Last Friday the Environmental Protection Agency announced the launch of a Water Infrastructure and Resiliency Finance Center to help communities across the country improve their wastewater, drinking water and stormwater systems utilizing innovative financing and incorporating building practices resilient to climate change. The Center’s opening was announced as Vice President Biden and EPA Administrator Gina McCarthy toured the construction site for a tunnel to reduce sewer overflows into the Anacostia River in Washington, D.C. by 98 percent. The Center will work with state and local governments, utilities and the private sector to use federal grants to leverage private capital to address more than $600 billion in needs for drinking water and wastewater management over the next 20 years.

The Finance Center is part of the Obama administration’s “Build America Investment Initiative,” an attempt to increase infrastructure investment and promote economic growth by creating  collaborative opportunities for state and local governments and the private sector, expand public-private partnerships (P3s), and increase the use of federal credit programs.

CWC was gratified that McCarthy openly acknowledged the importance of water infrastructure investment to Americans. “By modernizing the nation’s infrastructure,” she said, “we can protect our drinking water sources and enhance resilience to the impacts of climate change by avoiding financial and water supply losses from leaking pipes and reducing pollution from sewer overflows and wastewater discharges.”

The EPA cited the following key points in announcing the Finance Center’s launch:

·       The Center will serve as a resource for communities, municipal utilities, and private entities as they seek to address water infrastructure needs with limited budgets.

·       EPA will help explore P3s and innovative financing solutions.

·       Aging and inadequate water infrastructure hinders the ability of communities to provide clean drinking water, manage wastewater, reduce flooding, and provide recreational waters that are safe to swim and fish in.

·       Impacts of climate change — including intense and frequent storms, drought, floods, sea-level rise and water quality changes — create challenges for communities as they prepare water infrastructure that can withstand these impacts.

The Center is one of the ways the Obama administration is seeking to address the vast backlog of American infrastructure projects by generating private funds in concert with federal grants.  Other ways include the creation of qualified public infrastructure bonds (QPIBs) that could be issued to finance airports; roads; mass transit, water and sewer systems; and other projects. They would be the first type of municipal bonds available for P3s; they would be exempt from the alternative minimum tax, which limits the tax benefits and exemptions that high-earning individuals can claim; they would not expire; and they would have no interest rate cap. The bonds would represent a type of hybrid of municipal bonds and private activity bond (PAB) program, which have helped finance about $10 billion in projects. Unlike the PABs, however, the new program will include financing for airports, ports, public transit and solid waste projects.

CWC believes that both the Water Finance Center and the QPIBs hold great promise for communities interested in P3s and other creative financing for water infrastructure. But since the proposal does not add new Federal spending, we retain a bit of skepticism over the source of its funding, so our staff will be scrutinizing the President’s budget carefully for potential cuts to current Federal water infrastructure funding. We will, for example, be on the lookout for possible cuts to the EPA’s State Revolving Fund (SRF) allotment. (As detailed in our December 17, 2014 post, President Obama proposed in early 2014 hundreds of millions of dollars of cuts to the SRF programs, cuts fortunately rejected by the omnibus spending bill approved by Congress in December.) We are cognizant of the risk that more publicly visible projects like airport and mass transit improvements, which have the potential to deliver greater political benefits, may crowd out water projects, so we will be vigilant in reviewing the details of the budget and the particulars of the Build American Investment Initiative as they unfold.

The White House said it would host an event in March to match investors with public projects in need of financing. CWC will keep you updated on projects funded by the Finance Center and on progress on the President’s infrastructure initiative, including details that we expect to emerge after last night’s State of the Union address. In the meantime, click here to see the Administration’s fact sheet about the Finance Center and other infrastructure programs included in the Build America Investment Initiative.