FCRA Non-Federal Series

WIFIA Program stakeholders will recall that the Program ran into a serious-sounding issue about correct budgeting a few years ago.  The issue arises when a WIFIA loan is made to an infrastructure project that has some degree of federal involvement.  Federal activities cannot receive the same FCRA budgetary treatment that WIFIA invariably uses for its loans.  How was the Program ensuring that loans for federal activities were excluded from its FCRA-based budget?  Since this question didn’t have a clear answer at the time, Congress in late 2019 instructed WIFIA, jointly with OMB and Treasury, to develop classification criteria to distinguish loans that could receive FCRA treatment and those that could not, due to federal involvement in the project being financed.  Non-FCRA WIFIA loans, regardless of being completely eligible in every other way, would become ineligible due to the application of the criteria.

Apparently, there was some delay in producing the classification criteria by the spring 2020 deadline.  Congress, through the appropriations process, took a surprisingly hard line on the matter and threatened to effectively defund the Program.  That got some press.  But the criteria were duly published shortly thereafter, threats withdrawn, and the expected WIFIA appropriations delivered.  By the end of 2020, the issue was apparently resolved.

Not There Yet

In fact, the outcome of this issue in 2020 was closer to truce than a permanent solution.  The correct budgetary treatment of WIFIA loans to projects with federal involvement is not a settled matter.  WIFIA’s current classification criteria can basically be ignored by state and local drinking and wastewater agencies.  This sector forms the vast majority of WIFIA’s applicants to date and is represented by the Program’s original advocacy groups.  It’s not surprising that they’d be willing to accept a quick (and to them, irrelevant) fix to keep the Program funded.  But that’s not the case for those water infrastructure sectors where federal involvement, due to history or scale, is a constant factor.  Projects in these sectors have to date not been frequent WIFIA applicants.  But they’re clearly eligible for loans in WIFIA’s statute and would significantly benefit from their features.  Yet the Program’s non-statutory budget classification criteria could effectively render many of them ineligible.

There’s no question that financings for federal activities belong in the main cash-based federal budget, not the specialized FCRA sub-section.  But precisely defining ‘federal activities’ in complex situations is not straightforward, a fact that has been recognized since current federal budget concepts were established in the 1960s.  Financing for large projects in which the federal government is just one of the participants is especially complex and FCRA law, although quite detailed in other ways, provides no guidance at all in this area.  Perhaps such guidance was not considered necessary when the law was passed in 1990 because federal loan programs for large-scale US infrastructure projects weren’t anticipated at the time.  But as WIFIA’s experience shows, current and future programs will attract a material number of important projects with federal involvement, an area that I think is likely to expand as the needs of US infrastructure renewal become more pressing.  Clarification of FCRA law’s current budget ambiguity associated with loans to federally involved projects is undoubtedly necessary and will ultimately benefit both federal taxpayers and infrastructure project stakeholders. 

But does WIFIA’s 2020 classification approach provide that clarification?  Or does it represent only a useful first step towards better solutions?  Is a process that involves a series of sixteen, primarily qualitative, questions going to produce clear results in an efficient manner?  Or would a statutory fix provide greater clarity and more equitable treatment for potential applicants?   Most importantly, are the concepts underlying the current classification approach the only possible interpretations of the intent of laws which determine federal budgeting methodologies but are silent on this issue?

Recent Developments

The above questions are not academic at any time, but three recent developments introduce an element of urgency in addressing them.  Unlike the single Congressional directive that framed the issue in 2020, these developments have multiple, disparate sources:

  • GAO Report:  In July, the GAO published a long report on the issue, Transparency Needed for Evaluation of Potential Federal Involvement in Projects Seeking Loans.  The report primarily describes OMB’s thought processes and conclusions in developing WIFIA’s current criteria.  GAO did not question any of OMB’s interpretations or consider alternatives but recommends that “OMB should publish government-wide criteria…to help determine whether the project is eligible for the special budgetary treatment under FCRA.”  These would presumably be closely based on WIFIA’s current criteria and applicable to all current and future federal infrastructure loan programs.
  • CWIFP Implementation:  In June, The Army Corps of Engineers published a proposed rule for implementing its WIFIA authorization, the Corps Water Infrastructure Finance Program, and applications are expected in the first quarter of 2023.  WIFIA’s current criteria are applicable to the CWIFP and may limit the scope of the Corp’s ability to utilize its authorization.

FCRA Non-Federal Series

FCRA treatment for federal loans to federally involved projects is a big, multifaceted topic.  It needed to be examined in depth and in a methodical way to provide substantive criticism of WIFIA’s current classification approach and develop credible alternatives.  I tackled it in a series of posts, each based on one of the relevant documents, in a sequence that builds to overall conclusions at the end.  Posts in this series all include ‘FCRA Non-Federal’ in the title because that’s a succinct way to reflect the goal, which is to ensure that only non-federal loans receive FCRA treatment.  Here’s the sequence: