In late July, S.2443 Energy and Water Development and Related Agencies Appropriations Act, 2024, was passed out of committee and put on the Senate calendar. I assume it’ll become part of a must-pass consolidated appropriations bill later this year.
One section of the bill adds $2.2 million in funding to WIFIA’s program account for dam safety projects, in effect boosting CWIFP’s dam funding to $77.2 million. More importantly, the section also expands the scope of where the funding can be used to include a closely related type of water management infrastructure, levees:
WATER INFRASTRUCTURE FINANCE AND INNOVATION PROGRAM ACCOUNT
For the cost of direct loans and for the cost of guaranteed loans, as authorized by the Water Infrastructure Finance and Innovation Act of 2014, $2,200,000, available until expended, for safety projects to maintain, upgrade, and repair dams identified in the National Inventory of Dams…Provided, That amounts made available under this heading in this Act shall also be available for projects to construct, maintain, upgrade, and repair levees and ancillary features with a primary owner type of state, municipal, county, private, or other non-Federal entity [1].
Interestingly, the funding’s scope for levees is somewhat broader that it is for dams, which is limited to ‘safety projects’ and seems to exclude new construction. The language for levees doesn’t have the safety qualifier and includes new construction. I would guess that this expansion probably reflects some more-or-less thought-out practical considerations for the levee sub-sector.
It’s certainly possible that the extra funding and/or the levee language could be modified or deleted as the bill progresses through the full process. But I find that hard to imagine in the context of everything else that’s going on in Congress during these interesting times. They’ll be quite busy this fall. So, I think it fair to assume that this section will be eventually enacted as is, and its potential impact on CWIFP financing volume is worth considering for inclusion into CWIFP follow-up dam finance recommendations.
Estimating Potential CWIFP Levee Borrowers
As you’d expect, I don’t have any more real-world knowledge or experience with levees than I do with dams. Which is to say, basically none. But with that caveat, I think I can develop some very approximate estimates of the numbers of potential borrowers in the levee sub-sector using the same process I followed for CWIFP dam borrowers. And fortunately, the same data sources I used for the dam estimates are available (albeit in less detail) for levees. The first is the USACE’s National Levee Database, which is very closely modelled on FEMA’s National Inventory of Dams. The filters in the NLD are not as extensive as those of the NID, but adequate enough to make some estimates here. The second is from the Association of State Dam Safety Officers, which unsurprisingly covers levees in addition to dams and has a separate organizational section dedicated to the subsector. Their 2018 report, A Summary of Risks and Benefits Associated With
the USACE Levee Portfolio, is the main source I use here.
There are two things to note. First, in contrast to dams, which often have primarily local economic purposes (e.g., hydroelectric, reservoirs, recreation, etc.), levees seem to be mainly about regional flood control and inland navigation, both of which are (I think) primarily federal responsibilities. The USACE is the central federal agency for this task (as levee database sponsorship and the focus of the ASDSO report indicate) — and of course, it’s the agency where CWIFP operates. This circumstance undoubtedly will result in more and likely stricter application of WIFIA’s notorious FCRA Criteria, as will be discussed further below.
Second, this analysis will be abbreviated relative to prior one for dams. Partly, this is due to the immediately available data — to dig out more would require the kind of sectoral expertise I don’t have. I also think even a short analysis for the levee sub-sector is sufficient to add to recommendations for the primary focus, CWIFP dam finance.
Levee Length and Federal Involvement
According to the NLD, there are 6,837 levees in the US, with 25,411 of total mileage and an average age of about 60 years.
Like height is for dams, length seems to be the primary characteristic we need to consider for levees, as it will probably determine project cost. Also, for the FCRA Criteria reason noted above, federal involvement (there appear to various shades) should be baked into the analysis at the outset. The NLD has filters for length in miles and for various categories of ‘Authorization’, including Local, USCE and other federal agency involvement. Using these filters, we can categorize both aspects:
As with dams, most levees appear to be quite small, with a dramatic drop-off in numbers for those over 15 miles. Unsurprisingly, federal involvement is strongly correlated with length. Small levees are mostly fully local, while the majority of larger ones have some federal (primarily USACE) involvement.
Levee Project Cost Per Mile
I don’t have clear data about the percentage of levees with safety and other issues, or what type of project might be necessary to fix the issues. I’ll simply assume that at some point over the next few years all levees will need some type of repair, rehabilitation, restoration, expansion, etc., as you’d expect for essential infrastructure with an average age of 60 years. Obviously, a more in-depth analysis would provide a better picture, but the assumption will do for now.
Data about the cost of various project types is also not easily available (I’m beginning to see that the granular and useful detail summarized in ASDSO dam report for the prior analysis is very much the exception, not the rule). But there is one data point about total project cost of the USACE project portfolio in the ASDSO levee report, an average of $21 billion in aggregate. Using the total mileage associated with that portfolio, 14,400, I get an estimate of about $1.5 million per mile for a (possibly?) typical levee project. That number is obviously rough-and-ready, and doubtless will vary greatly depending on the project, but the portfolio size is a significant proportion of the total (though it likely skews to larger projects, as noted above) so I’m pretty sure that the estimate reflects some reality.
Combining the $1.5 million/mile cost estimate with the length & federal involvement data above, and putting it into the three categories of project size I used the in the dam analysis, yields the following picture:
The total aggregate cost of all 6,837 possible levee projects in the next few years would be about $37 billion, of which $21 billion is in the USACE portfolio, as noted above. Importantly for our purpose here, almost all of the small projects (under $2m) are local, and the great majority of large projects (over $20m) have federal involvement. Medium size projects ($2-20m) are a mix of local and federally involved.
CWIFP Potential Levee Borrowers
As in the prior dam analysis, with an approximate taxonomy of possible levee projects, we can estimate the volume of CWIFP financing that might be relevant to this sub-sector’s needs.
I make the same assumptions as used in the dam analysis with respect to CWIFP and project size, and for the same reasons. Projects under $2m in size are probably not relevant to CWIFP demand, while those over $20m can benefit from direct CWIFP loans, generally in the manner provided by WIFIA loans. Projects in the $2-20m range could benefit from indirect CWIFP loans that involve project combination or lending by intermediary project funds.
For the levee sub-sector, however, I add another type of categorization that I fear may be an important element in whether CWIFP will be able to offer financing for otherwise completely eligible large and medium size projects — federal involvement that results in disqualification under the FCRA Criteria.
I assume that local projects (per the NLD Authorization filter), won’t have an issue with FCRA. But those with some sort of federal agency involvement per the NLD filter will run right into it. Two aspects of the category would seem to intensify the potential for serious FCRA issues. The first is that the overwhelming majority of federal involvement is related to USACE activities. The second is that the filter itself references some type of ‘authorization’. Federal involvement itself would likely trigger the application of the FCRA Criteria, but the USACE and authorization aspects are further and specifically constrained by the Criteria’s infamous Footnote No. 4 [2]. Obviously, the severity of the issue will depend on the facts of a particular project, and I don’t know or completely understand everything that’s going on in the NLD filters, but in the overall context of CWIFP’s FCRA travails, I wouldn’t be too optimistic. At the least, federal involvement per the NLD filter is a flashing red warning light, and hence I’ve included a FCRA category for large and medium size projects.
Conclusions
The same conclusions for the dam analysis generally apply to non-FCRA levees. For these, the Senate language simply adds a closely related infrastructure sub-sector to CWIFP’s funding base and scope of demand. This appears to be relatively important for CWIFP direct loans — $2.7bn of volume across about 90 levee projects would be a significant addition to the $10.7bn of volume and 420 projects estimated for CWIFP direct loans in the dam analysis. For medium size non-FCRA levee projects, however, the potential impact looks much more marginal, since medium size dam projects dominate volume and number of projects in that sector.
But the biggest area of possible demand — CWIFP direct loans to levee projects with a potential FCRA issue, about $14.6bn of volume across 240 projects — is also the most problematic. For many of these projects, a FCRA disqualification might be objectively justified. The ASDSO levee report notes that the USACE portfolio includes 190 ‘Federal’ levees that are operated by the Corps without local involvement. Aggregate possible project cost for this group might total about $6bn, most likely primarily for projects over $20m.
As they are, I assume these possible ‘Federal’ projects will rely on federal sources for debt repayment, which legitimately precludes them from federal financing, and not just because of FCRA treatment either. But what if a local community proposes a cost-sharing arrangement to improve the safety of their section of a Federal levee? Is CWIFP financing for the local share (including fully local repayment sources) of the project eligible? That would pass WIFIA’s Section 3908 (b)(8) cost-share test and be consistent with FCRA law and fundamental principles, as well. But apparently neither of these matter, per FCRA Criteria’s Footnote 4, which overrides them both.
Other groups of possible levee projects with a lesser degree of federal involvement might get through the FCRA Criteria gantlet, depending on the specific facts. But realistically, I think any project with USACE involvement that includes any kind of Congressional authorization (that is, most?) is presumed guilty and can be written off. That’s probably the bulk of the $14.6bn and $5.4bn possible project volume for CWIFP direct and indirect loans for levee projects, respectively, or about two-thirds of overall potential CWIFP financing volume for the sub-sector.
In one sense, this is not surprising. As noted above, by their nature levees are often national-level, federal infrastructure assets and as such, extensive USACE involvement is inevitable. Given the FCRA Criteria’s focus (express and implied) on the USACE and CWIFP loans, two factors effectively overlap to disqualify a lot of otherwise completely eligible projects in the levee sub-sector. Likely this was an unintended consequence — it’s hard to imagine OMB having a specific animus against US levees, per se.
But in another sense, the unintentional nature of the FCRA Criteria’s exclusion of so many levee projects from federal financing demonstrates a surprising amount of carelessness about the real-world impact that OMB’s flawed and arbitrary FCRA rules might have. That’s the real problem. How many fewer local cost-share projects in this sub-sector will get done? How much more cost will federal taxpayers bear for essential levee projects due to this? How many efficiencies and economies of scale between USACE operations and CWIFP financing will be lost? Did OMB even think about these numbers? Of course not. Perhaps they should be made to.
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Notes
[1] I am assuming that ‘amounts made available under this heading in this Act’ was intended to mean that CWIFP funding for levee projects is limited to $2.2 million, though it can also get used for dams. But perhaps the full $77.2 million was meant also to be available for levees? Does the ‘in this Act‘ refer to the specific $2.2 million amount or to the program account ‘heading‘ where the full $77.2 million will be? It’s a theoretical question until the program gets going and actual demand can be assessed, and perhaps it’ll be clarified in that context. The important thing is that the levee sub-sector got added with any amount of funding, opening the door to applications.
[2] Here is the footnote, with emphasis added. For a future analysis, it would make sense to develop a precise comparison between how OMB intends the word ‘authorized’ to be understood and the exact scope and meaning of ‘Authorization’ in the NLD filter. Unfortunately, I suspect there’s a lot of overlap.
WIFIA authorizes loans to support local cost-sharing requirements. See 33 U.S.C. 3908(b)(8) (“The proceeds of a secured loan under this section may be used to pay any non-Federal share of project costs required if the loan is repayable from non-Federal funds.”). However, such a loan that would finance a project that is in whole, or in part, a project authorized by Congress for the Army Corps of Engineers or the Bureau of Reclamation to construct would not meet the Federal asset screening process. Project applicants are encouraged to review all applicable statutory requirements before seeking WIFIA financing.