The Environmental Protection Agency (EPA) is currently holding a roadshow of listening sessions across the US to provide information on the Water Infrastructure Finance and Innovation Act (WIFIA) and its proposed five-year pilot program to provide an alternative funding source for a variety of water infrastructure projects.
The EPA presented in Los Angeles on October 17, 2014 where attendees included representatives from public and private finance, contractors, water operators, state and local government entities and legal and financial advisers from across southern California.
During the first part of the listening session, the EPA provided an overview of the WIFIA legislative framework including the type of projects which are able to be financed through WIFIA. The second part of the listening session was more analytical and provided examples of how WIFIA may benefit particular projects. Audience input was sought throughout the presentation on a range of issues.
Key takeaway messages from the WIFIA session included:
- Appropriations: The EPA has not received appropriation yet to support the WIFIA program. Appropriations are expected next year subject to the determination of Congress. The Act allows an appropriation of $20,000,000 in the fiscal year 2015 escalating to $50,000,000 for the fiscal year 2019. The EPA are expecting that for each dollar appropriated they will be able to loan out ten dollars (i.e. similar to the TIFIA 10:1 ratio). There is also a sense that this loan ratio may increase because of the differences in lender risk profile between a toll road with full demand risk transferred as compared to a water project with a fixed service payment and no demand risk transfer.
- No use of Tax-Exempt Financing: One of the key differences between the Transport Infrastructure Finance and Innovation Act (TIFIA) and WIFIA is that tax-exempt financing is not permitted to be used in conjunction with WIFIA. One of the rationales provided for this is the objective of increasing investment in water projects without replacing existing water financing sources such as state revolving loan (SRF) funds. The likely impact of the ban of tax-exempt financing sources in conjunction with WIFIA will be that issuers with AAA or AA ratings may not apply for WIFIA since it will likely be cheaper to obtain finance by issuing only tax-exempt bonds. The proposed approach may also discourage the use of private activity bonds which have also been used with success on P3 transportation projects.
- Refinancing: The EPA does not know if WIFIA could be used to refinance projects.
- Criteria for Evaluating Projects: There is currently no guidance within WIFIA as to the weighting of each of the project eligibility criteria. Assuming demand for WIFIA exceeds the appropriation allocations in the pilot program, a key challenge for the EPA will be determining which projects are eligible to be financed through WIFIA. The EPA intends to carry out further work to prioritize the existing criteria so that eligibility can be clearly determined.
- Application process: The application process for WIFIA has not yet been determined but will likely mirror the TIFIA process.
- Interplay between SRF and WIFIA: The EPA is further considering the ability for SRF and WIFIA to be used together however currently there appear to be no prohibitions on this.
The final EPA listening sessions will be held in San Francisco on November 17, 2014 and Washington, DC on December 8, 2014.