I want to get this question out there in stark terms.

Here’s the case — I’ll use several quotes from my published WFM articles because they’re public and I’ve received no pushback or call for corrections on the conclusions:

FCRA Criteria: Bad Solution to a Fake Issue, With Real Consequences

From the start, OMB’s FCRA Criteria looked more like a ‘manufactured issue’ than a real budgeting problem with significant consequences. From WIFIA FCRA Criteria: Poster Child of Bureaucratic Overreach:

“Yes, on the surface the Criteria were a response to a Congressional directive. But why would Congress be involved in such a technical matter, much less put out detailed instructions for its resolution, in the absence of some sort of behind-the-scenes initiative from relevant federal bureaucrats? We’re not talking about a Solyndra-type, headline-grabbing issue here. The Criteria are solely about the FCRA classification of cash flows from investment-grade Water Infrastructure Finance & Innovation Authority (WIFIA) and Corps Water Infrastructure Financing Program (CWIFP) loans for non-federal cost shares in federal projects.“

Someone or some group certainly put a lot of thought and effort into making the FCRA Criteria (a mere ‘Notice’ in the Federal Register, not even a rule) effectively into an amendment of WIFIA’s standard eligibility.

For what outcome? The preservation of our precious budgetary standards? Hardly — the Criteria are a grotesque distortion of FCRA law and underlying principles. No, the outcome was in fact what was always intended by this slimy bureaucratic maneuver. The Corps’ section of WIFIA, CWIFP, was prevented from fulfilling its most natural and useful role, financing non-federal cost shares. That was the point.

Circular A-129: No Questions Asked About Obvious Issues

In the meantime, OMB was apparently studiously avoiding any application of their own fundamental policies for federal credit programs to WIFIA, despite glaringly obvious inconsistencies. From Explaining the Decline in WIFIA Loan Volume: Part 2:

Whatever the intentions or expectations of WIFIA policymakers were in 2014, displacement as the explanation for much of WIFIA’s actual history 2018-2024 implies that the program has not been in strict compliance with the Office of Management and Budget’s standard policy for federal credit programs.

That policy is stated in detail in OMB Circular A-129, most recently updated in 2024. The first sentence of section 2 of the Circular says bluntly that “Federal credit assistance should be provided only when it is necessary…to achieve clearly specified Federal objectives.” The section goes on to require periodic review of the credit program with respect to a list of goals.

The description of one goal, relevant to SRF displacement, asks “Whether any Federal credit or non-credit program exists that addresses a similar need…” It could be argued that WIFIA was originally designed to provide larger loans than most SRFs and is better able to address the needs of large projects. But the program’s statute does include some exceptions for smaller loans. Perhaps more importantly, EPA press releases since 2021 have emphasized loans to smaller projects as a WIFIA priority, in effect indicating an intention to compete with SRFs.

Though federally subsidized, tax-exempt bonds are of course issued and traded in a private market. Another Section 2 goal explicitly requires that “that private lending is displaced to the smallest degree possible by agency [credit] programs.” This requirement is hard to reconcile with the interaction of WIFIA loans and bonds 2018-2024, especially in 2021.

The inconsistencies were obvious from WIFIA’s start in 2018 (large, highly rated agencies were among the first applicants) and were glaring in 2020-2021 when Program loans took a 25% share out of the water & sewer bond market volume. From OMB? AFAIK, crickets.

Mandatory Spending: If Anyone Could Have Known, It Was OMB

Using purely public information, I was able to predict WIFIA’s high levels mandatory spending from interest rate estimates early in 2021, accurately, as it turns out. OMB directly had all the same information and much more, and presumably the expertise to understand what was happening. Yes, WIFIA was just following FCRA law and its own statutes, but that was also the case for loans financing cost shares in federally involved projects. OMB didn’t hesitate to modify (or more precisely, distort) law with the FCRA Criteria. But for growing mandatory spending? Not a problem in the least. In fact, they approved twelve downward resets. The result for federal taxpayers? From Is WIFIA’s Interest Rate Reset Feature at Risk?:

The answer, and the source of risk for the reset feature, is simply that the scale of WIFIA’s mandatory spending for interest rate re-estimates is now emerging. In the White House FY 2026 Budget Technical Appendix for EPA, WIFIA’s mandatory spending for fiscal years 2024 and 2025 totals about $1.6 billion. When amounts from prior Budget Technical Appendices are included, WIFIA’s total mandatory spending is over $2 billion. That’s about 9% of the program’s $22 billion portfolio, an amount far above WIFIA’s discretionary funding. It is unlikely that this has gone unnoticed by the Trump administration’s OMB – they did the numbers, after all.

The Real Question: Cui Bono?

Who would benefit from this pattern of excessive focus on a non-issue while ignoring real policy and economic problems at the WIFIA loan program? A bureaucrat with some strange private agenda? Maybe, at least in part, as I outlined in the ‘poster child’ article.

But, in terms of rational behavior and the influence required to achieve desired results, isn’t there a more likely beneficiary? How about the EPA WIFIA ‘base’ — larger, Aa3/AA- municipal water agencies? For them, a successful CWIFP was a potential dilution of their ‘ownership’ of the program, while obviously Circular A-129 policy and mandatory spending levels had to be ignored for them to access WIFIA loans’ interest rate management features.

Let me stress that ‘cui bono’ inferences are speculative — I don’t know what was really happening. But I think there’s enough information here to raise a question, and as noted at the outset, I want to get that question out there.

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Okay — this is a radical idea. But the more I thought about it, I began to see that something needed to be done, a decisive action, a bold but discrete first step. So, I ‘discussed’ the idea with Google Gemini. Of course.

In olden times, before 2024, your ancestral self would sketch out a new idea using scrawled written notes and a lot of Google searches about various aspects and potentially relevant facts. Now that we have advanced beyond such primitive behavior, we simply ask Google Gemini to run around the web and summarize the whole thing in neat, bullet-pointed, grammatically perfect and (apparently) logical text.

Very handy. But a new skill is absolutely required — the acute and immediate detection of slop and hallucinations. That’s not so easy in highly technical matters — you have to know what you’re doing. But to be fair, the essence of that skill was required for pre-2024 idea development by scrawling and searching as well, albeit in a different sequence. Then, you crossed out a lot of just-written nonsense (“what was I thinking?”) and dismissed dead-end search results after a quick review. With Gemini output, it’s all dumped upfront and you refine the idea by removing the dross.

There’s a fair amount of slop and hallucination in the above PDF transcript (e.g., the split and move to Interior ‘has been discussed’ — WTF?) but a lot of the output appears useful and benign, at least as a guide for early thinking. I’ll leave it to the reader to decide — I left the transcript unedited.

Back to the idea itself, here’s a rationale for a split that I asked Gemini to ‘consider’ (page 3 of the PDF transcript):

I didn’t see any showstoppers in the silicon’s answers. So, perhaps more carbon-based thinking about this radical solution to WIFIA reform is warranted.

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On the surface, the above article essentially reprises, in more formal and explanatory language, this recent post — The Zeldin Letters.

On the next level, the article is a continuation of efforts to cut through the WIFIA ‘narrative’ and present some facts about what might really be happening at a bellwether federal infrastructure loan program. Not so much to ‘report the truth’ (I’m not a reporter, much less an idealist) but because truth matters for effective policy design. Like a consumer product, you first need cold science and detailed engineering to make the thing work as intended. Only then can you let the marketing people loose with more-or-less truth-adjacent narratives in order to sell it.

As described in the prior two WFM articles, Explaining the Decline in WIFIA Loan Volume: Part 1 and Part 2, the WIFIA loan ‘product’ appears to be failing, certainly in terms of its promising start, but also more importantly in terms of its potential effectiveness in helping federal policy address US infrastructure renewal. Fixing this faulty ‘product’ is a group effort (federal finance is a national public good, after all), so I think it’s useful to ‘disassemble’ it in public — not to criticize, but as the basis for improvement.

There is a third level. For various reasons, I think WIFIA’s mandatory spending issue should start to be surfaced in public, but that’s not so easy to do if the topic is described in a standalone, abstract way. The wretched FCRA Criteria had this problem — as I think its proponents craftily intended — of being impossible to criticize because nobody really knows what it is. Floating above criticism or even widespread understanding, a distortion of federal budgeting law or loan program policy intent (harmful to most but useful to some) can be sustained indefinitely.

The ‘reset risk’ trope helps bring WIFIA’s mandatory spending issue back to earth and at least be understood, if not dealt with:

• The ‘risk’ topic itself is practically clickbait for those WIFIA borrowers who might be relying on the reset for their interest rate management strategies. Looking at you, last five WIFIA loan commitments executed at about 4.8%.

• A discussion of how the reset works introduces the cost of FCRA interest rate re-estimates in a comprehensible way. Treasury borrowing at 5% to fund a WIFIA loan asset earning 2% is obviously a loser for taxpayers, no?

• The actual intentions of Aa3/AA- borrowers getting a WIFIA loan commitment in the first place can be highlighted. ‘Sophisticated’ borrowers using an ‘interest rate option’ to hit a ‘low point in an interest rate cycle’ sounds more like a description of Wall Street traders than simple Main Street folks with few financing alternatives using a ‘low-cost’ federal loan to build a ‘critical’ project for thirsty local kids, as the standard narrative would have it.

• And speaking of ‘narratives’ — could it be that that “simplistic narratives about this issue” are “ugly” because they are both straightforward and true? Do you see it now? Do you? Okay, then let me spell it out: Narrative games can work both ways.

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This report makes a big deal about the Trump 2.0 delays, but the arguments that these caused, or could cause if repeated, actual project construction inception delays or higher costs for ratepayers are pretty…slight. The report is more a declarative ‘narrative’ (the pitch is summarized in the title) than the kind of detailed and fact-based analysis you’d expect from Moody’s.

It struck me later that a WIFIA report with an emphasis on Trump 2.0 delays was perhaps requested or suggested by the credit agency’s water authority clients as part of the ‘pressure campaign’ described in The Zeldin Letters post a few days ago. If that’s the case, I think the analysts did the best they could with scant evidence of any past or future material impact of the delays.

Still, a few interesting points:

• The report acknowledges, though it doesn’t highlight, the facts that WIFIA volume has consistently declined since 2022 and that new annual appropriations for the Program don’t get fully utilized. The chart showing WIFIA’s rise and decline 2018-2024 speaks for itself.

• For once — finally! — there is a direct comparison to tax-exempt bonds as the baseline against which WIFIA’s constantly touted ‘low cost’ should be measured. As usual, undiscounted numbers and some high-side approximations are used in the quick comparison. Even so, the numbers, described narrative-style as ‘significant cost savings’, aren’t exactly compelling. At all. Which kind of undercuts the whole ‘costly Trump 2.0 delay’ narrative, no? I’m sure the analysts knew this — but business is business and the client is always right. We’ve all been there.

• Much better was the discussion about how a WIFIA loan’s non-rate features (slower amortization, deferral, sculpting, etc.) help issuers to manage more affordable rate increases — including details about a great real-world example in the recently closed City of Joliet loan. I got the distinct impression that the analysts would have preferred to spend more time on this area if the ‘costly Trump 2.0 delays’ narrative wasn’t the report’s apparent priority.

• Overall, what comes out is this: The ‘costly delay narrative’ is unpersuasive and easily forgotten, but the discussion of WIFIA’s non-rate features hints at much more substantive things about how well-designed federal finance can facilitate infrastructure affordability. That’s something that Moody’s with its huge base of experience and data in the public sector could expand on very constructively, including considering WIFIA amendments for the 55Y loan term and small project combinations. Wouldn’t the analysts have more fun with that?

Lot of numbers in the chart above, but for now just focus on the discounted present value of debt service difference (Diff DS PV) for the 55Y and 35Y term cases. That’s how sophisticated issuers would compare long-term financing alternatives (e.g., precisely how muni bond issuers evaluate an advance refunding using DBC software packages).

Current Law: 35Y Post-Construction Term — Good Enough for Reset Games

Tax-exempt bond rates are currently pretty good compared to UST yields (e.g., 30Y UST of 4.85% vs. MBIS Index of 3.63%, for a 74% ratio), so it’s no surprise that under current law, a 49% WIFIA Loan and 51% Bond combination is underwater compared to a similar straight bond. The estimated amount is about 1.6% of project cost — negative, but not by much.

Still, the overall case for a WIFIA/Bond combo might be positive when the value of non-rate features is included. But most of all — by far — is the fact that the WIFIA loan commitment rate can be reset at some point, perhaps years, in the future.

If the reset remains available, the current rates and NPV comparisons don’t matter that much compared to what might become available in the next year or so. Well, let’s see — election year monetary stimulus? Geopolitical crisis liquidity flood? Deflationary recession after the AI bubble bursts? Trump wildcard of some sort — oh I don’t know, something crazy like launching his own quantitative easing through the home mortgage GSEs?

In all these cases, UST yields are likely to fall faster than bond rates — at which point, the reset can capture the value. If things go the other way, the worst case is you’ve got the WIFIA commitment in hand, effectively capping a minor downside.

I think the reset features explains much of why there was rush by WIFIA applicants to close ASAP at the end of 2025 — i.e., when the prospect of an especially ‘interesting’ 2026 was becoming clearer — despite relatively unfavorable numbers for a WIFIA loan.

Of course, this strategy depends on the reset remaining available — another wildcard, as recently discussed in this post, The Zeldin Letters, and (with a good deal more diplomacy) in this WFM article, Is WIFIA’s Interest Rate Reset Feature at Risk?.

Amended Law: 55Y Post-Construction Term — Calmer Waters

Now consider the case if a 55Y post-construction loan term was available in the WIFIA loan. There’s a solid NPV benefit of 4.5% of project cost, all due to the fact that UST post-30-year ‘flat forward’ rates apply to more of the project loan balance, something that market-traded, primarily retail-owned tax-exempt bonds can never match.

For a long-lived project, the ability to capture some of the UST flat-forward curve would be a unique and sustainable capability of a 55Y WIFIA loan. The attitude towards seeking a WIFIA commitment could change — the value is economic and fundamental, ultimately based on intrinsic federal strengths as a lender.

Sure, WIFIA’s interest rate management features would still look good, but they wouldn’t be the central focus, and there’d be more applicants that can’t’ play the arbitrage game (e.g., large, one-off water management and flood control projects that are too idiosyncratic to get good rates or even access to the bond market, maybe someday small project combinations, and so on). WIFIA would have a substantive — and defendable — purpose and role in US water infrastructure renewal, with demonstrable additionality and measurable policy outcomes, not just false narrative. Isn’t that what WIFIA stakeholders should really want as we proceed into ever more turbulent times?