President Obama recently signed into law the Water Resources and Reform Development Act of 2014 (WRRDA). The statute begins to address ways to fund the billions of dollars necessary to update the country’s drinking water systems, dam infrastructure, levees, solid waste, wastewater, inland waterways, and ports. The legislation could lead to more widespread financing of water infrastructure projects through P3s.
The WRRDA contains provisions creating the Water Infrastructure Finance and Innovation Act (WIFIA), which will provide credit assistance for drinking water, wastewater, and water resources infrastructure projects. WIFIA allows projects to apply for low-cost loans for up to 49 percent of a project’s cost. Although the WIFIA program is relatively small, Congress is viewing the initial allocation of funds as a pilot program.
WIFIA is structured in a manner similar to the Transportation Infrastructure Finance and Innovation Act (TIFIA), but due to the low default rates on water projects, leverage rates will be significantly higher than those in the TIFIA program. Congressional Budget Office projections estimate that each dollar authorized and appropriated for WIFIA projects will support up to 33 times that amount in loans. This expected leverage is approximately three times greater than leverage under TIFIA.
WRRDA’s focus on the broader industry should lead to a larger pipeline of projects, some of which will be delivered through traditional appropriations while others will be delivered as P3s. The statute streamlines and speeds up feasibility studies and environmental approvals to help backlogged projects move closer to realization. Once the pipeline is closer to procurement, the incentives for a P3 structure will likely become more relevant for particular projects.
The legislation also creates a Water Infrastructure Public Private Partnership Program (P3 Partnership Program), which authorizes the Army Corps of Engineers to enter into agreements with state and local governments and private entities to finance construction of at least 15 water resources development projects. These projects include coastal harbor improvement, channel improvement, inland navigation, flood damage reduction, aquatic ecosystem restoration, and hurricane and storm damage reduction. Projects qualifying for the P3 Partnership Program will benefit from potential waiver from or modification of applicable federal regulations as well as technical assistance from the Army Corps of Engineers.
One limitation of the WIFIA program is its ban on using tax-exempt financing to cover all or some of the remaining 51 percent of funding required from sources other than WIFIA. However, the flexibility and overall business case for P3s can in many instances overcome the case for tax-free financing. Once a municipality becomes comfortable with the optimum utilization of blended financing sources of private capital with taxable debt, government leaders should be able to see beyond the basic tax-free versus taxable debt comparison.
Though subject to final appropriation, WRRDA authorizes funding for 34 water infrastructure projects across the country. The 10-year, $12.3 billion spending plan authorizes projects ranging from port improvements in Los Angeles, New Orleans, and Boston to ecosystem enhancement in the Chesapeake Bay, Florida Everglades, and Columbia River, while also deauthorizing some $18 billion in old, inactive projects. It is also expected to kick-start a flow of deals to service an infrastructure sector in dire need of upgrades, capital improvements, and new facilities. Implementation may begin as early as the fall.
Perhaps the most important news of all, however, is that whether the projects are delivered through the P3 model or a more traditional model, WRRDA will lead to more total projects, which can only benefit the water sector and those who rely on it to both live and make a living.