Possible-Additions-to-HR-6229-SEC_-2_-CLARIFICATIONS-InRecap-v1.0-12232025-1

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I put some thought into WIFIA statutory eligibility for portfolios of small dam removal and rehabilitation projects in 2023, CWIFP Loans to Small Dam Funds and Small Dam Financing Co-Op. Now I’m thinking that the concepts could be relevant in HR 6229 for all WIFIA and CWIFP small projects.

As I’ve written about a number of times, WIFIA as a federal loan program ought to be focused on large very creditworthy loans — this focus plays to federal strengths and can mitigate some federal weaknesses. This is especially true for project finance, a complex specialty that even private-sector lenders can find challenging.

How Can WIFIA Efficiently Lend to Small Projects?

But small, less creditworthy water projects are a big category that’s even more in need of federal financing assistance to unlock what limited local funding is available. Trying to do something to improve WIFIA’s capabilities in this area makes a lot of sense, both in terms of real-world policy outcomes and, well, politics. Program renewal (maybe even survival?) is going to need a broader base than large, well-heeled water systems who can consider a WIFIA loan an ‘occasionally useful‘ option for sophisticated interest rate management. You need some folks in the mix who really benefit from (and appreciate!) basic financing at UST rates, even if it’s a few basis points off the latest yield curve. WIFIA needs policy and political additionality, as it were.

Just lowering minimum project size and ‘prioritizing’ small communities, however, is no more than declaring a policy intention — necessary but not sufficient. WIFIA is simply not going to be very good at efficiently originating and processing a multitude of small project finance loans. On their side, small communities will see that notwithstanding a low minimum project size and a welcoming attitude, WIFIA’s general statutory framework is fundamentally suited to deal with institutional-scale Aa2/AA borrowers, a daunting process in which it’s not at all easy for small projects to succeed. Previous EPA announcements for prioritizing small loans didn’t result in any significant demand — if there wasn’t a stampede for $5m loans, why would that happen with a $1m threshold? More substantial accommodation is required.

The SWIFIA Principle

How — realistically — to make progress without distorting what makes the WIFIA Program uniquely effective as a federal infrastructure loan program in the first place? I think the answer lies in an analogous path, already successfully trodden — SWIFIA loans. This WIFIA capability, enacted in the 2018 AWIA bill, allows the Program to make big loans to SRFs against a portfolio of small loans. This approach allows WIFIA’s federal lending strengths and scale economies to become available to small projects through non-federal intermediaries — a kind of ‘wholesale’ to ‘retail’ supply chain. (SWIFIA ought to get far more utilization — but that’s another topic).

Since the essential policy principle of WIFIA lending against a portfolio has been established — and can be highlighted as such — policymakers can focus on the required legal and financial mechanisms. In one sense, they’re not mysterious — there’s the SWIFIA precedent to begin with, and then there’s all the well-established machinery of an immense financial sector devoted to long-term loan portfolio securitization, not the least of which are the federally backed home mortgage giants, Fannie Mae and Freddie Mac. Plenty to work with.

Still — no one should expect an overnight transformation. Even the much-vaunted New Deal success story of 30Y home mortgages, roughly analogous to a federal effort to broaden efficient credit access for small project financings, took about twenty years to accomplish in its current form. That’s as it should be — ‘narrative spin’ and politically oriented policy ‘priority’ statements are quick, easy, and can get the ball rolling. But real and sustainable transformation is an organic development that will take time and persistence.

First Step in HR 6229

Perhaps the process could begin with a small and highly technical-seeming addition to the current HR 6229 bill?

As I described in the prior posts about small dams and CWIFP, the addition works with an existing WIFIA eligibility category for small project ‘combinations’, §3905.10:

A combination of projects secured by a common security pledge, each of which is eligible under paragraph (1), (2), (3), (4), (5), (6), (7), or (8), for which an eligible entity, or a combination of eligible entities, submits a single application.

Small project combinations are frequently financed with WIFIA, but always for a large single investment-grade borrower (an ‘eligible entity’) implementing a long-term multi-project capital plan. It’s a very useful feature for transactional efficiency and for overcoming, where necessary, the $20m minimum project size threshold. (And, oh btw, very handy for option-style interest rate management — more on that in future posts).

Multiple borrowers (a ‘combination of eligible entities’) submitting a single application for a combination of small projects are also eligible, which appears to go in the right direction. But there’s a roadblock — the required ‘common security pledge’ is interpreted (and perhaps was intended) to include at least full cross-default and cross-acceleration and probably in effect joint and several liability. Communities obviously won’t take that risk on each other. It’s the equivalent of requiring home mortgage borrowers to guarantee everyone else’s mortgage in the HOA before being eligible for a federal support. Total non-starter.

A slight modification of this extreme security requirement could make a huge difference. The possible addition to HR 6229 sketched in the one-page PDF above simply ‘loosens up’ the language in §3905.10 to allow WIFIA to consider other types of ‘security arrangements’ in a small project combination application as long as other WIFIA loan credit and seniority standards can be achieved. Technical assistance for small projects, already emphasized in HR 6229, could be expanded to help a group of small project borrowers and other eligible stakeholders put together something that might work. Assistance in these specialized financial technical matters is likely to be sorely needed, and the process of providing it would provide an early-stage venue for brainstorming with the Program.

Note the new language and technical assistance doesn’t specify what eligible security arrangements should be, or even what the Program is likely to approve. It simply says: “Other arrangements for small project combinations are not excluded — we’re open-minded and we’ll work with you”. Isn’t that pretty much the same political message that the current HR 6229 language lowering minimum project size is sending?

What an Eligible Security Arrangement Might Look Like

As described in the prior small dam posts, I can see how a combination of small projects and small borrowers, none of which can meet WIFIA size and credit requirements on their own, could successfully apply for a big SWIFIA-style loan. Something like this:

Yes, I know — a lot of boxes and financial terms. But in actuality such a structure is simply utilizing straightforward ‘securitization’ portfolio mechanics, analogous in policy terms to SWIFIA SRF loans. Remember that WIFIA only finances 49% of the project cost — 51% of the money had to come from other sources in any case. It may not be difficult to ‘pool’ the 51% that would have gone into individual small projects anyway (e.g., from SRF loans or grants) into portfolio sub-debt and equity categories.

A few other considerations:

• The overall policy direction of expanded federal financing for small projects is consistent with the ‘states should fund their own infrastructure’ statement from Trump’s WH FY26 Budget Summary. Low-risk, large-scale financing is something the federal government is good at (e.g., home mortgage markets) but lower-credit, small-scale funding is challenging (e.g., pre-New Deal home mortgage income requirements). If you want states and localities to fund their own infrastructure (which after all is an integral part of national social and economic well-being), support them with financing.

• The 55Y loan term amendment in HR 6229 would work very well with an expanded scope for small project combinations. The 55Y term is suitable for long-lived, life-essential projects (e.g., pipe systems, sewers, levees). Such projects usually have a lower technical and credit risk profile — lower debt service payments of a 55Y term helps with the latter. I can imagine specific long-lived portfolios being put together. Most importantly, allowing small projects to access such a uniquely long loan term might be a game-changer for localities. Again, the analogy with the 30Y term available in the federally supported home mortgage market applies — prior to that, mortgages were limited to five- or ten-year bullets. The longer term made a big difference in home ownership, to say the least.

• One downside should be considered – WIFIA-eligible small project combinations could represent competition for SRFs. But as noted above, if an SRF was going to make a loan to a small project anyway, wouldn’t a sub debt or other more value-added part of the capital structure be a better use of their limited financing capacity? WIFIA and SRF loans have worked well together in many individual projects due to their complementary features. Applying this principle on a portfolio basis would have scale economies and scope for innovation for both sources of federal financing. More generally, WIFIA and SRF policy needs coordinating to avoid competition and overlap in any case — working together on small project portfolios are naturally part of that discussion, so why not get it started?

From the Bond Buyer 12/19/2025:

Like the water advocacy groups’ October letter, this one is mostly ‘standard narrative’ about the importance of the WIFIA loan program and how Trump 2.0 is delaying loans — not a bad thing in itself, as long as it doesn’t distract from more fundamental issues, as discussed in a prior post. The senators’ letter, with my comments, here.

The two letters look coordinated, both with each other and likely with a flurry of related water news articles (most focused on the approval of the Ft. Worth loan). I get the impression that a sort of campaign is underway, probably originating with some large WIFIA applicants that are suddenly in hurry to get their loan commitments closed. They’d push the advocacy groups, and I’m guessing the advocacy groups wrote a letter, cranked up some water sector publicity and pushed the Senators, who wrote another letter and cranked up their own political publicity — everyone just doing their job.

Okay — But Why Now?

But why now? Current WIFIA UST rates don’t look at all good compared to tax-exempt bond indices — why are the applicants pushing to close loan commitments with those fixed UST rates, high in historical terms and high relative to bonds?

I think there are two reasons. First, maybe they’re nervous that some ideologues in the Trump 2.0 administration will effectively shut down the Program altogether, and the commitments will never be forthcoming. Hard to imagine such extremism succeeding — but you never know nowadays.

Second, and I think much more likely, is related to WIFIA’s practice of resetting loan commitment rates lower if rates fall, which makes getting an inked commitment on any terms very valuable. Large, sophisticated water authorities with big long-term capex programs absolutely know how it can be used – get the commitment regardless of then-current rates, keep undrawn for years, hold if rates rise, reset if rates fall, and use short-term finance for actual construction draws. In effect, a kind of free interest rate hedge with option characteristics (since there are no cancellation penalties).

If it were certain that the reset would always be available, applicants could be patient about closing – hence no pushback earlier this year against the OMB pause.

But perhaps the certainty of future resets has become increasingly questionable? The reset is not statutory, nor even a rule, but subject to bureaucratic decision and revision. Yes, there are at least twelve precedents of WIFIA loan resets, mostly in 2020. But the reset practice could – without any difficulty – be discontinued by Vought’s OMB, which obviously doesn’t GAF about precedent. It could happen — tomorrow.

If curtailment of WIFIA’s rate reset is the concern, then the motivation behind the Zeldin letters is a bit more complex — yes, to get the commitments closed ASAP, but also to demonstrate to OMB that political pressure can be brought to bear in other WIFIA areas as well. For obvious optical reasons, the big water authorities can’t openly object that a ‘non-statutory feature for free interest rate options’ might be discontinued. But they and their advocates can complain righteously and very publicly that Trump’s OMB is slow walking loans and delaying critical water project construction (latter not necessarily true but sounds good), all in line with orthodox narratives. Readiness to defend the rate reset is only implied.

Note that this underling motivation likely resides only at the big water authorities themselves, who understand the value of the reset. I’m sure the Dem senators have no idea what the reset is or what is does, and don’t care anyway — the opportunity to take a shot at Trump’s EPA and OMB about ‘delaying critical American water infrastructure’ is sufficient bait. The water advocacy groups might know a bit more but again won’t care — big players in their membership are making a reasonable-sounding request to organize a pro-WIFIA campaign, and that sort of thing is an advocacy group’s day job.

I’m quoted in the Bond Buyer article about the Zeldin letters possibly having a more complex motivation:

“It’s mainly the upheaval in federal funding that caused the slowdown this year under Trump,” said John Ryan, principal at InRecap LLC. “In a sense it’s a very simple story, and the water advocacy groups were doing their job in pushing Zeldin to get the loans closed, and the political folks were doing the same.”

“Ryan said the larger story could be that some of the larger issuers are asking water lobbyists and lawmakers to push the EPA because of worries the administration may tamper with or even eliminate the program.

“For example, a popular feature of the program, which is not written into statute, is a rate reset term that lowers the loan’s rate if interest rates tick down. “The Zeldin letters might in fact be directed at OMB to close loans faster, as stated, but maybe also to indicate that some big water agencies aren’t going to be happy if WIFIA features get curtailed and that they’ve started to organize political and interest group pressure,” Ryan said”

Related to the Surfacing of Huge WIFIA Mandatory Spending?

Why, apart from ideological zealotry, would OMB want to curtail WIFIA’s interest rate reset? Maybe this — WIFIA Mandatory Spending. The rate reset is a primary mechanism in allowing WIFIA loans to be utilized as relatively efficient interest rate options, thereby triggering higher FCRA interest rate re-estimates.

The big mandatory spending numbers were always latent in WIFIA’s current portfolio, but I think they only officially and/or publicly surfaced earlier this year in the WH FY26 Budget Technical Appendix. Perhaps questions are being asked loudly enough to come to the attention of big WIFIA applicants? Or assumptions are being made that they will be asked?

Will a political campaign to bulletproof the reset feature, if that’s what the Zeldin letters were in part about, succeed? I don’t know — the question is above my pay grade. But if OMB chooses to fight, for whatever reason, they’ll have ammunition based on an equally accessible and proven political ‘narrative’: WIFIA’s Solyndra-Scale Timebomb?

Perhaps the applicants and their advocates should consider an additional, and frankly more substantive, approach — To Preserve WIFIA’s Interest Rate Management Features, Enact the 55-Year Loan Term.

What the WIFIA Loan Program does not need:

• More funding in FY2026: The WH FY2026 Budget Proposal is correct, even understated, in saying that WIFIA has more than enough funding for FY26 credit subsidy from carryover of prior year’s unutilized discretionary appropriations. In fact, the amount, about $220 million if all pending loan applications close (unlikely), is enough for about $22 billion of new loans — more than 10 years of volume at the Program’s 2024 pace.

• More ‘this is fine’ narrative: An October 2025 letter from four water advocacy groups to EPA’s Zeldin pushed for a resumption of WIFIA loan closings stalled by the OMB pause and Trump 2.0’s general federal upheaval. Okay — but the letter continued with a narrative implying that Trump 2.0 was the Program’s only problem and “[r]esuming the previous pace of WIFIA loan closings will create jobs across the nation and contribute toward the Administration’s goal of ensuring that Americans have access to the best water in the world.” Not exactly a realistic assessment.

• More press release spin: It is standard practice for credit programs to issue a press release announcing annually available funding and inviting applications. So, no surprises in the EPA’s 11/20 PR re about $70 million of available credit subsidy funding (enough for roughly $7 billion of loan volume) — pretty much the same as it has been each year since 2020. Of course, ‘available’ doesn’t mean ‘will be utilized’ (most probably won’t unless WIFIA is improved) but still a standard announcement. What comes next is unusual — the Program also announced the approval of five loans in process — not their closing, just the approval. WIFIA loans have very high eligibility standards — is it news that an investment-grade loan to a low-risk water infrastructure project is approved? Not really — closing a high-grade project finance loan is the hard part and that’s likely still uncertain for some (if not all) of the five loans, depending on how their alternatives look over the next few months. Perhaps the real ‘news’ is simply that OMB is finally starting to process loans again? It’d be fair to note that in the PR (maybe a sentence), but the approvals were played up, including in the water press, as if it represented a major success. Yes, OMB doing their job again is necessary for WIFIA’s renewal — but far from sufficient.

Don’t get me wrong — adequate WIFIA funding, a strong narrative about Program capabilities, and press releases that highlight successes are important elements in realizing real-world policy outcomes. I get it. But under WIFIA’s current circumstances, sole focus on them poses a danger of camouflaging serious issues and fostering a ‘mission accomplished’ mindset for actions that are only marginally useful or even irrelevant.

What WIFIA does need now:

• Calm and realistic consideration of the Program’s strengths and weaknesses using data and analysis of its operational results 2018-2024.

• Development of an overall plan of reform and improvement by amendment, especially in the context of two other sources of federally subsidized water infrastructure finance — SRFs and the tax-exempt water & sewer bond market.

• Immediate action by way of support for the proposed 55-year loan term amendment currently in Congress.

55-Year-WIFIA-Loan-Term-Amendment-for-Long_Lived-Projects-One_Pager-InRecap-12152025-v1.0

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^{A more rational pie starts with WIFIA amendments}

When Coke, Pepsi and Dr Pepper battle each other for market share, it might result in an improvement in one or more of the products (Schumpeter’s ‘creative destruction’) or, more likely for such similar items, a zero-sum outcome that’s a win for some shareholders and a loss for others. Fine — that’s how profit-maximizing private-sector markets work.

But when three federally subsidized infrastructure financing ‘products’ — WIFIA loans, SRF loans and tax-exempt bonds — have such a degree of overlap that they compete with each other for ‘market share’ in US water capex, how should we view that? Federal taxpayers are the ‘shareholders’ in all three with respect to subsidies [1] and their goal is not profit-maximization but ‘national public good’ maximization. Obviously, an intentional and unified federal policy was not responsible for this ‘Coke-Pepsi-Dr Pepper’ outcome — it was the result of organic and siloed development. But now that the outcome is clear, especially in light of WIFIA’s eight-years of operation, what should be done to improve federal taxpayers’ return in terms of public good maximization?

In theory, I suppose, you could argue that allowing the three financing ‘products’ to continue competing might have some value with respect to ultimate policy design — a kind of creative destruction phase for policymakers to observe what works and what doesn’t. But is that useful at this point? We’re talking about basic water projects, long-established water agency borrowers, and straightforward project financing principles. To the extent any ‘experimentation’ was necessary, WIFIA’s interaction with SRFs and bonds for the last eight years provides sufficient — and in retrospect, entirely predictable — evidence that if displacement among the products can happen, it will, and in accordance with simple observable factors like borrower cost and levels of federal funding. No mysteries there.

More realistically, the status quo will lead to zero-sum outcomes — pointless competition influenced primarily by ‘advertising’ and ‘branding narratives’ pushed by lobbyists and interest groups, without any improvement in the ostensible objective of all three, US water infrastructure as a national public good.

Well, so what? Federal taxpayers are not exactly ‘activist shareholders’ when it comes to such relatively minor and highly technocratic matters as US federally subsidized water infrastructure finance. The zero-sum status quo is safe in their hands.

But what about the ‘consumers’ — US water sector agencies and stakeholders? In happier times, they might not have cared too much, either. As long as the three products remained on offer, and they could take advantage of periodic ‘specials’ that favored one product over another (e.g., due to atypical interest rates or a big dollop of federal funding), the state of the overall ‘market’ wasn’t their concern.

With harder times, that indifference is likely to change, for two reasons. First, although federal taxpayers will remain oblivious, federal policymakers looking for couch change or motivated by ideology can attack apparently ‘duplicative’ programs, as has already been seen in the WH FY2026 Budget Proposal.

Second, and much more substantively, borrowers facing increasingly difficult funding challenges will start looking for federally subsidized financing ‘products’ which not only have the traditional lower interest rate but can facilitate more affordable hikes in taxes and water rates through loan features (e.g., slower amortization, debt service deferral, etc.). When they become aware that WIFIA loan terms are relatively easy to redesign and amend for that purpose, the contours of the larger ‘market’ in which WIFIA loans interact with SRF loans and bonds will also be more relevant. If WIFIA is significantly improved, potential synergies between the now-differentiated ‘products’ will become more apparent, and borrowers may be motivated to seek improvements in the other two, though that’s more difficult [2].

WIFIA improvement is necessary in itself, of course. But the process can be a bridge to a more unified and rational approach to the whole federally subsidized water infrastructure finance ‘marketplace’. Stakeholders and their advocacy groups should consider the value of this proactively, as it’s in the interest of both water sector borrowers and federal taxpayers [3]. Even policymakers seeking to find budgetary couch change or score ideological points might find some things they like in it.

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Notes

[1] Tax-exempt bond investors are ‘shareholders’ in the non-subsidized part of the bond ‘product’. But they are ‘consumers’ of the federal subsidy via tax shelter, and their interest in that subsidy is not aligned with either federal taxpayers or bond issuers: They maximize profits by gaining the biggest possible tax-exemption from the former, while sharing the least possible part of the value of it with the latter.

[2] The SRF statutory framework is long-established and covers a huge amount of ground — perhaps the best that can be done there is to consider the importance of predictable funding and encourage leverage, including by improved SWIFIA loans. Tax-exempt bond change through tax-code amendment is a whole other world.

[3] The interest of tax-exempt bond investors is more complicated. Their profit-maximizing goal would be best achieved by a monopoly on the ‘market’, so ideas about improving the public good by making other federally subsidized finance sources more useful (and hence more competitive with bonds) will be quietly (or even surreptitiously) resisted. Perhaps the prospect of synergies leading to a win-win outcome (a bigger US water capex pie) could soften their resistance? Or, more subtly, that a clear (even dominant) role in an intentional federal water finance policy might be a good defense against future 2017-type cuts? I don’t know.