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Infrastructure

Water Infrastructure May Get Federal Loan Program

WASHINGTON — A draft bill authorizing federal water infrastructure projects contains a provision that would create a federal loan program allowing state and local entities to leverage more money for bond-funded and other water projects.

The proposal, examined Thursday at a hearing of the Senate Environment and Public Works Committee, is part of committee Chairman Sen. Barbara Boxer’s, D-Calif., draft of the Water Resources Development Act of 2012.

The bill has a wide reach, as it must reauthorize federal programs ranging from port dredging and canal maintenance performed by the Army Corps of Engineers to environmental protection programs and anti-flood measures made more prominent in the weeks following the impact of Hurricane Sandy along the east coast.

Boxer expressed great enthusiasm for the loan program provision, called the Water Infrastructure Finance and Innovation Act. Modeled after the popular Transportation Infrastructure Finance and Innovation Act, or TIFIA, WIFIA would begin as a five-year, $250 million pilot program aimed at facilitating private investment and speeding the creation of critical water and wastewater infrastructure.

“Funding for water infrastructure projects has been insufficient to meet current needs,” Boxer told her colleagues. She emphasized that WIFIA would allow borrowers to turn a limited budget into a much larger investment.

While U.S. Transportation Secretary Ray LaHood has frequently said the TIFIA program turns every federal dollar into ten, Boxer went even further in promoting WIFIA. “It really has about a 30-to-1 leverage,” she said.

The program would be open to municipal and state governments, corporations, public-private partnerships, and state infrastructure financing authorities. The project requesting assistance would have to be deemed creditworthy, and the application would need to include a preliminary rating opinion letter from at least one rating agency indicating that the debt could potentially achieve an investment grade rating. As defined in the draft, this would mean the equivalent of a BBB-minus rating from Standard and Poor’s or a Baa3 from Moody’s Investors Service.

Projects would receive an evaluation for possible WIFIA assistance based on factors nearly identical to the TIFIA guidelines, including the project’s regional or national significance and the extent to which federal assistance would speed delivery.

Tommy Holmes, director of legislative affairs at the American Water Works Association, said having Boxer’s support means that WIFIA is closer to becoming a reality now than it ever has been during the roughly two years the idea has been around.

Holmes said the fact that Sen. Jeff Merkley, D-Ore., introduced stand-alone WIFIA legislation earlier in the week has water infrastructure interests excited. “This is a very positive development,” he said.

Holmes said water utilities default so rarely that their high creditworthiness should allow the WIFIA program to achieve results beyond the TIFIA program, though TIFIA’s 10-to-l financing leverage would be a minimum, he said.

In the past, Holmes has expressed skepticism that P3s could reliably deliver both low interest rates and a rate of return acceptable to investors, but noted that this is only a draft and more work could be done to define the parameters of the program.

Boxer agreed. “This is a first draft. I want to underscore that,” she said.

It is unlikely that Congress will be able to tackle the water bill during the lame duck session, because pressing issues like the fiscal cliff will likely take up too much time, lawmakers said. Boxer vowed to press ahead with bipartisan support, as she did on the highway bill earlier this year.

“Yesterday, I received a letter from the minority members of this committee which underscored their commitment to work together on this effort,” she said.  “I look forward to receiving additional input on the draft bill and working collaboratively to build support for this critical legislation.”

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So let me get this straight:
1) The Feds are basically going to abdicate the credit review process to the rating agencies; and,
2) The Feds want to run a 30+ to 1 leveraged loan program on something that has a historically low default rate (vis-a-vis the GSEs and home prices that always go up)
It certainly did not take long for Congress to unlearn the lessons of 2008.
Posted by tkirby | Thursday, November 15 2012 at 3:37PM ET
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