At the end of February, the Environmental Protection Agency approved its seventh Water Infrastructure Finance and Innovation Act loan to help improved water infrastructure in the United States. Baltimore received $202 million for the city to use to update the Back River Wastewater Treatment Plant.
Infrastructure investors have anticipated more opportunity for private investment in the water sector in the United States, and hopes have been cautiously optimistic that the WIFIA program would be one way this would be accomplished. But the Back River project is strictly publicly financed.
The WIFIA program is similar to the Transportation Infrastructure Finance and Innovation Act facility, which has closed $32 billion in financings for 74 projects since 1998, with substantial co-investment by private investors. But the private capital attached to WIFIA projects has yet to match the rate of TIFIA. The WIFIA program was signed into law in 2014 and it did not begin making loans until 2017, and it is to be expected the process would need time to mature.
In 2017, WIFIA invited $2.3 billion in loans for 12 projects during its fiscal year. Added to the projects that were accepted, was $1 billion in private capital that further leveraged the value of the WIFIA loans. During fiscal year 2018, WIFIA received 62 letters of intent, including five from P3s, asking for more than $9 billion in loans. To date, WIFIA has issued seven loans totaling nearly $2 billion in credit assistance.
But according to a report by Bloomberg, while there is hope and anticipation that WIFIA will issue an increasing volume of loans during its second round of financing, “the program’s meager initial selection rate has caused both project sponsor teams and state environmental agencies to lobby for changes — some with important implications for public-private partnerships.”
In October, President Donald Trump signed into law America’s Water Infrastructure Act of 2018, which makes WIFIA a permanent program and provides incentives for states to use the facility. That is progress, but more could be done to invite private capital.
Bloomberg continues, “It will be necessary for the EPA and state and local government agencies to engage with public authorities and the private sector to develop useful policies to guide emerging public-private partnership relationships, which will be critical to projects where WIFIA and public funding isn’t viable, not available or insufficient.”
The need for drinking water infrastructure investment alone stands at $1 trillion for the next 25 years, according to the American Water Works Association. Bloomberg reports the total need for all water infrastructure is $3 trillion. Private capital could help close the gap.
“Creating opportunities with the current statutory and regulatory limitations of public-private partnership and other alternative delivery model funding is challenging,” Bloomberg continues. “The WIFIA program administration should continue to encourage private investment while understanding that there are a limited number of states that currently allow broad public-private partnership use.”
A report by EHS Daily Advisor, meanwhile, reports changes to regulations also could free WIFIA to loan to more projects. President Trump’s Legislative Outline for Rebuilding Infrastructure in America focuses primarily on reforming environmental laws, rules and policies, EHS Daily Advisor notes, and if applied to WIFIA, this could result in an increase of the EPA budget to allow the agency to subsidize costs under WIFIA; expand the lending limit beyond the current $3.2 billion; include flood mitigation, navigation and water supply, letting the EPA service the full water cycle and providing one streamlined and integrated lending process to project sponsors; remove the restriction that requires borrowers to be community water systems instead of simply water systems, allowing drinking water providers and other public authorities to participate in WIFIA and the Drinking Water State Revolving Fund programs.
WIFIA in the United States has taken its first steps toward helping repair and improve the country’s water infrastructure, but if certain changes to the program were made, more private capital could be used to help close the investment gap, and investors would welcome many of those opportunities.
