Water Infrastructure Loan Program Reintroduced in Congress

by Ballard Spahr LLP
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On February 25, Senator Jeff Merkley (D-Oregon) reintroduced legislation authorizing federal water infrastructure projects and creating a federal loan program modeled after the Transportation Infrastructure Finance and Innovation Act (TIFIA). The Water Infrastructure Finance and Innovation Act, or WIFIA, would create more opportunities for state and local entities to use bonds to finance water projects.

WIFIA would begin as a five-year, $250 million appropriation program that would potentially leverage funds at a ratio of 30 to 1 (compared with 10 to 1 for TIFIA). Municipal and state governments, corporations, public-private partnerships, and state infrastructure financing authorities could apply for WIFIA support for a wide range of projects, including port dredging, lock and canal maintenance, environmental protection programs, the construction and rehabilitation of water distribution systems, wastewater collection and treatment systems, and flood prevention measures.

To receive assistance under WIFIA, projects would be evaluated based on factors such as creditworthiness and project readiness, and include a requirement to obtain a rating agency opinion letter indicating the project would achieve investment grade rating (i.e., at least BBB- from S&P and Baa3 from Moody’s).

The federal legislation would authorize the Administrator of FEMA to make a direct loan or a loan guarantee to the applying entity, which would use the funds to carry out the project activities, including acquiring real property and equipment and all related construction and rehabilitation activities. Assisted projects would be required to pay prevailing wages to laborers and mechanics and to use, for the most part, only goods manufactured in the United States.

Some states have looked into passing similar legislation. Arizona currently has proposed legislation (HB 2338) that would establish the Regional Water Augmentation Authorities (RWAA) to facilitate the generation of funds and financing mechanisms for meeting Arizona’s growing demand for water use and water infrastructure. Reports project this demand to be approximately $1.8 billion over the next 50 years, with substantial upfront capital funding needs in rural and active management areas. The proposed bill would also give the RWAA bonding authority and would provide for a $30 million appropriation from the Arizona General Fund into the Water Supply Development Revolving Trust Fund to be used for water infrastructure improvements. Other states, including Oklahoma and Massachusetts, are considering similar types of water infrastructure financing programs. Texas is considering pulling $2 billion from its “rainy day fund” to finance water infrastructure projects. This legislation would involve creating a low-interest revolving loan program run by the state.

Although Hurricane Sandy underscored the need for water infrastructure improvements and protection, the WIFIA legislation stalled at the end of last session. The bill, however, seems to have more energy behind it this session. The American Water Works Association has stated its support for the bill and plans to bring more than 100 water utility managers to Washington, D.C., in April to meet with senators and representatives and advocate for WIFIA.

Attorneys in Ballard Spahr’s P3/Infrastructure Group and Public Finance Department will continue to monitor and report on new developments in water infrastructure financing. If you have questions on infrastructure financing, please contact P3/Infrastructure Practice Leader Brian Walsh at 215.864.8510 or walsh@ballardspahr.com, Steve T. Park at 215.864.8533 or parks@ballardspahr.com, or Kimberly D. Magrini at 215.864.8365 or magrinik@ballardspahr.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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