In a post a few days ago, I noted that a civil war in the Republican Party was probably boiling beneath the surface, given the profound differences between Traditional neoliberals and MAGA post-liberals. Unsurprisingly, the BB Bill, which is essentially neoliberal and light on real reform, is a potential lightning rod for confrontation. Institutional Power, recognized as a practical path for the party to maintain electoral power, has kept things more or less under control among the pragmatic. But for someone who doesn’t need to be especially pragmatic or even patient (i.e., the richest man in the world), right now is the time for open confrontation — as we saw occur, very spectacularly, last week.

Since the idealistic and impatient enragés of the Republican Party are at this point few in number and limited in power, I don’t think this particular episode in the ongoing political circus would matter very much — except for one, utterly unique, thing. Elon Musk has proposed the establishment of a new third party. That’s a fairly standard and generally ineffective political response to principled disappointment, but when someone worth about $400 billion with a successful history of iconoclastic enterprise management proposes it, the outcome could be very non-standard. It might happen, and (more likely) even the increased plausibility of it happening could influence the political landscape.

People with expertise in US politics and political science will be able to evaluate all this far better than I can — and I doubt even they have many confident predictions. But I think it’s worth considering briefly what a New Consensus developed by a Third Party would need to look like for a major reform of federal infrastructure finance.

• Defined and Constructive: The most important dynamic is that a new party will need to have a defined and constructive platform, not just negating resistance to the status quo. A compelling vision for the future that motivates people across a wide spectrum is the hardest part of developing ideological power, but that’s exactly what a new party needs to do. So, major reform of the status quo will now have a better chance of being a serious part of political discourse. Needless to say, ‘federal infrastructure finance’ per se is unlikely to be a topic, but as discussed in the prior post, public infrastructure renewal almost certainly will, and that’s sufficient to get things going.

• Demonizing the Rent-Seekers: As a practical matter, ideological movements reacting to great wealth inequality, widespread economic distress, and corrupt ‘elite’ leadership always target the 1% as the cause, not just a symptom, of all the problems. That way, tricky social and cultural issues, which are usually more fundamental (but inherently divisive) causes, can be put to one side until, you know, the revolution is secure, the reactionaries eliminated, wreckers neutralized, etc., at which point the vision can be realized. Not especially edifying if you look too closely — but good for federal infrastructure finance reform, which of course will be centered on public-sector financing programs as a replacement for the irredeemable financial rent-seekers, for whom few tears will be shed. I’m guessing that Third Party rhetoric will have a lot of such energizing demonization, regardless of more technocratic substance, because it works. Perhaps like a resurrection of the derailed Occupy Wall Street movement — but this time with both deeper grievance and more funding.

• Conservative Values: Since Musk launched out of the Republican Party in a kind of private civil war but in specific reaction to the neoliberal BB Bill, MAGA-type conservative values might be the starting point of a Third-Party platform. Many of those values emphasize ‘common good’ objectives at the local community level, which presumably involves local public infrastructure renewal and a generally helpful, but not too meddlesome, role for the federal government. That’s a good normative framework for federal infrastructure finance that aims to facilitate local funding for local projects but otherwise stays out of the way.

• Progressive Values: Solely in terms of political institutional power, you’d expect the Democrat Party to see a possible Musk-backed Third Party as fracturing the Republicans, and as such something to both shun and encourage. But they’ve got their own civil war going on, so I’m not sure that the ideological elements will follow that script, especially if the Third Party is vociferously demonizing the rent-seekers. If some do gravitate towards the new party, they’ll probably agree on many economic issues, including some version of ‘common good’ for local communities. But more important will be the progressive mindset of an activist federal government — that’ll counterbalance more extreme MAGA small-government approaches. So, again, positive for public financing programs.

Last week, AWWA released a report on its State of the Water Industry (SOTWI) 2025 survey. A couple of sections provide some context on the recent cuts (and non-cuts) proposed by the Trump Administration

First, we can see what’s currently on the minds of water sector executives — they see infrastructure renewal and replacement as a top priority, but consider the necessary precursor to addressing that issue, capital financing, to be an even more important issue:

^{From page 4 of AWWA SOTWI 2025 Survey}

Next, we can see where those executives are thinking about regarding the sources of that financing. For us, the focus is on the federally subsidized sources of financing — the Grant category in the table likely includes direct federal grants, which is a source of funding. As you’d expect, three types of federally subsidized finance show up: Municipal bonds (presumably almost always tax-exempt, per IRS Code), SRF loans (which are subsidized via federal grants to the SRFs) and WIFIA loans (subsidized with credit subsidy federal appropriations):

^{From page 14 of AWWA SOTWI 2025 Survey}

I don’t think the table is intended to be indicative of the amount of financing sourced from each category. I’m sure that muni bonds are usually the biggest source of financing for water agencies in most years (maybe $40 billion or so), with SRFs coming in second depending on availability in a particular state (maybe $20 billion or so), and WIFIA providing a minor share, depending on the nature and eligibility of the project (maybe $5-6 billion per year).

Instead, what’s interesting is that the executives would appear to consider all three as established sources that most or many of them will regularly consider in their planning, and that to some extent the sources are interchangeable. In that context, imagine what would happen if the federal subsidy for some financing categories (say, SRFs and WIFIA) were reduced while others were left untouched (say, muni bonds). The executives will still check whether there’s availability at their local SRF or if WIFIA still has enough credit subsidy for their eligible project, but inevitably the final plan will reflect a higher proportion of the source that has maintained prior levels of federal subsidy.

In effect, the cuts proposed by the Trump Administration of SRF and WIFIA funding will almost certainly not reduce the water sector’s reliance on subsidized federal finance, given that tax-exempt muni bonds will remain available and that that market is functioning smoothly. Instead, the lost capacity in SRFs and WIFIA will be shifted to bond issuance. There might be some impact on the quality of the financing with respect to the project and the agencies’ financial situation (super-low SRF rates and very long and flexible WIFIA loan terms will be replaced by standard muni market terms), but I think probably not enough to change capital plans.

For the federal budget, I’m not sure that the cuts will result in any real cost savings, though the budget treatment for the three categories is so different that that might not matter — for now. The biggest unknown is how a $2.5 billion cut in SRF funding would impact available annual capacity and resulting increased muni issuance. That’s going to require some analysis — for the moment, here’s an overview of where things stand in June 2025:

^{From Page 14 of the WH 2026 Budget Summary}

“States should be responsible for funding their own water infrastructure.” sounds like a very principled statement, right out of old-timey Classic Liberalism, as if it might have been said by the Founding Fathers in a 1787 debate. But the exact words also have a slightly chiding tone, like “It’s time for you states to grow up and take care of yourselves, the federal government can’t do everything.” Either way, from principle or practical realism, the message is conveyed as a stern truth that the Trump Administration wants everyone to acknowledge.

But then there’s this:

Okay, this comes from a ChatGPT ‘discussion’ of a few weeks ago. But the $3.9 billion in annual subsidy for tax-exempt bonds issued to finance water projects sounds about right in my experience. More importantly, the data used for the calculation looks solidly sourced from two major water sector advocacy groups, AMWA and NACWA, who are consistent proponents of tax-exempt muni bonds.

As we know, the muni market was mighty concerned a few weeks ago that their slice of the federal pie (about $25 billion each year in total) would get reduced in the BB Bill as it went through the House. The tax-exemption did get partially whacked in Trump’s 2017 bill, so the fear was not unfounded, and the market’s lobbyists went Code Red, all-hands-on-deck, apocalypse now, etc. Their pushback succeeded in the House; I haven’t heard of any alarums raised yet in the Senate process. More importantly, the WH seems to accept the House bill, which implicitly endorses leaving the tax-exemption untouched. I’m guessing that the muni market will get through unscathed — but there’s still a long and rocky road ahead, so who knows?

What can be done at this point, however, is to ask some hard questions about where the Trump Administration is coming from on federal subsidies for water infrastructure finance. The two subsidies discussed above are obviously different in form, but substantively quite similar — about $2.5 billion per year has gone to the states for new SRF capitalization that can be used for low-interest loans many times over, and about $3.9 billion per year has gone to high-income taxpayers to subsidize about ten times that amount in lower-interest bonds. The same federal principle and/or realism ought logically to apply to both. But the FY 2026 Budget and the WH’s apparent acceptance of the House BB Bill aren’t consistent when it comes to funding (or not) for federal water infrastructure finance.

• Well, Trump Administration, what’s it going to be? Did the statement in the 2026 Budget Summary about states being responsible for their own water infrastructure funding mean anything? Or was it just rhetoric?

• If it’s all just rhetoric, okay, people get that. But what are the realpolitik factors at play here that would explain the Administration’s proposed radical SRF funding cut but apparent silence on the tax-exemption? Lobbyists for both sides can make the same arguments about the critical need for infrastructure funding — you know, the vivid vignettes of children going without drinking water and all that kind of thing. Is it just that the muni bond lobbyists are more badass — that they have better threats? Trump 1.0 took on this crew in 2017 and prevailed — what’s changed?

• Or is something a little more ideological going on in Trump 2.0? The standard distinction in real-world neoliberalism — strict small government principles and/or realism applied to public-sector spending, but a generous hand with ordained private-sector areas, especially major financial markets with high-income investors — is inherently inconsistent and illogical. That would go some way in explaining another logical inconsistency in the WH 2026 Budget: In the Summary, the SRFs are said to be ‘duplicative’ of WIFIA and, as such, undeserving of any more federal funding. Yet in the full, Technical Supplementary Appendix, WIFIA itself is cut for FY 2026 to just its operating budget, the explanation being that the program can use leftover funding for new loans. Okay, maybe — but isn’t there going to be a big increase in demand from the now lower-funded SRFs? That higher demand will be continuing — will WIFIA be funded again in FY 2027? Or FY 2028? Or…let’s be honest — if the Administration is adhering to the above neoliberal ‘principles’, they simply don’t care, right?

I don’t know when this FY 2026 EPA Budget in Brief was published — presumably right after the Technical Summary was released last Friday? Over the weekend? In any case, despite pretty much continuous searching, I just found it this morning. On page 48, the Brief clarifies something I thought might be the case (but erroneously discounted) in a prior post, specifically in Note 1.

It looks like the Trump Admin does not intend to shut down the WIFIA program for now, or is not giving an indication to that effect, anyway. Apparently, it was judged that the program could continue loan origination in FY 2026 with ‘substantial’ leftover funding. The rest of the descriptive language is not negative and would seem to acknowledge some success (‘large loan pipeline’), so it seems the cut is simply a way to shave $65m off this year’s budget.

Okay — that’s much better. However, there’s a bit of cautionary signal here — the federal budget is being examined critically, down to the smallest details. For FY 2026 budget, WIFIA’s leftover funding meant that the current goal (savings) could be achieved, apparently without much further thought, and the couch change could be thrown in the pot. But once the microscope is brought to bear, its use might become more standard — and harder questions asked. Like in FY 2027 or FY 2028, when the leftovers are gone and the federal budget is still in parlous shape? It might be better to see this, not as an affirmation of the role or necessity of federal infrastructure finance, but as a stay of execution during which a strong defense can be made — for the next time.

As expected from the earlier budget summary, CWIFP’s proposed FY 2026 budget is just flatlined — no new resources.

I’d like to see how the transportation loan program, TIFIA, is faring. It wasn’t mentioned in the budget summary. But to be honest, I can’t make head or tail of what’s in the Technical Supplement. Apparently, I’m not the only one who can’t tell what TIFIA gets — this from an Eno Center March 2025 article, The FY25 Year-Long CR: What’s in It, and What’s Not:

The $50 million for the formula bridge program at FHWA will once again be matched by $200 million transferred from the TIFIA contract authority program to the same bridge program, as happened in 2024. But between then and now, the 2024 WRDA bill transferred an additional $1.8 billion in TIFIA contract authority to the regular federal-aid highway formulas. That adds up to $2.2 billion transferred out of the TIFIA program in just over a year. No one outside DOT is quite sure exactly how much TIFIA funding is left. This new $200 million transfer will almost completely eliminate the new funding provided for TIFIA by the IIJA for 2025 ($250 million gross, lopped off by the annual obligation limitation to around $200 million. The list of projects expecting TIFIA loans in 2025 is now long and getting longer.

Perhaps to be clear about resources for federal infrastructure loan programs, you need to be clear about what the programs are meant to accomplish — you know, to put the request in context. As yet, that hasn’t been done, but in all the upheaval, I think it needs to get done soon. Such programs might come in mighty handy in certain economic conditions and even to achieve certain ideological objectives, as in ‘facilitate local funding for local infrastructure’ — that’s sufficiently Project 2025-ish, no? It’d be a shame if they all just got chain-sawed away or hijacked for high-risk P3 project finance. Just saying.