New WFM Article: Continuing to Explain What Is Really Happening at WIFIA, On Multiple Levels

On the surface, the above article essentially reprises, in more formal and explanatory language, this recent post — The Zeldin Letters.

On the next level, the article is a continuation of efforts to cut through the WIFIA ‘narrative’ and present some facts about what might really be happening at a bellwether federal infrastructure loan program. Not so much to ‘report the truth’ (I’m not a reporter, much less an idealist) but because truth matters for effective policy design. Like a consumer product, you first need cold science and detailed engineering to make the thing work as intended. Only then can you let the marketing people loose with more-or-less truth-adjacent narratives in order to sell it.

As described in the prior two WFM articles, Explaining the Decline in WIFIA Loan Volume: Part 1 and Part 2, the WIFIA loan ‘product’ appears to be failing, certainly in terms of its promising start, but also more importantly in terms of its potential effectiveness in helping federal policy address US infrastructure renewal. Fixing this faulty ‘product’ is a group effort (federal finance is a national public good, after all), so I think it’s useful to ‘disassemble’ it in public — not to criticize, but as the basis for improvement.

There is a third level. For various reasons, I think WIFIA’s mandatory spending issue should start to be surfaced in public, but that’s not so easy to do if the topic is described in a standalone, abstract way. The wretched FCRA Criteria had this problem — as I think its proponents craftily intended — of being impossible to criticize because nobody really knows what it is. Floating above criticism or even widespread understanding, a distortion of federal budgeting law or loan program policy intent (harmful to most but useful to some) can be sustained indefinitely.

The ‘reset risk’ trope helps bring WIFIA’s mandatory spending issue back to earth and at least be understood, if not dealt with:

  • The ‘risk’ topic itself is practically clickbait for those WIFIA borrowers who might be relying on the reset for their interest rate management strategies. Looking at you, last five WIFIA loan commitments executed at about 4.8%.
  • A discussion of how the reset works introduces the cost of FCRA interest rate re-estimates in a comprehensible way. Treasury borrowing at 5% to fund a WIFIA loan asset earning 2% is obviously a loser for taxpayers, no?
  • The actual intentions of Aa3/AA- borrowers getting a WIFIA loan commitment in the first place can be highlighted. ‘Sophisticated’ borrowers using an ‘interest rate option’ to hit a ‘low point in an interest rate cycle’ sounds more like a description of Wall Street traders than simple Main Street folks with few financing alternatives using a ‘low-cost’ federal loan to build a ‘critical’ project for thirsty local kids, as the standard narrative would have it.
  • And speaking of ‘narratives’ — could it be that that “simplistic narratives about this issue” are “ugly” because they are both straightforward and true? Do you see it now? Do you? Okay, then let me spell it out: Narrative games can work both ways.