Legislative Options for Financing
Water Infrastructure
Claudia Copeland
National League of Cities, Congressional City
Conference, March 12-13, 2012
Water Infrastructure Indicator No. 1:
$633 Billion
(EPA-estimated 20-year capital needs for
wastewater and drinking water)
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Water Infrastructure Indicator No. 2:
$224 Billion
(EPA-estimated 20-year water infrastructure
financing gap between capital needs and
available funds from all sources)
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5 Legislative Options under Consideration to
Close the Financing Gap
• Increase funding for the Clean Water and
Drinking Water SRF programs
• Create a Water Infrastructure Trust Fund
• Create a Water Infrastructure Finance and
Innovation Act program (“WIFIA”)
• Create a National Infrastructure Bank
• Lift private activity bond restrictions on
water infrastructure projects
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Conclusion
• There is no silver bullet, no single option
that will address needs fully or close the
financing gap
• A combination of options may be helpful to
expand the financing tool box
• Congress has recently shown increased
interest in water infrastructure financing
issues, but legislative prospects are highly
uncertain
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1. Increase Funding for the Clean
Water and Drinking Water SRF
Programs
• State Revolving Funds (SRF) are the largest source
of federal financial assistance for water
infrastructure
• SRFs are low-interest (or zero-interest, or belowzero) loan programs administered by states; loans
are repaid to states
• SRFs are capitalized by federal appropriations, states
provide at least 20% matching funds
• Both programs are well established and successful
in addressing water quality problems
• SRFs are flexible, and selection criteria and procedures
are familiar to stakeholders
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Increase SRF Funding, cont.
• Issues and criticisms:
• SRF is a loan program, but some communities want
grants
• SRFs favor small and medium communities
• Clean Water SRF bars private utilities from receiving
assistance
• Federal capitalization grants are subject to
congressional appropriations, which generally have
been flat or declining for more than a decade
• President’s budget requests 15% less for next year
• Securing future SRF appropriations will be more difficult
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Increase SRF Funding, cont.
• Current legislation:
• H.R. 3145 (Rep. Bishop) would reauthorize
the clean water SRF for 5 years, total $13.8
billion
• Same as H.R. 1262, passed by House in 111th
Congress
• No current House or Senate proposal to reauthorize
the drinking water SRF
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2. Create a Water Infrastructure Trust
Fund
• Objective is to provide dedicated revenues
for long-term financing of water
infrastructure projects
• Trust fund would be modeled after existing
mechanisms for infrastructure (e.g., airport
and airways trust fund, highway trust fund)
• Intention is to offset budgetary expenditures
for water projects by drawing from
collections that are dedicated by law for
specified purposes
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Water Infrastructure Trust Fund, cont.
• Design issues to be addressed (2009 GAO
report):
• What entity should administer a trust fund
• Should trust fund be used to fund the SRFs
or a separate program
• What types of financial assistance (loans or
grants)
• What activities are eligible for assistance
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Water Infrastructure Trust Fund, cont.
• Most difficult issue, conceptually and
politically, is how to generate revenues
• Options: excise taxes on beverages, pharmaceuticals,
consumer products; fees on toxic pollutant discharges;
water use tax; excise tax on pesticides & fertilizers;
corporate profits tax
• Expenditures are subject to appropriations
• Legislation
• H.R. 3202 in 111th Congress (Blumenauer), intended
to generate $10 billion/year for trust fund
• H.R. 3145 in 112th Congress (Bishop), focuses on
clean water and defers identifying revenue sources,
pending CBO study
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3. Create a WIFIA (sometimes called a
Water Infrastucture Bank)
• Objective is to create a mechanism to
provide low-cost capital for water
infrastructure investments
• Modeled after successful Transportation Infrastructure
Finance and Innovation Act (TIFIA)
• WIFIA would access U.S. Treasury funds at
low interest rates
• Would provide loans, loan guarantees, other credit
support for large projects and those with national or
regional importance
• Also could lend directly to SRF programs that leverage
their capitalization grants to increase loan activity (27
states leverage)
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Create a WIFIA, cont.
• Funds would be repaid to the Treasury, and default
rate is expected to be low, so there is little cost to
the federal government (subsidy cost only)
• Issues:
• Governance structure (e.g., EPA or Board of Directors)
• Project prioritization and selection criteria (i.e., what
about small projects?)
• Relationship to SRFs
• Would WIFIA shift decisionmaking from states and
localities to federal level?
• Will WIFIA bring increased investment, or will it
substitute for SRF leveraging or municipal debt?
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Create a WIFIA, cont.
• Legislation:
• H.R. 3145 (Bishop)
• Draft bill discussed at February 28 hearing of
the House Water Resources and Environment
Subcommittee (Gibbs)
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4. Create a National Infrastructure
Bank
• Similar to WIFIA, except NIB would assist
multiple types of infrastructure
• Proponents say-• Bank could increase total infrastructure
investment by leveraging state, local, and
private resources
• Bank could accelerate projects now slowed
by waiting for annual allocation of funds
• Bank could promote distribution of federal
spending on the basis of anticipated returns
to investment, rather than traditional
allocation methods
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National Infrastructure Bank, cont.
• Issues:
• Project selection--proposals focus on projects
of regional or national significance that will
contribute to economic growth and job
creation, and most specify a minimum
project cost (i.e., $100 million)
• Will water infrastructure projects be squeezed out?
• Will a bank meet needs in small and medium
communities?
• Will a bank increase investment, or duplicate
or substitute for existing programs?
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National Infrastructure Bank, cont.
• Administration supports
• Multiple legislative proposals:
• S. 652 (Kerry, Hutchison)
• Similar to S. 1549 (Reid) and S. 1769 (Klobuchar)
• H.R. 402 (DeLauro)
• S. 1550 (Brown of OH)/H.R. 3259 (Fudge)
• S. 936 (Rockefeller), transportation only
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5. Lift the state volume cap on PABs
for water infrastructure projects
• The federal government helps finance water
infrastructure by exempting interest earned on municipal
bonds from federal income tax, thus lowering borrowing
costs for municipalities
• But the federal government restricts the use of taxexempt municipal bonds, limiting the extent to which
private companies can benefit from the federal subsidy
• In cases where a private company’s involvement exceeds
allowed thresholds for issuing municipal bonds, the
municipality may be able to issue another type of taxexempt bond called a qualified private activity bond (PAB)
• PABs for water infrastructure projects are subject to a state
volume cap. Under the cap, wastewater and drinking water
projects compete against other sectors (e.g., education,
housing)
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Lift the PAB cap, cont.
• Interest is growing in exempting PABs used for
drinking water and wastewater infrastructure from
the unified state volume cap
• Current law provides such an exemption for
government-owned and operated solid waste disposal
facilities
• Opponents argue for maintaining restrictions on taxexempt financing, because of the costs to the
government, in terms of income tax revenues
foregone. Some opponents say that the bonds
represent an inefficient allocation of capital, favoring
some projects over others, and increasing the cost
of financing traditional governmental activities
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Lift the PAB cap, cont.
• Legislation:
• H.R. 1802 (Pascrell)/S. 939 (Menendez)
• Senate Finance Committee’s revenue portion
of the current highway bill includes a
provision to lift the state volume cap for 6
years (for bonds issued before Jan. 1, 2018)
• This provision is estimated to reduce revenues to
the Treasury by $95 million over 6 years, and $305
million over 11 years
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Conclusion
• Consensus exists many among stakeholders
on the need for more investment in water
infrastructure, BUT THERE IS NO SILVER
BULLET
• Many support one or more options for doing
so—a combination to expand the financing
tool box
• Congress has recently shown greater
interest through House and Senate hearings
• But the way forward legislatively is highly
uncertain
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Questions?
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Claudia Copeland
Specialist in Resources and
Environmental Policy
Congressional Research Service
ccopeland@crs.loc.gov
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