Capitalizing on WIFIA, A Key to Implementing Your Capital Project

A Solid Plan and Better Execution Saves Nearly $100 Million

What if I told you that a federal program could save you as much as $100 million over the life of the loan? (Note: The amount saved depends on your project size and actual borrowing costs.) 

“The water sector needs grants, not loans!” is a common response I get from water and wastewater utilities. I understand their point and the constraints that all utilities are operating within. Most, if not all, are being asked to do more with less. The appeal of a grant versus a loan or cost-share program is obvious in the sense that you don’t have to repay it.

However, for large capital projects or programs, the savings from a particular federal program can greatly exceed current amounts commonly disbursed from grant or cost-share programs. I would argue that this program provides even greater value now during this time of economic uncertainty by allowing utilities to continue to invest in capital projects and programs while deferring repayment (at very low-interest rates) for 5 to 10 years. 

What is this program?

The U.S. Environmental Protection Agency’s Water Infrastructure Finance and Innovation Act was authorized in 2014 and is gaining traction as an innovative way to finance and deliver critical infrastructure projects. Since 2017, WIFIA has provided long-term, low-interest loans for selected water and wastewater projects, for up to 49% of all eligible costs.

Three Reasons Why WIFIA May Be the Key To Implementing Your Capital Project/Program

The benefits of WIFIA can be multifaceted, but our clients have focused on the following benefits: 

1. Low Interest: WIFIA’s interest rate is equal to the “current” U.S. Treasury rate of similar maturity (number of years of repayment). See the below case study that resulted in an interest rate of 1.17% (and nearly $100 million in savings as compared to municipal bonds).
2. Repayment Deferral (and Customized Repayment Schedules): WIFIA allows a borrower to defer repayment up to 5 years after substantial completion of a project. In addition, borrowers can customize their repayments to match their anticipated revenues and expenses for the life of the loan. This flexibility provides the time needed to generate revenue to repay the loan (i.e., to phase in rate increases). In this current environment, this may provide additional value in that a utility could use this program to invest in its water systems while repayment is deferred until after revenues have rebounded.
3. Earlier Certainty: WIFIA has allowed our clients to “lock in” the interest rate at loan closing. It is extremely difficult (or impossible) to predict future interest rates, but providing our clients earlier certainty on the financing costs is a benefit.

Case Study: Solid Planning and Collaborative Delivery Results in Nearly $100 Million in Savings

To support the delivery of its new Northwest Water Facility, the City of Wichita chose to pursue WIFIA financing. The initial projects that had closed under EPA’s WIFIA Program were seeing competitive interest rates around 3%. One of the drivers for the City’s interest was the ability to defer repayment until five years after substantial completion. Because of this and other program benefits, the City estimated that the project could be delivered seven years earlier than the project could be delivered without WIFIA financing. 

The project team reviewed the 2018 Notice of Funding Availability and prioritized the development of deliverables to support the initial WIFIA Letter of Interest. Then, EPA notified the City that it was invited to apply, and the City had one year to submit a full application. This was a tight deadline for the entire project team and partners. However, using a progressive design-build approach, the project team was able to work collaboratively with the City and EPA to lock in project pricing $15 million below the City’s target budget and to submit the full application within EPA’s schedule requirements.   

After the project team submitted the full application and it was in the final review process, the federal interest rate plummeted to the benefit of all prospective borrowers. In April 2020, the City took advantage of the attractive interest rates and closed on its $280 million federal credit financing agreement at an exceptionally low-interest rate of 1.17%. EPA estimates that the City’s use of financing through WIFIA will provide cost savings of $97 million compared to municipal bonds of similar maturity, allowing the City the opportunity to reinvest in its water infrastructure for generations to come.

Acknowledgments

We partnered with Burns & McDonnell and many local team members to successfully deliver the City of Wichita’s WIFIA Letter of Interest and WIFIA application. HDR is serving as lead designer in the Alberici/Burns & McDonnell joint-venture responsible for design and construction of this $500 million state-of-the-art facility. All parties contributed to the outcomes noted in the EPA news release, including the EPA WIFIA Team, City of Wichita staff, Burns & McDonnell, and my HDR colleagues. More specifically, Bill Perkins (Wichita Project Manager), Joni Chamberlain (Wichita Finance), Jessica Adams-Weber (HDR), Brian Meier (B&Mc), Randy Root (B&Mc Environmental), and Mitch Walter (Gilmore & Bell, Bond Counsel) were instrumental to the success of the WIFIA Letter of Interest, application, and loan closing.