May 2011
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AWWA and WEF Advocate a New Water Infrastructure Financing Framework

Miranda Kleven By Miranda Kleven

AWWA and WEF Advocate a New Water Infrastructure Financing Framework
In early April, members of the American Water Works Association (AWWA) and Water Environment Federation (WEF) attended a Fly-In event in Washington, DC, to meet with Congressional Members for discussions regarding key issues affecting the water and wastewater industries. Among the issues highlighted was the need for alternative frameworks for water infrastructure financing. A proposal for the creation of a Water Infrastructure Financing Innovations Authority (WIFIA) was introduced as a means to enable low-cost reinvestment in water infrastructure, as well as to enhance the effectiveness of the State Revolving Funds (SRFs) and remove water projects from the state volume cap on Private Activity Bonds.

This is not the first time the concepts associated with WIFIA have been brought forth to Congress.  The 110th Congress (2009-2010) attempted to pass legislation to amend the Federal Water Pollution Control Act and the Safe Drinking Water Act to improve water and wastewater infrastructure in a Water Infrastructure Financing Act, S. 1005. This bill was not passed and is no longer active, but promoted support for an infrastructure bank that would have provided low-cost capital to water utilities needing to invest in infrastructure and supported and expanded capitalization for the SRFs.  Also during the 2009-2010 Congress, the Sustainable Water Infrastructure Investment Act of 2009, HR 537, attempted to address the volume cap on Private Activity bonds. This bill also was not passed, but the Private Activity Bond limitations issue has been resurrected in the WIFIA proposal.

The WIFIA Approach
The WIFIA concept that is being advocated by AWWA and WEF is modeled after the existing Transportation Infrastructure Finance and Innovations Authority.  Although the SRFs are very successful at providing financing for many projects, there are cases where projects are not able to access SRF funds due to ineligibility or inadequate funding of the SRFs. The WIFIA would serve as a vehicle to essentially provide funds from the US Treasury to large water projects and to the SRFs, thereby enabling projects and the SRFs to obtain financing at potentially less cost than going to the credit market.  The WIFIA would repay funds to the US Treasury at Treasury rates.  Advocates for the plan have referenced information from credit rating agencies indicating that water service providers are some of the most fiscally responsible borrowers in the country.  In addition, most SRF programs have very strong credit ratings.  As a result, it is expected that loans made through WIFIA directly to projects or to the SRFs will have minimal risk to the government.

Enhancements to SRFs
It is recognized that the SRFs play a very important role in providing communities with access to low-cost financing for system investment and addressing infrastructure needs in conditions of hardship or special circumstances. As a result, AWWA and WEF are advocating the continued support for capitalization of SRFs, as well as enhancements that will increase the effectiveness of the programs.  In particular, the groups are advocating more flexibility for the state administration of SRF funds to reduce the administrative burden for both the fund recipients and the states themselves.  The groups are also proposing that arbitrage restrictions be eliminated as long as any earnings are utilized to support additional investment in water infrastructure.  Finally, AWWA and WEF would like to see a streamlined application process to enable systems to more quickly access SRF funds instead of opting to issue higher-cost municipal bonds, for which the time period between application and issuance is often much shorter than for the SRF.

Reduction of the Volume Cap
There are currently bond volume caps that place a limit on the amount of Private Activity Bonds that may be issued by municipalities.  These volume caps vary by state, and in some instances, this constraint affects the ability of entities to seek financing for water projects.  AWWA and WEF are advocating that Congress exempt Private Activity Bonds for community water systems from the state volume cap, as is the current practice for Private Activity Bonds issued by publicly owned solid waste facilities.

What is the Next Step for WIFIA?
The information conveyed by AWWA and WEF to members of Congress outlined a proposal for the formation of a WIFIA.  AWWA has reported that information they have received from Fly-In participants has indicated strong support for the WIFIA proposal.  AWWA and WEF remain optimistic that a bill will be introduced in Congress in the next few months.  Look for more information in The Source on this topic in the future.  

Sources:
American Water Works Association, Government Affairs Office, April 2011.
http://www.washingtonwatch.com/bills/show/111_SN_1005.html

 

 
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