It’s a simple change. WIFIA’s current maximum loan term is 35 years post-construction. That should be extended to at least 55 years for long-lived water infrastructure projects.

The topic has been covered in previous posts: WIFIA 55-Year Loan Term (September 2020) and Extended Term for WIFIA Loans (February 2021).

Same Story

The basic story hasn’t changed. Although interest rates are significantly higher than before, the benefit of a 55-year term WIFIA loan relative to a 35-year term one is about 6% lower PV of debt service, or about $6 million for a $100 million project. The other numbers (minor FCRA cost increases, lower tax-expenditure) are also about the same:

The primary driver of the increased benefit – a longer term’s relatively greater utilization of US Treasury flat-forward pricing – also remains the same:

There’s even a bill in Congress, the Water Infrastructure Finance and Innovation Act Amendments of 2022, that has precisely the same language for a 55-year term as the WIFIA Improvement Act of 2020 did. (There are other things in the 2022 bill, too, but that’s a topic for another post.)

Different World

What’s changed – a lot – is the outlook for the economic, political and social context in which US water infrastructure renewal will develop in the coming years. Federal infrastructure loan programs are likely to be an increasingly important federal policy tool in more challenging conditions. Here’s a recent post: Hard Times Ahead.

In the relative optimism of recent years, extending the maximum term of certain loans in a small sectoral program for large water utilities might have seemed…well, not exactly a compelling priority, regardless of logic or potential benefits. I think it was seen as a minor change for some Western water management projects that had other issues with the WIFIA program (federal budgeting) and useful only to a regional constituency. The WIFIA Improvement Act of 2020 went nowhere.

A pessimistic outlook will – or at least, should – change that perception. Yes, it’s still a minor change and only applicable to long-lived water projects. But more relevant in a tough environment:

• Local funding will be even scarcer, especially for types of infrastructure where it’s easier to kick the can and defer renewal – like stormwater systems. These projects tend to be mainly composed of long-lived, structural assets which could support and benefit from a 55-year loan term. As more water agencies look for WIFIA loans to mitigate the effects of higher interest rates and inflation, they’ll be plenty with long-lived assets. And they’ll be looking for every penny of benefit they can get. That constituency will be national in scale and highly motivated.

• Federal infrastructure loan programs will need to expand their capacity but also their capabilities. Not big, transformational changes (that’ll be impossible) but many small, specific modifications to loan products that have predictable benefits. Extending WIFIA’s maximum term is a perfect example of what’ll be required. As such it can serve as a demonstration that, despite overall political polarization and dysfunction, at least one area of federal policy can be successful. It shouldn’t be difficult — TIFIA just extended their maximum term (to 75 years, no less) in the 2021 IIJAA. A win for WIFIA’s maximum term will encourage more of what will work.

• More subtly, longer terms for infrastructure loans help shift the focus to the long run, where it belongs, and away from a business-as-usual mindset. That focus matters for evaluating investment in climate change, long-term environmental sustainability and quality of life for future generations. It’s no secret that the ESG agenda doesn’t seem to have the kind of consensus behind it as it did recently – a trend that is likely to get worse. An extended term for WIFIA loans is a small step in the right direction.