Google-Gemini-Re-Amending-FCRA-Law-to-Limit-Permanent-Indefinite-Authority-for-Predictable-Interest-Rate-Re-Estimates-InRecap-010825

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Turnabout is fair play, no? The 2020 FCRA Criteria for WIFIA loans to cost-shares in federally involved projects were (in theory) a response to an ambiguity in FCRA law. So, now that huge levels of mandatory spending from interest rate re-estimates are surfacing at WIFIA, maybe it’s time to look at whether a FCRA law drafted in 1990 adequately anticipated WIFIA’s ‘unique’ borrower base, Aa3/AA- public water agencies with excellent access to the tax-exempt bond market. Perhaps the drafters couldn’t imagine the point of such a program, but that’s all history in our narrative neoliberal world — the orthodox narrative says WIFIA has real world outcomes that wouldn’t have happened otherwise, and who are we to question this?

But still, the mandatory spending numbers are a bit…awkward. So, why doesn’t OMB just gin up a set of criteria to, you know, to ‘interpret’ (perhaps even in unusual and innovative ways!) the re-estimate parts of FCRA law, publish them as a ‘Notice’ in the Federal Register, and get Congress to tie appropriations to compliance.

No? Oh, I see — OMB distorting FCRA law is only to restrict WIFIA eligibility to the program’s current municipal water agency base, not for actual budget transparency or accurate representation of where taxpayer money is going, or anything as pedestrian as all that.

Maybe a different approach is required. Time for another 1967 Budget Commission Report on Federal Credit? Re-examine some basic questions?

Here’s the key question in the Gemini ‘discussion’ above (page 7):

For those interested in a more technical discussion, I did this essay a few years back — FCRA Re-Estimates and the Anti-Deficiency Act. As far as I can tell, current FCRA law for re-estimates does not align with the spirit of the Anti-Deficiency Act or the recommendations of the 1967 Budget Commission because it did not anticipate a loan program like WIFIA. Now that we have the evidence of WIFIA’s actual operations 2018-2025 and consequent mandatory spending 2022-2025, shouldn’t the law, or at least official rules governing its use, be updated? Or something? Anything — just not more goddamn narrative lies.

^{Source: InRecap (click to enlarge)}

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Just a sketch with some preliminary ideas, subject to change. More on all this in future posts.

^{Source: Google Gemini 1/15/26 response to request by InRecap to compare US ExIm and EPA WIFIA}

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Update 1/16/26: HR 6938 passed the Senate and will presumably be signed into law fairly soon. So, my observations in this post about WIFIA reauthorization later this year now apply, as do these from a prior post: Latest Spending Bill: CWIFP Non-FCRA Ineligibility and WIFIA Pointless Funding. No surprises.

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This continues the topic of the prior post. ‘Crony loaner’ is a nickname that’s easier to say and quicker to type than ‘crony loan program’ while still getting the essential point across. It also sounds a bit funny for some reason [1] — so why not?

Note the 2026 expiry date of both crony loaners. I don’t know if the opponents of US ExIm bank will surface with a campaign to let the charter expire, as they did in 2015 and again (I think) in 2019. Neither campaign worked, but the political climate has changed a lot and is especially fluid and volatile now. With all the serious issues on the table for the 2026 midterms, perhaps a campaign against an obscure crony loaner wouldn’t be expected to get much traction. OTOH, ‘crony capitalism’ might become a populist issue in general and an anti-ExIm campaign could slipstream into it. I’ll try and find out what the 2015/2019 opponents are planning.

For our favorite water crony loaner, EPA WIFIA, I checked HR 6938 for any reauthorization riders and didn’t see anything. That could change if the Senate spending bill is amended, perhaps in conference committee if that’s required — I don’t know this either.

My guess is that the rush to get the 3-bill minibus passed in January will likely preclude anyone taking the time to reauthorize EPA WIFIA or CWIFP. Yes, the December Senate bill snuck in some non-FCRA provisos against cost-share loans to federally owned projects, so someone is paying attention, but surely, they’re much too busy now?

Probably, the reauthorization is planned for WRDA 2026 or legislation generally extending IIJA water programs. So, a few months off.

I don’t think there’ll be any controversy for EPA WIFIA, and I’d predict that US ExIm’s charter will get renewed again even if its opponents launch another campaign. Almost by definition, crony loaners — small, obscure and relatively cheap federal financing programs that are useful in specialized applications for influential borrowers — are hard to terminate. But there might be another purpose in trying to make an issue out of EPA WIFIA’s reauthorization — the criticisms will highlight the need for a new water infrastructure finance program, and they’ll resonate with the same points raised in an overlapping anti-ExIm campaign if there is one. Worth thinking about.

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Notes

[1] Fun with words: Federal loan ‘program’ sounds like something that’s demonstrably necessary and has a serious policy intent, e.g., addressing an emergency in the economy or a critical affordability issue. New Deal programs, where federal finance really started, had these characteristics — regardless of efficacy, they were serious policy efforts.

In contrast, a ‘loaner’ can literally mean a ‘lender’ but in common usage it’s a temporary and occasionally useful expedient that’s often seen as a perk or indulgence for more elevated folks — e.g., a luxury car ‘loaner’ when yours is in the shop (do they do that for private jets as well?). Not really a serious thing, which is why the double meaning sounds a bit funny. Now add the term ‘crony’, which conveys secretive influence combined with self-satisfied disdain for any consideration of the ‘public good’, and you get the sense of exactly what I think is going on.

Google-Gemini-‘Discussion-on-‘Crony-Loan-Programism-InRecap-01142026

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Until quite recently, I thought the WIFIA Loan Program would evolve into a model for federal infrastructure finance. Now I’m seeing that it won’t. Instead, the Program is becoming another US ExIm Bank.

I should have expected this. A small program that makes relatively big loans for a specialized purpose will be ‘captured’ by influential borrowers who can use the subsidized federal financing in ways that disregard, or are even opposed to, the program’s original policy intent. Once they have the program working the way that best suits their specific interests, this dominant ‘base’ will resist substantive changes or irrelevant (to them) improvement. The focus then will be on ‘narrative’ and quiet political influence to sustain the status quo. Keeping the program small and generally obscure can be part of the plan, especially if program loans are an occasionally useful option, as opposed to a core financing alternative.

For loan programs captured by private-sector borrowers, like US ExIm, the term ‘crony capitalism’ has been used to describe the de facto replacement of national public good policy objectives with private-sector profit outcomes. Obviously, the handle doesn’t fit EPA WIFIA’s base of heavyweight public water agencies — the ‘profit’ from WIFIA loans is, I assume, mostly in the form of lower water rates for their customers. For the managers of the agencies themselves, perhaps that translates to more local political power or anyway a more secure job. Of course, their outside financial advisory firms might get a cut of the ‘savings’ in fees, but I assume this is reasonable and in the normal course of their overall work.

Nevertheless, the policy distortion is still there — Aa3/AA- water agencies are able to use WIFIA loans purely for sophisticated interest rate management, at high cost to federal taxpayers and without material additionality for US water infrastructure. Yes, some lucky local water consumers see slightly lower rates, but such ‘luck’ is completely unrelated to ‘need’ (cf. WIFIA loans to Silicon Valley Clean Water) and might be more correlated to having a sophisticated local water agency with sharp advisors. Well, the rich get richer, no? But it’s not at all the policy intention of federal infrastructure finance. If actual WIFIA outcomes were presented without heavy ‘narrative’ camouflage, there would be objections — as there have been for US ExIm.

A neologism was necessary to convey the idea of a similar distortion, but for loan programs that aren’t lending to the private sector. ‘Crony loan programism’ came to mind.

I ran it through Google Gemini, as I’m increasingly doing for new ideas and ‘thought experiments’. Why not? Caveats outlined in a recent prior post apply, but again the PDF is unedited, and I’ll let the reader decide what’s slop and what’s not.

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.