water infrastructure needs over the next two decades could exceed $400 billion -- about twice the current investment by all levels of government. Other reports have pegged the cost at anywhere from $300 billion to $450 billion. Meanwhile, many localities are likely to need more improvements as a result of heightened environmental requirements.

Lawmakers on the subcommittee are touting WIFIA as a way to help local governments meet those growing needs.

As it stands, local governments provide most of the capital required to finance water projects, whether it's through bonds, loans or utility fees paid by customers. The federal government's role has been to provide money to help capitalize state revolving loan funds that serve those projects. State can use that money to provide loans for the projects and help refinance local debt.

Those state revolving loans have helped fund more than $85 billion in low-interest clean water projects, according to the committee, but there is growing concern that those programs alone aren't enough, given the mounting need.

A federal WIFIA program would offer direct loans and loan guarantees to finance the country's most significant water and wastewater projects. As a result, localities would have improved access to capital markets, better interest rates and more flexible repayment terms.

Indianapolis Mayor Greg Ballard, who testified at the hearing, endorsed the WIFIA proposal, arguing that it could help lower overall costs for large capital water projects by as much as 16 percent.

Aurel Arndt, general manager of the Lehigh County Authority (the water and wastewater utility in the Allentown, Pa. area), said that WIFIA would help bridge the gap between the existing financing mechanisms and the needs facing water systems. He also said it's a smart tool for the federal government, since it would have a minimal cost: The loans would be paid in full with interest, and water service providers have historically had a default rate of just 0.04 percent, he said, citing a report from Fitch Ratings.

But others were a bit more skeptical. Jeffrey Sterba, president and CEO of American Water, which manages municipal water systems across the country, noted that WIFIA is not a cure-all since it doesn't provide extra capital for the projects.

Local leaders and federal lawmakers both acknowledge that water infrastructure has long gotten the short shrift when compared to transportation infrastructure. While residents can see roads and bridges, their water infrastructure remains out of sign and out of mind. Rep. Michael Capuano (D-Mass.) helped illustrate that point by placing an 80-year-old water pipe nearly entirely filled with sediment atop the dais. "Not one of us wants our children to drink this... yet it's in ever single American community, and nobody knows it."

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