Until quite recently, I thought the WIFIA Loan Program would evolve into a model for federal infrastructure finance. Now I’m seeing that it won’t. Instead, the Program is becoming another US ExIm Bank.
I should have expected this. A small program that makes relatively big loans for a specialized purpose will be ‘captured’ by influential borrowers who can use the subsidized federal financing in ways that disregard, or are even opposed to, the program’s original policy intent. Once they have the program working the way that best suits their specific interests, this dominant ‘base’ will resist substantive changes or irrelevant (to them) improvement. The focus then will be on ‘narrative’ and quiet political influence to sustain the status quo. Keeping the program small and generally obscure can be part of the plan, especially if program loans are an occasionally useful option, as opposed to a core financing alternative.
For loan programs captured by private-sector borrowers, like US ExIm, the term ‘crony capitalism’ has been used to describe the de facto replacement of national public good policy objectives with private-sector profit outcomes. Obviously, the handle doesn’t fit EPA WIFIA’s base of heavyweight public water agencies — the ‘profit’ from WIFIA loans is, I assume, mostly in the form of lower water rates for their customers. For the managers of the agencies themselves, perhaps that translates to more local political power or anyway a more secure job. Of course, their outside financial advisory firms might get a cut of the ‘savings’ in fees, but I assume this is reasonable and in the normal course of their overall work.
Nevertheless, the policy distortion is still there — Aa3/AA- water agencies are able to use WIFIA loans purely for sophisticated interest rate management, at high cost to federal taxpayers and without material additionality for US water infrastructure. Yes, some lucky local water consumers see slightly lower rates, but such ‘luck’ is completely unrelated to ‘need’ (cf. WIFIA loans to Silicon Valley Clean Water) and might be more correlated to having a sophisticated local water agency with sharp advisors. Well, the rich get richer, no? But it’s not at all the policy intention of federal infrastructure finance. If actual WIFIA outcomes were presented without heavy ‘narrative’ camouflage, there would be objections — as there have been for US ExIm.
A neologism was necessary to convey the idea of a similar distortion, but for loan programs that aren’t lending to the private sector. ‘Crony loan programism’ came to mind.
I ran it through Google Gemini, as I’m increasingly doing for new ideas and ‘thought experiments’. Why not? Caveats outlined in a recent prior post apply, but again the PDF is unedited, and I’ll let the reader decide what’s slop and what’s not.