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New Federal Legislation Portends Push for P3 Delivery of Water Infrastructure Projects

WIFIA - Water Infrastructure

President Obama recently signed the Water Resources Reform and Development Act into law. The bill, which had previously passed in the House and Senate as House Bill 3080 (2013) by 412-4 and 91-7 votes respectively, is the first comprehensive water resources legislation enacted at the federal level since 2007. The bill is notable for our purposes here at the Journal because it includes a provision enacting the Water Infrastructure Finance and Innovation Act, or WIFIA, which is a five-year, $350 million pilot federal loan program for large water and wastewater infrastructure projects designed to encourage public-private partnerships in this critical sector.

More specifically, WIFIA’s aim is to provide low-interest federal loans and credit enhancements to municipalities, ports, and inland waterways in an effort to reduce the cost of these types of projects. However, the legislation limits the WIFIA contribution to not more than 49 percent of project costs, and the overall federal contribution to 80 percent. WIFIA projects are also prohibited from using proceeds from tax-exempt municipal bonds in order to encourage private financing mechanisms and corresponding P3 delivery.

It is this last restriction that has some industry players already critical of WIFIA, concerned that most municipalities will be unable to use tax-exempt bond financing to cover those project costs that WIFIA cannot. “WIFIA will give low-interest loans primarily to private water corporations, compete with the state [water] revolving [loan] funds for federal resources, and place inappropriate pressure on local governments to privatize their drinking water and wastewater systems,” Wenonah Hauter, executive director of Food & Water Watch, told The Bond Buyer. Still, the Environmental Protection Agency estimates that $384 billion is needed over the next 20 years to maintain the country’s water systems. Yet federal funding over the past 16 years has been only $15 billion.

As you might guess, WIFIA is modeled on the U.S. Department of Transportation’s Transportation Infrastructure Finance and Innovation Act, or TIFIA. Since 1999 TIFIA has provided nearly $16 billion in federal financing for 42 transportation infrastructure projects totaling $64 billion (including funds for the Tappan Zee and Goethals Bridge replacements here in the New York City area). Defining the revenue stream (like tolls) that will help secure private financing for infrastructure projects is generally an easier proposition for transportation than for water infrastructure projects. So the 15 WIFIA pilot projects should be an instructive test case for the P3 delivery mechanism in this crucial sector, which will only become increasingly important in the future thanks to impacts from climate change, shifting demographics, and other issues.

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