EPA WIFIA is up for reauthorization by FYE2026, September 30 this year. I don’t know if there’ll be any debate about this at all. The standard ‘narrative’ about WIFIA is that it’s a highly successful, low-risk and (importantly) low-cost loan program that has strong bipartisan support. Positive policy outcomes will simply be asserted in short, attractive soundbites — jobs created, projects served, amounts saved, etc. The Zeldin letters last year and $65m in funding (which WIFIA doesn’t need) in the January spending bills are indicative of what might happen — reauthorization without debate, without changes or recommendations, just check the box.
But reauthorization still requires some type of legislation, which means (I think) that CBO will have to score the action. Unlike prior WIFIA scores, when the program was relatively new, this time CBO has seven years of actual results.
Assuming that CBO takes this exercise as seriously as they did in scoring prior WIFIA program legislation and the proposed FCRA amendments, they’ll need to consider these results, at least a little. Two, somewhat awkward, things stand out.
JCT/CBO Scoring on Federal Revenue Impact
The first is that JCT will need to revisit their assumption that WIFIA loans inevitably cause more tax-exempt bond issuance (and hence lower federal tax revenues) because program loans unleash otherwise stalled water infrastructure investment. That assumption dovetails nicely with the standard ‘narrative’, but not as well with the facts:
From 12/25 WFM Article: Explaining the Decline in WIFIA’s Loan Volume Part 2
As described in the article, actual results are more consistent with the assumption that WIFIA loans usually displace tax-exempt bonds (especially under certain interest rate conditions) in the debt capitalization for projects that would have progressed anyway. This has been clear for some time, but I think the data is now more difficult to ignore.
Will JCT do a 180-turn and score a revenue increase for the program? Maybe, but pragmatically, a score closer to zero is more likely. Still, that’s a big enough admission in itself. As a small but official deviation from the ‘narrative’, a revision by CBO to note the possibility that WIFIA is displacing tax-exempt bonds rather than spurring additional investment will open the door to further debate.
Future Funding Losses
WIFIA’s budget numbers FY18-FY25 are pretty much what you’d expect for a small, low-risk federal credit program — with one huge, glaring exception: $2.1b in total mandatory appropriations. That’s 9% of the $23b in total loan commitments, over 20% of reported $10b in loan disbursements and more than 10 times WIFIA’s total apportioned credit subsidy of $185m over the period.
I think CBO will need to ask some questions about this. But it should be noted that FCRA budgeting is not their world, which is all about federal cash revenue and expenditure. CBO’s negative scores on the CWIFP FCRA amendments were the result, not of FCRA numbers per se, but of their (perhaps now regretted) reliance on OMB’s Criteria to score WIFIA cost-share loans to federally involved projects in the cash budget because FCRA treatment didn’t apply. Obviously, WIFIA’s FCRA upward re-estimates are indisputably accorded FCRA budgeting treatment, so the $2.1b of re-estimates, or the loan disbursements that triggered them, certainly won’t be considered federal expenditures in the cash budget.
But what about the $2.1b of mandatory appropriations automatically incurred to cover the re-estimates? Discretionary appropriations are in the federal cash budget, even when they’re destined to be used for FCRA subsidies. But perhaps mandatory appropriations arising from a FCRA calculation might be treated differently?
Here I think things get tricky. If the mandatory appropriations arose from the correct and valid utilization of the FCRA re-estimate process and PIA for unpredictable funding losses, presumably CBO can ignore them for scoring purposes, regardless of scale. In valid usage, future portfolio interest rate gains would be expected to balance out the re-estimate losses over CBO’s ten-year horizon, or in any case over the 40-year horizon of long-term infrastructure loans. CBO would not want to score based on random ‘noise’ from interest rate movements, but only the budget ‘signal’, as FCRA intends.
But if questions arise about whether WIFIA’s funding losses really were unpredictable, or it’s pointed out that commensurate future gains might in fact be very unlikely due to WIFIA’s statutory loan terms and program practices, the $2.1b of mandatory appropriations FY18-FY25 might not look completely like ‘noise’, but as carrying a budget ‘signal’ about program cost that needs to be considered.
It strikes me that WIFIA’s compliance (or lack thereof) with the Anti-Deficiency Act will be a critical factor in CBO’s views on WIFIA’s big mandatory appropriations. An ADA investigation or a planned report to Congress will, I think, play an analogous role in CBO’s scoring for reauthorization that the FCRA Criteria did for the WIFIA FCRA amendments. That is, to put what might otherwise be a technical FCRA budgeting matter into the main federal budget arena, and (as with a JCT revision noted above) open up some fundamental policy debate about what WIFIA actually does and the possible need for reform.