The U.S. WIFIA loan program: transforming water infrastructure financing
The U.S. Water Infrastructure Finance and Innovation Act (WIFIA) program provides long-term, low-cost supplemental loans for significant water infrastructure projects. It aims to accelerate investment in critical water systems to help communities tackle their infrastructure needs.
As water infrastructure in the United States faces increasing challenges from ageing systems, population growth, and climate change, innovative financing solutions have become essential. One of the most significant initiatives addressing this need is the Water Infrastructure Finance and Innovation Act (WIFIA) program, administered by the U.S. Environmental Protection Agency (EPA). We delve into the WIFIA program's significance, the types of projects it finances, and its impact on water infrastructure across the nation.
The WIFIA program, established in 2014, is a federal credit program designed to accelerate investment in the nation's water infrastructure by providing long-term, low-cost supplemental loans for regionally and nationally significant projects. The program aims to support a wide array of water infrastructure projects, including those related to drinking water, wastewater, stormwater, and water reuse.
The program provides loans with flexible terms and low interest rates to help communities tackle water and wastewater infrastructure challenges at a reduced cost. It accelerates investment in infrastructure of national and regional significance by offering loans to creditworthy borrowers for up to 49 per cent of eligible project costs (or 80 per cent for small communities of 25,000 people or less). In addition, it stipulates that total federal assistance for any project may not exceed 80 per cent of total project costs.
By offering financial support that complements other funding sources, WIFIA helps to bridge the funding gap for large-scale and complex water projects that might otherwise struggle to secure sufficient financing.
Significance of the WIFIA Program
The significance of the WIFIA program lies in its ability to provide substantial financial assistance for critical water infrastructure projects, thereby ensuring the sustainability and resilience of water systems across the United States. Since its inception and up to December 2023, the WIFIA program had closed loans totalling over $19 billion, supporting nearly $43 billion in water infrastructure investments.
Jorianne Jernberg, Director of the WIFIA program, highlights the program's achievements in the 2023 annual report: "2023 was another successful year for the WIFIA program, with almost $3 billion in closed loans to support approximately $7 billion in drinking water, wastewater, and stormwater infrastructure projects." These figures underscore the program's critical role in facilitating large-scale investments that improve water quality, increase system resilience, and protect public health.
The WIFIA program provides long-term, low-cost supplemental loans for regionally and nationally significant water infrastructure projects
The EPA acknowledges the key role of capital markets in the development of water and wastewater infrastructure across the U.S.; the objective of the program is to supplement existing funding resources, not replace them. Every project receiving WIFIA funds must be cofinanced with other funding sources, including tax-exempt or taxable bonds, loans, grants, and equity.
Worth noting is that the WIFIA loans offer unique advantages not typically found in capital markets. The WIFIA program can provide credit assistance with extended maturities due to the federal government's long-term investment perspective. Within the WIFIA Base Program, borrowers can benefit from customized terms, such as tailored repayment schedules to meet the specific requirements of a project. Additionally, the WIFIA program offers loans at a low, fixed interest rate equivalent to the Treasury rate for a comparable maturity.
Smart Water Magazine asked Jorianne Jernberg about her take on the program’s impact: “Since issuing our first loan in 2018, the WIFIA program has made a massive impact on communities across the country through over 125 loans, helping finance nearly $44 billion in projects.” Beyond helping communities address water infrastructure challenges, she also stresses that the program “helps communities save money through its long-term loans and flexible repayment features. To date, the WIFIA program has helped communities save $7 billion and create over 140,000 jobs.”
Types of projects financed by WIFIA
Loans are offered through two distinct streams: the WIFIA Base Program, designed to finance water infrastructure projects for a wide range of borrowers, and the State Infrastructure Financing Authority WIFIA (SWIFIA) Program, which is exclusively for state infrastructure financing authority borrowers.
Borrowers can benefit from customized terms, such as tailored repayment schedules to meet the specific requirements of a project
The WIFIA program finances a broad spectrum of water infrastructure projects, addressing diverse needs from drinking water and wastewater treatment to stormwater management and water reuse. The program's flexibility allows it to support projects at various stages of development, from planning and design to construction and implementation.
In 2023, the WIFIA program introduced planning and design-only loans to support the preliminary phases of large, complex infrastructure projects. These loans help communities conduct necessary analyses and evaluate alternatives before proceeding to construction.
According to Bluefield Research, looking at closed loans, treatment projects constitute the most frequent type (29%) and are the second largest category (32%), following supply projects (35%), for pending loans. These initiatives encompass the construction and enhancement of water and wastewater treatment facilities, as well as recycling/reuse, desalination, and PFAS projects. Other areas like specialty treatment approaches (reuse, desalination, and PFAS) have been a less common type of project under the WIFIA program, but are expected to become more common given the increasing need to address water supply and quality issues across the U.S.
Economic impact of WIFIA investments
The economic impact of WIFIA investments is substantial, providing communities with cost savings, job creation, and enhanced economic resilience. The program's financial benefits are particularly significant given the higher interest rate environment and the potential costs associated with federal requirements.
WIFIA loans offer flexible terms and low interest rates, resulting in significant cost savings for borrowers. For loans closed in 2023, WIFIA borrowers will save approximately $1 billion over the life of their loans. These savings are achieved through various mechanisms, including the ability to request reimbursements only once costs are incurred, flexible repayment schedules, and no-penalty prepayment options.
For example, the WIFIA program's cost-reimbursement structure ensures that interest does not accrue until funds are drawn, allowing borrowers to manage their cash flow more effectively. Additionally, the option for a one-time interest rate reset provides further financial flexibility, enabling borrowers to benefit from lower rates if market conditions improve.
Furthermore, investments in water infrastructure through the WIFIA program also generate significant employment opportunities. As of December 2023, WIFIA projects have created approximately 143,000 jobs across the country. These jobs span various sectors, including construction, engineering, and environmental services, contributing to local economies and supporting community development.
System resilience and environmental benefits
WIFIA investments can contribute to the resilience of water systems to climate-related events, such as droughts and storms. The program has directed $11.5 billion towards increasing system resilience, helping communities better withstand and recover from extreme weather conditions. Additionally, WIFIA-funded projects contribute to environmental sustainability by reducing greenhouse gas emissions, protecting land from stormwater impacts, and addressing contaminants like PFAS and lead in drinking water.
Case studies highlighting WIFIA's impact
Gun Lake Tribal Utility Authority. In 2023, the Gun Lake Tribal Utility Authority became the first Tribal borrower to receive WIFIA financing, securing a $56 million loan to expand drinking water and wastewater systems. This project will improve access to safe drinking water and build system resilience, benefiting the community both now and in the future.
The WIFIA program has made a massive impact on communities through over 125 loans, helping finance nearly $44 billion in projects
United Water Conservation District. The United Water Conservation District in California received a $13 million WIFIA loan for the planning and design of safety improvements at the Santa Felicia Dam. This project aims to enhance dam safety, expand water storage capacity, and support groundwater recharge, demonstrating the multifaceted benefits of WIFIA financing.
Chicago Department of Water Management. The Chicago Department of Water Management will use WIFIA funding to assist with replacing up to 30,000 lead service lines when there has been a leak or break, as it advances in the process of replacing the largest number of lead service lines in the country.
Looking ahead: priorities for the future
In 2023, the WIFIA program introduced planning and design-only loans to support the first phases of complex infrastructure projects
The WIFIA program has played a key role in addressing the nation’s pressing water infrastructure challenges, in large part because EPA has embraced the WIFIA program’s mandate to be a supplemental lender that pairs well with other forms of funding and financing, Jernberg told Smart Water Magazine. “Looking forward, states report that over $1.2 trillion is needed for water infrastructure over the next 20 years. We will strive to help each community that works with the WIFIA program address their individual needs by providing customized lending solutions and leveraging the government’s long investment horizon to accelerate additional infrastructure investment.”
In the future we expect to see the WIFIA program emphasize sustainability and resilience, supporting innovative projects such as water reuse, desalination, and PFAS treatment, reflecting the rising demand for advanced water treatment solutions. Additionally, recognising the need to ensure equitable access to water infrastructure improvements, the program will reach more communities, particularly underserved and disadvantaged areas. By fostering public-private partnerships and leveraging additional funding sources, WIFIA seeks to maximize its impact, promoting long-term investments that safeguard public health and environmental quality.