Federal bills propose innovative financing tools for water infrastructure

By Shannon Madden

As the April 18 storm very potently illustrated, water infrastructure across much of northeastern Illinois needs critical attention. And as regions across the nation face challenges associated with decades-old water and sewer systems and limited federal funding for infrastructure repairs, some legislators are proposing creative ways to close the funding gap. The Metropolitan Planning Council (MPC) is paying close attention to two proposals in particular: the Water Resources Development Act and the Water Infrastructure Now Public-Private Partnership Act.

The Water Resources Development Act of 2013

The American Water Works Association (AWWA), the world’s oldest and largest nonprofit water organization, has long called for the creation of a federal Water Infrastructure Finance and Innovation Act (WIFIA), modeled on the successful Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program that Congress established in 1998. (Read more about TIFIA – including how the Chicago Transit Authority will leverage TIFIA funds to renovate the 95th Street Red Line station – in MPC’s Talking Transit newsletter.)

In spring 2013, two U.S. Senators introduced legislation to establish a TIFIA-like loan program for the water sector. U. S. Senators Barbara Boxer (D-Calif.) and David Vitter (R-La.) co-sponsored the Water Resources Development Act of 2013, which was unanimously approved by the Environment and Public Works Committee on March 20.

The Water Resources Development Act would promote investment in water infrastructure and speed up project delivery. For example, by encouraging the Army Corps of Engineers to complete feasibility studies within three years (some have taken longer than 10 years). Eligible projects include flood control, storm damage reduction, and repairing or replacing community water systems, as well as other initiatives that receive funding under the Federal Water Pollution Control Act and the Safe Drinking Water Act. Some groups feel that speeding up the process will result in pressure on agencies to lower their environmental standards, while others argue for more efficiency.

The Act’s most visionary component is the five-year pilot WIFIA provision. If passed, this would authorize the U.S. Treasury to lend $50 million annually over five years directly to large water projects or to state revolving funds, which allow states to provide low-interest loans to water utilities to make infrastructure improvements to comply with federal standards. Typically funded by federal money set aside through appropriations, these state revolving funds also rely on state matching dollars (federal funding granted with a caveat for matching state money) and investments and loan repayments. Governor Quinn recently bolstered Illinois’ State Revolving Fund with the Clean Water Initiative, which provides additional loan funding for water infrastructure investments. The WIFIA program would contribute more federal funding to such state revolving funds, and borrowers would repay loans at long-term U.S. Treasury rates (illustrated in the graphic below, courtesy of AWWA) with considerable savings over current municipal bond rates. WIFIA is a low-risk, low-cost option for the federal government because all WIFIA loans would be repaid to the Treasury with interest, and because of the historically low default rate of both water projects and state revolving fund loans. AWWA’s white paper further explains how WIFIA works and how utilities (and their customers) could save 15 percent on their debt service with a WIFIA loan over a typical municipal bond.

Graphic: How WIFIA Works

Like the current TIFIA program, WIFIA funds would flow from the federal government to water projects and state revolving loan funds, and would be repaid to the U.S. Treasury at Treasury interest rates. This is a low-cost, low-risk way to leverage federal funds for critical water infrastructure investments throughout the country. Graphic courtesy of the American Water Works Association

The U.S. Senate is expected to vote on the Water Resources Development Act in May 2013. Stay tuned to the Environment and Public Works Committee for updates, oryou can use the Library of Congress website to track the bill’s progress through Congress.

Water Infrastructure Now Public-Private Partnership Act

To address the dual problems of limited federal funding and a $60 billion backlog of Army Corps of Engineers projects, four Illinois legislators are proposing a solution: public-private partnerships. Ill. legislators from both houses and both sides of the aisle – U. S. Senators Dick Durbin (D-Ill.) and Mark Kirk (R-Ill.) and U. S. Representatives Cheri Bustos (D-Ill.) and Rodney Davis (R-Ill.) – introduced the Water Infrastructure Now Public-Private Partnership Act (WIN P3) to allow private investments in infrastructure repairs.

The proposal would create a pilot program allowing the Corps to partner with private investors on up to 15 water infrastructure projects. Eligible projects would be selected from the Corps’ previously authorized list, and focus on improving navigation on the Mississippi and Illinois Rivers and protecting residents from flood and storm damage. Projects may include levees, flood control channels and water control structures and locks. Although the WIN P3 bill more narrowly identifies eligible projects than the Water Resources Development Act, both would similarly move water projects forward by leveraging federal dollars with other sources. The WIN P3 bill includes safeguards to facilitate transparency and protect the public, including the requirement that a third party determine whether a proposed partnership will benefit the public and language clarifying that the Act does not authorize the privatization of federal assets.

The Environment and Public Works Committee is currently considering theAct. Tune in to the Library of Congress website to track WIN P3’s progress in the Senate.

As federal appropriations continue to decline, innovative financing tools like WIFIA and public-private partnerships should be encouraged, as long as they include proper safeguards to protect the public interest. Leveraging local funds with federal and private dollars will help our communities invest in critical water infrastructure, and MPC is glad to see our legislators proposing measures to make these investments a reality.

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