To Preserve WIFIA’s Interest Rate Management Features, Enact the 55-Year Loan Term

There’s a ton of technical analysis and details behind this case, but the short story is straightforward:

The Background

  • Under WIFIA’s current statutory framework, WIFIA loans and tax-exempt muni bonds are close substitutes.
  • As a result, WIFIA borrowers (the vast majority of which are highly rated public water agencies that regularly issue in the tax-exempt bond market) utilize the Program’s interest rate management features as a type of arbitrage.
  • The cost of this arbitrage to federal taxpayers is not funded by discretionary appropriations. Instead, it is reflected in an off-budget FCRA account as mandatory appropriations. In the WH FY26 Budget Technical Appendix, mandatory spending for FY24 and FY25 total about $1.6 billion. When amounts from FY22 and FY23 Technical Appendices are included, WIFIA’s total mandatory spending is over $2 billion — about 9% of the Program’s $22 billion portfolio. This amount is far above WIFIA’s discretionary funding — and likely to continue growing over the next 2-3 years.

The Narratives

  • Anti-WIFIA Narrative: Another Solyndra. Shut it down or at least curtail the Program’s interest rate management features.
  • Pro-WIFIA Counter-Narrative: Interest rate management features are critical for financing large, long-lived infrastructure projects. The use of such features for arbitrage can be minimized by differentiating WIFIA loans and tax-exempt bonds. The simplest and most effective way to differentiate the two is to enact the 55-year WIFIA loan term amendment recently re-introduced in Congress. This not only provides WIFIA with a path to reverse portfolio losses over time, but offers borrowers an important debt service management option for long-lived projects.

There are a number of other policy and political considerations for the 55-year loan term, as well as additional counter-narratives for the mandatory appropriations’ ‘sticker shock’. I’ll be posting about these in coming days.