ChatGPT-Output-On-WIFIA-Questions-05042025-InRecap-1

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Of course, there’s a lot of speculation about deploying AI to replace federal employees for routine administrative tasks, and to make the remaining ones more efficient on those same tasks. Pretty obvious, I would think.

But what about the potential impact of AI on federal policy making? Not at all routine, often very complex, a lot of written output, almost always done under deadlines. Sounds a lot like university term papers, something which AI LLM models are apparently pretty good at. Will AI have an impact on federal policymaking?

It’s hard not to believe that AI LLM models are already in extensive (though perhaps unofficial) use by government policy staffers, not to mention think tanks, etc. For sure at DOGE — a house specialty, as it were.

So, as part of my ongoing exploration of AI using stuff I know about, I had a long-ish ‘discussion’ with the free version of ChatGPT about the WIFIA Loan Program. The unedited output is above.

Here’s my overall impression: Simple questions get ‘mainstream narrative’ answers because presumably that forms the bulk of the model’s database inputs. But if you push with harder, devil’s advocate-type questions, there’s much more subtlety and substance than I would have expected — there appears to be some synthesis of disparate sources and active logic going on, and all expressed in eerily smooth and cogent language.

(Btw, as the model ‘contemplates’ and slowly scrolls out an answer, you get a visceral sense of physical effort: millions of chips firing away, heat rising from the frames, electricity pouring in and heated cooling water pouring out. All for one question on a free model. Now…how about that essential physical infrastructure again?)

It takes some knowledge to push the model into a deeper and logically sequential ‘exposition’ — you need to know what questions to ask. But in a policy-saturated environment, the staffer using the AI will probably have more than enough, just from their everyday general conversation. The purpose, cost and benefits of federal programs must be discussed all the time, one assumes (hopes?), even if little of those discussion ever becomes public. The federal programs are their ‘product’, and the day job is to put much thought into defending them — and attacking competing ‘products’. In that context, sophisticated users pushing AI to deliver deeper and more nuanced answers on policy issues, for defense, offense, or ‘war games’ will (or more likely, has) become commonplace.

The net result might be this: AI effectively lowers the cost and increases the efficiency of deep dives into policy matters. If there are equally sophisticated users on both sides of the issue (likely?), the whole policy discussion will likely have more than depth and nuance than before. Whether it’s ‘improved’ with respect to the public good might be another question (in one sense, AI ‘improves’ armed conflict — cui bono there?) and of course, everything will continue to be processed and packaged for public consumption, as always. Maybe it’s only safe to say for now that policy debate could become more interesting for dedicated and knowledgeable fans — a game played at a higher intellectual level, in effect.

The impact in this way on federal financing programs might be particularly significant. That’s because the combination of government policy and finance is intrinsically complex and multi-faceted — there’s a lot going on — and AI tools could be especially effective in efficiently digging out the nuances and synergies that otherwise wouldn’t be considered, e.g., by a hard-pressed staffer toiling away at 2 a.m. for a hearing the next day.

Well, we’ll see. In the meantime, below are the questions (with page numbers) I asked ChatGPT in the course of our ‘discussion’, starting from basic purpose and going to economic rationale, some political context, relationship to state & local lending funds and actual cost. Regarding the last one, you can see that I drilled the model pretty hard on a very specialized area, FCRA interest rate re-estimates. Its analysis and answers on that were surprisingly cogent. I’m not sure what to think about that yet.

Program Additionality

1. The WIFIA Loan Program lends to investment-grade public water agencies financing low-risk projects. But these agencies have many financial options, including access to the tax-exempt municipal bond market where interest rates are often as low as those offered by WIFIA. What purpose does WIFIA serve? Is the Program necessary? (page 1)

2. Does WIFIA compete with the municipal bond market? (page 3)

3. Is WIFIA necessary in terms of strict additionality? That is, given typical borrowers’ other finance alternatives, does it make any difference in terms of water infrastructure? (page 5)

4. Imagine you are trying to downsize and decentralize the federal government. Would WIFIA be a good candidate for elimination? Can state and other local governments perform the same function? (page 7)

Program Loans Based on Federal Financing Strengths

5. Does the federal government have any unique capabilities, relative to the debt markets or local governments, in providing infrastructure finance? Exclude transfer payment or loss absorption capability based on US scale. (page 9)

6. Are interjurisdictional coordination, mission-driven and regulatory leverage really financing strengths? Or just policy add-ons or riders that the federal government is enforcing by offering attractive financing terms? That is, offering a ‘carrot’ (the benefit) to get borrowers to accept the ‘stick’ (policy riders that they would not have otherwise done)? (page 12)

Program in Political Context

7. Is [WIFIA] ‘politically attractive’ to the [Biden] Administration? (page 14)

8. Try again. To the Trump Administration? (page 15)

9. How might DOGE people look at WIFIA Program? Are they likely to have a negative view? (page 17)

10. Could WIFIA have an essential role in water infrastructure finance based on federal functional financing strengths? For example, loan features like a very long term that can facilitate local funding for local projects. (page 18)

Program as a ‘Wholesale’ Lender

11. Would it also make sense for WIFIA to utilize unique functional strengths in lending to SRFs and other state & local infrastructure financing agencies? The rough analogy would be a ‘wholesale lender’ (WIFIA) to other local ‘retail lenders’ (state & local agencies). Could this a unique role? (page 20)

12. Would WIFIA make a good ‘retail lender’ (e.g. direct loans to many small projects throughout the country)? Why not? (page 23)

Program’s Actual Taxpayer Cost

13. A WIFIA loan has a ‘rate lock’ — the interest rate is locked at loan commitment, but loan drawdown may occur much later. Since cancelling the commitment if rates fall does not incur a penalty, doesn’t the rate lock work as an interest rate option? (page 24)

14. Per FCRA, the cost of a WIFIA loan to the taxpayers is estimated when the loan is drawn. If US Treasury rates have risen since loan commitment, the cost will exceed the discretionary appropriation allocated to the loan. The additional cost of such interest rates estimates will become an off-budget mandatory appropriation. Can you estimate the current scale of WIFIA’s off-budget mandatory appropriations? (page 26)

15. WIFIA borrowers can pre-pay their loans anytime without penalty. If interest rates fall, borrowers will refinance their loans. If rates rise, they will not. Over time, does this mean that the WIFIA loan portfolio will increasingly be concentrated in loans with low interest rates? (page 27)

16. Doesn’t this imply that the WIFIA Program is far more expensive than its discretionary appropriations would indicate? (page 29)

17. If DOGE conducts this kind of financial analysis on WIFIA, and estimates the true scale of Program cost, are they likely to recommend cutting it? (page 31)

CWIFP-Budget-Request-Criticism-Responses-One-Pager-05-04-2025-v1.0-InRecap

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As you can see, the Budget Request criticisms are easily addressed. But there remains a question: where did they come from?

Axios (and now others) have reported that “many proposed cuts were identified by Elon Musk’s DOGE”. By all accounts, these guys are young and working incredibly hard. I imagine the mission was to find as much stuff to cut as possible. Unless there was a political story to tell or justification required in any individual cut (e.g., unnecessarily large, extreme waste, green, wokeness, etc.), the rationale probably wasn’t considered too important. Hence, we get inaccurate and inconsistent criticisms that could have been clarified by a little internet search and logical thinking. Move fast and break stuff, right?

But I’m not wholly convinced by this scenario in the CWIFP case. The amount saved by the program’s defunding ‘elimination’ — all of $7m — is utterly trivial. In the timeframe since January 20th, in the scale of the federal government programs (over 2,000 programs on OMB’s list) and in light of the complete political neutrality of the program, how did CWIFP even end up on DOGE’s radar screen? Much less to be included in a ‘skinny budget’ short list? Of course, CIFIA made the list (big and green), but WIFIA and TIFIA went unscathed as far as I can tell, so there apparently wasn’t a special ‘search & destroy’ sub-mission against infrastructure loan programs. For CWIFP there was no savings and no story — why did they bother? I would think that ‘efficient use of limited time’ and ‘prioritization of effort’, and all that would be DOGE watchwords.

Well, I have to speculate — just a speculation — that someone within the federal bureaucracy pointed CWIFP out, perhaps in a DOGE interview or request for cut candidates. Someone with a private agenda against the program, who perhaps had exhibited an animus before. You know, by twisting and misrepresenting technical rules to the extreme disadvantage of the program. And who wouldn’t be above twisting and misrepresenting program facts in an illogical and inconsistent word salad, as the Budget Request criticism would seem to be. Someone who saw an opportunity — to go in for the kill.

An ugly story if true. But in a way I hope it is, because that would mean that the issue with CWIFP is localized and aberrant (and perhaps not long lasting), and as such meaningless with respect to real and important questions about federal infrastructure finance policy.

Entirely predictable, both that the new Administration would cancel it and the fact that not a single dollar was awarded.

I can’t see how anyone in Congress will defend CIFIA — too much in potential savings and too little (probably zero) prospect of any kind of usefulness, real world or political.

Perhaps misbegotten from the start, in retrospect — a fragile artefact of late stage ‘narrative neoliberalism’, camouflaged by the more substantial forms of TIFIA and WIFIA, that didn’t have a chance to survive the coming federal earthquake.

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5/31/25 Update — From the 2026 WH Budget Technical Supplementary Appendix, page 306 — no surprises, the intent is clear, as it was in the Budget Summary a few weeks ago. But doesn’t this ‘cancelling’ require a legislative recission or repurposing?

5/22/25 Update — The proposed federal eminent domain for carbon pipelines provision was in fact deleted from the Big etc. bill that passed the House last night — Controversial pipeline provision removed as expected, group says

The article, however, notes disappointment that the entire carbon credit monetization pot was not removed, a more ideological point. But without pipelines to do this in scale, does carbon monetization become practically unimportant? I don’t know — there may be other means, and the money is very real. I still haven’t seen anything about CIFIA. If large-scale carbon pipelines are not likely to be built, what’s the point of this financing? Congress seems to be looking hard for loose couch change to mitigate the cost of the Big etc. bill — how could’ve they missed about $2bn through recission of CIFIA’s IRA appropriations? Maybe they did — or maybe something else more substantive is developing. I’ll keep looking — it’s a relevant story for two reasons: First, CIFIA is a type of ‘narrative neoliberal’ federal infrastructure finance that will be in opposition to the reformed versions I’d like to see, and (2) this is an early skirmish point in the bigger neoliberal vs. post-neoliberal battle — there may be hints of what’s to come.

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5/20/25 Update — It appears CIFIA’s pending demise may have been greatly exaggerated. In the Big, etc. bill draft, I didn’t see any repeal of the 45Q credit, which drives the money angle of carbon pipelines, just some seemingly minor restrictions about transferability and foreign involvement. No recission of the $2bn or so CIFIA funding either.

But even more surprising, buried in page 264 of 1000+ page bill, in a section that amends federal licensing for, inter alia, carbon pipelines:

‘‘(d) EFFECT OF LICENSE.—Notwithstanding any other provision of law, if the Commission issues a license under subsection (c)(1) of this section and the licensee is
in compliance with such license, no requirement of State or local law that requires approval of the location of the covered pipeline with respect to which the license is issued may be enforced against the licensee.

Okay, some sort of federal eminent domain that actually makes pipelines feasible and thereby makes the still-generously funded CIFIA program useful? But then there’s this: Anti-pipeline activists cheer expected removal of federal permit preemption from reconciliation bill, in which:

The federal pipeline preemption provision will be removed in the House Rules Committee on Wednesday morning, according to Kristen Blakely, who works for U.S. Rep. Dusty Johnson, R-South Dakota.

Tomorrow? I guess we’ll see. It’s not possible to keep up with everything in the current upheaval. But I’ll try on this one — strikes me as something of an ideological battle between the narrative neoliberals (who obviously have very persistent and detail-oriented lobbyists) and the post-neoliberals.

Further observation on the narrative neoliberals: Their old narrative is dying while the neo-narrative is waiting to be formed. In the meantime, they resort to quiet craft and trickery to preserve what they can of the loot. Shouldn’t be under-estimated.

Outline-for-Legal-Challenge-to-2020-WIFIA-FCRA-Criteria-Post-Loper-Bright-ChatGPT-05042025

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Like everybody else, I’ve been trying to understand the impact of AI and LLM models on, well…everything. So sometimes I experiment by asking the models about an arcane topic I know about in detail — like the WIFIA FCRA Criteria.

This morning in a ‘discussion’ with the free version of ChatGPT, the model admitted (after some clarifying back-and-forth) that the Criteria were not consistent with FCRA law, but that under Chevron deference, OMB had some scope for interpretation.

I saw last year that Chevron deference was overturned by Loper Bright and thought at the time that this might be relevant to the Criteria issue. But I then concluded that such ‘deference’ could never have extended to an outright misreading and misapplication of unambiguous technical law. Rather, it seemed to me that Chevron deference was intended for areas where at least some judgement call was involved — broadly stated statutes, regulations, refinement of eligibility standards, etc.

So, although Loper Bright seemed a very useful support of the general principle (e.g., bureaucrats can’t do whatever they want by claiming sole expert authority in some technical area), it didn’t seem to change the basis of a legal challenge to the Criteria — because ‘deference’ wasn’t the issue but outright ‘wrongness’. And if no stakeholders had brought a ‘wrongness’ suit against OMB, I assumed that was because they didn’t think it would work, regardless of underlying merits, as a practical solution (i.e., too long, too costly, too much confrontation with a powerful oversight agency, etc.). So, I left it at that.

Yet here was ChatGPT suggesting that OMB could have used the Chevron defense. Well maybe. I’m sure the folks at OMB expected ‘deference’ on all FCRA questions, not as a legal shield, but as a result of their imperious authority on matters of profound mystery, over which they likely expected no possible challenge. But it made me think.

I then asked ChatGPT about whether Loper Bright would have an impact, and of course the model agreed that it would and outlined the arguments. It then offered to draft a legal challenge to the Criteria — okay, why not? The PDF is posted above. I’m not a lawyer and don’t offer legal advice, so although the outline looks plausible, I don’t know whether it has any merit.

As noted above, I’m guessing Loper Bright probably hasn’t changed much with respect to the practical value of a legal challenge to the Criteria. But you know what has changed — a lot — since the time of Chevron overturn? The whole federal landscape.

When DOGE is blithely chain sawing long-established programs, federal agencies are laying off thousands of long-serving civil servants, and the Administration is challenging long-respected precedents on a daily basis, daring to question some OMB bureaucrats in court about their obvious overreach doesn’t look exactly radical. Maybe WIFIA and CWIFP stakeholders should think about it?

To be honest, I didn’t expect there to be any mention of WIFIA, CWIFP or even SRFs in the 2026 budget request summary published today. Federal financing and funding for water infrastructure has solid bipartisan support and is obviously completely non-ideological. Funding for the loan programs is miniscule in the scale of the federal budget and even annual SRF grants don’t amount to much. Given the magnitude of their battles ahead, why were these even on the Administration’s radar screen?

The proposed numbers would do some serious damage. SRF funding is almost completely cut, leaving a relatively small amount for transitioning. CWIFP funding for 2026 is eliminated. WIFIA funding is left flat from 2025, which would be a positive sign were it not for the summary’s indication that the EPA program is expected to take up the capacity lost at the SRFs and CWIFP.

Of course, a lot will change by the time Congress is done with the budget, so I don’t think the numbers themselves need to be taken too seriously. But their explanatory text is another matter. That text includes strong statements that hint at longer-term policy directions for federal finance. But also, confusion about what federal finance is meant to do.

To provide some context, I’ll briefly outline something that I’ve been developing for a while and will be writing a lot about in future. I hadn’t expected that it would be relevant until the ongoing federal upheaval started to settle down. But here we are – if relevant policy directions and/or confusion are emerging from the apparent chaos, they need to be addressed in the context of clear policy objectives. So, what are they? What should they be?

Here is where TIFIA, WIFIA and CWIFP have a serious problem. After you strip away all the special interest narratives, what exactly is the national purpose of federal infrastructure loan programs lending to investment-grade borrowers financing low-risk projects while debt markets are functioning normally? It could be reasonably said that there is none. In pre-2025 times, such an observation wouldn’t have mattered. Now, it might invite the DOGE chainsaw. So, a real-world, narrative-free objective, suited to the emerging political context and actual federal fiscal constraints, must be made explicit. For now, I’ll simply state what I think it should be:

The primary goal of federal infrastructure loan programs is to facilitate local funding for local infrastructure solely by utilizing intrinsic and unique federal financing strengths (relative to debt market alternatives) through loan feature design and efficient transaction implementation.

Much more on that to come in future posts and articles. Now, back to budget summary. I’ll comment on each paragraph, roughly line-by-line.

Clean and Drinking Water State Revolving Loan Funds: $2,460m Reduction

EPA’s State Revolving Fund (SRF) was designed decades ago to give money to States via formula allocation for seed money to set up their own water infrastructure loan programs without continued annual appropriations. When it comes to water infrastructure, the States should be responsible for funding their own water infrastructure projects. Contrary to that design, in practice, the program has been heavily earmarked by the Congress for projects that are ultimately not repaid into the program and bypass States’ interest and planning. In addition, the SRFs are largely duplicative of the EPA’s Water Infrastructure Finance and Innovation Act (WIFIA) program and the Department of Agriculture’s (USDA) Water and Wastewater Loan and Grant program, and they received a massive investment in the Infrastructure Investment and Jobs Act (IIJA). The Budget proposes to return the SRFs to their intended structure of funds revolving at the State level and therefore provides the decreased funding level of $305 million total to allow States to adjust to alternative funding sources for their water infrastructure.

• I don’t know if the limited seed money intent was part of the original design or was later superseded by some sort of consensus. Not sure it matters because the administration is raising a valid question — is continued annual federal grant funding anything more than a transfer payment? Note this is relevant to the proposal to offer WIFIA sub-UST rates to SRFs to jump-start more optimal leveraging — that feature should be explicitly time-limited and contingent on measurable progress.

• States responsible for their own water infrastructure funding — that’s a major statement. ‘Should be’ without further explanation is the kind of normative language used for ‘self-evident’ objectives — as in a political philosophy. Also note consistency with the fundamental objective I briefly stated above — there is also a self-evident national interest in helping states raise their own funding, and federal financing can be part of that.

• Yes, the earmarking does suggest that annual grants are seen as ‘free money’ transfers which Congress can redirect away from the intended purpose, revolving fund capitalization. Why, because that purpose is not important and Congress is better at resource allocation? It’s a bad look. Perhaps the huge cut was proposed, not so much to really reduce SRF funding, but to clap back at Congress: “See, you didn’t think revolving fund capitalization was important and you could play earmarks with the money. Well, taxpayers aren’t going to fund your earmarks and the SRFs can do without. That okay with your constituents?”

• The next one is very important: SRF lending duplicative of WIFIA lending? Really? Of course, the answer is ‘absolutely not’, as I’ve written about frequently on this site. But the real concern is that the line suggests whoever wrote it doesn’t know much about SRFs, WIFIA or even basic project lending. How about thousands of $5m project loans being selected, executed and administered out of Washington? Does that sound efficient or like the optimal use of resources? Not exactly consistent with Project 2025 decentralization principles — or even common sense. To be fair, the policy objectives and outcomes of federal finance programs have been so shrouded with ridiculous narratives (as described above) that the new team’s simplistic misunderstanding is not surprising. Still, it’s a red flag. This kind of thing needs explicit clarification before it’s embedded in emerging policy mindsets.

• Who knows if $305m for ‘alternative funding sources’ is the right amount? But I agree with the implied principles: (1) states (and localities) need to fund their own infrastructure, but the federal government should help them find it — this was not a cold cut-off, and (2) alternatives that increase the capital efficiency of SRFs with prudent leverage would presumably be included. WIFIA sub-UST rate for underleveraged SRFs would be consistent with both principles. Btw, $300m of SWIFIA credit subsidy funding would support about $3bn of leveraged SRF loan volume, more than the cut. Just saying.

Corps WIFIA Program (CWIFP): $7m Reduction (Implied Elimination)

The Corps WIFIA program provides direct loans and loan guarantees for non-Federal dam safety projects. The Budget eliminates this program because there is no demonstrated need in the private market for Federal financial assistance for these types of projects. In addition, the program is duplicative of other programs, such as FEMA’s National Dam Safety Program and the EPA’s WIFIA Program. In addition, this program is arguably outside of the Corps’ mission, which is to provide engineering expertise for military construction and civil works projects—not serve as a creditor to private entities.

• Ugh, the FCRA Criteria again. CWIFP wasn’t intended to be limited to dam safety projects – it was meant to support non-federal cost shares in Corps & BOL projects, but the FCRA Criteria wrecked eligibility for that.

• There’s as much or more need for federal financing of this type of infrastructure as there is for WIFIA’s loans – like to AAA Silicon Valley Water agency. It’s the same case of utilizing federal finance to facilitate local funding. Which is exactly what cost sharing does, except that it also reduces federal outlays.

• Again, not ‘duplicative’ of WIFIA. CWIFP is a statutory extension of WIFIA for a type of specialized finance (cost shares). EPA WIFIA is effectively specialized in municipal water agencies. CWIFP just extends WIFIA’s proven success and efficiencies to another sector of water infrastructure, usually involving projects with an even greater degree of national-scale interest. Also, note the glaring inconsistency of saying that there’s no need for CWIFP loan capacity in the just-prior sentence, and then saying two other federal finance programs ‘duplicate’ that loan capacity? Well, which is it?

• CWIFP is no more outside USACE’s mission than WIFIA is outside EPA’s mission, or TIFIA is outside of DOT’s mission. In ideal world, I do think that federal infrastructure finance should be centralized, perhaps at Treasury. But as it is, location at sectoral agencies is relatively efficient.

• All this focus in a short budget summary for $7m?? The only two reductions that small are for a radical woke education program and an obsolete grant series. Both cuts were clearly intended to make a bigger point. What’s the bigger point of cutting CWIFP? None, except…well see below.

• Here’s an ugly thought. Axios reported that “many proposed cuts were identified by Elon Musk’s DOGE”. Quite possibly lower-level DOGE boys ended up talking to the same bureaucrats at OMB who are pursuing a private agenda against CWIFP and who were behind the FCRA Criteria. The boys likely asked them to name candidates for cuts. So, this dismal Criteria crew used the opportunity to go in for the kill by describing CWIFP only in terms of government waste, which they knew would resonate with the DOGE boys. It didn’t matter that their criticisms were misleading and inconsistent because they knew that their audience would be uninformed on the details. Exactly the same dishonest word salad strategy I saw in the Criteria. The story sounds plausible, no? But let me stress it’s just speculation at this point.