DALLAS – Managers of critical water supply and treatment projects are lining up for more than $2 billion of infrastructure financing that's available from the first round of a low-interest federal loan program operated by the Environmental Protection Agency.
The agency received 43 applications for loan guarantees through the Water Infrastructure Finance and Innovation Act that was enacted in 2014, EPA administrator Scott Pruitt said Wednesday.
The inaugural WIFIA round will provide about $1 billion in credit assistance and finance over $2 billion in water infrastructure investment from $17 million of budget authority, Pruitt said.
“This investment will empower states, municipalities, companies, and public-private partnerships to solve real environmental problems in our communities, like the need for clean and safe water,” he said.
The omnibus budget accord for fiscal 2017 would provide an additional $10 million for WIFIA credit assistance. President Trump’s proposed budget outline for fiscal 2018 includes $20 million for the WIFIA program.
Every dollar of WIFIA support is expected to leverage $50 to $60 of new investments, EPA said.
The original WIFIA was part of the Water Resources and Reform Development Act of 2014. It included a ban on the use of the loans in conjunction with project funding from tax-exempt bonds. The bond prohibition was removed by passage of the Fixing America's Surface Transportation (FAST) Act in late 2015.
Tax-exempt bonds are an essential component of project funding for water utilities facing up to $2 trillion of infrastructure needs in the coming years, said Tracy Mehan, executive director of government affairs for the American Waterworks Association.
“Tax-exempt municipal bonds are a very important tool for municipalities of all sizes,” he said.
Increased funding will be needed to confront the U.S. water infrastructure challenge, Mehan said.
“Water utilities needed a smart new finance tool to help communities pay for large, critical water projects,” said Mehan. “Funding WIFIA is a tremendous step forward as we confront the nation’s water infrastructure challenge.”
The group and 28 other water organizations sent a letter to Congress in January asking lawmakers to protect the tax exemption of municipal debt, said Tommy Holmes, director of federal legislation for AWWA.
“There has been specific talk about getting rid of the tax-exempt status for municipal bonds, which has a lot of utility folks concerned,” Holmes said. “It’s an important finance tool for the water utility industry.”
WIFIA has the potential to spur more partnerships between the public and private sector in water projects, because applicants can use the financing to attract long-term capital from other public or private sources, Fitch Ratings said in a report Thursday.
“WIFIA loans will be available on more advantageous terms than the financial market,” Fitch said. “The ability to sculpt amortization, capitalize interest during construction and defer principal repayment, along with WIFIA’s subordination in the repayment waterfall, provides considerable flexibility for a borrower’s capital structure.”
The five-year, $350 million WIFIA pilot program, modeled on the Transportation Infrastructure Finance and Innovation program, allows utilities to borrow up to 49% of the costs of large drinking water, wastewater, desalinization, storm water and water reuse projects.
Eligible projects must cost at least $20 million, although an applicant can bundle smaller projects to reach the threshold.
However, 15% of the annual program funding is set aside for projects costing $5 million or more that serve communities of less than 25,000.
About a third of the prospective borrowers in the first round said they plan to co-finance their projects with other funding tools include state revolving funds, EPA said.
Capital spending on drinking and wastewater projects by local and state governments fell by 22% from 2009 to 2004 while federal funding stagnated, the American Society of Civil Engineers said in its infrastructure report card earlier this year.
Drinking water infrastructure received a D from the ASCE graders, with wastewater getting a D-plus from the engineers.