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May 08, 2020

Key Water Infrastructure Draft Legislation Released in US Senate

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KEY WATER INFRASTRUCTURE DRAFT LEGISLATION RELEASED IN US SENATE

Late last month, the Chairman and Ranking Member of the U.S. Senate Committee on Environment and Public Works (EPW), Senators John Barrasso (R-WY) and Tom Carper (D-DE), released draft water resources and drinking water legislation, a significant step in the biennial process to maintain and improve America’s water and wastewater infrastructure.[1] The two bills, the America’s Water Infrastructure Act of 2020 (“AWIA 2020”)[2] and the Drinking Water Infrastructure Act of 2020 (“DWIA 2020” and, together with AWIA 2020, the “2020 Water Bills”),[3] build upon similar legislation from the last reauthorization in 2018 and could be particularly important to mitigate funding gaps posed by the current COVID-19 pandemic. Below, we summarize provisions in the 2020 Water Bills that may be of interest to our clients and other water industry stakeholders.

AWIA 2020

AWIA 2020 includes approximately $17 billion in new federal authorizations for infrastructure investments across the United States, which are intended to increase water storage, provide protection from floodwaters, deepen nationally significant ports, maintain the navigability of inland waterways across the country and repair aging wastewater and irrigation systems.[4] It should be noted that legislative authorization is only the first step to studies and projects being federally funded. Such funds must be appropriated by Congress pursuant to a spending bill and other applicable approvals obtained (e.g., from the Office of Management of Budget and under the National Environmental Policy Act) before construction can begin.

These investments include updates to key financing programs for water infrastructure. Following the successful implementation of an initial three rounds of funding by the Environmental Protection Agency (EPA) under the Water Infrastructure Finance and Innovation Act program (WIFIA), AWIA 2020 would reauthorize WIFIA for each of FY 2022, FY 2023 and FY 2024 at current levels of $50 million each year, along with $5 million each year solely for loans to state infrastructure financing authorities—the new “SWIFIA” program[5]—and $5 million annually for administrative costs.[6] Because the $55 million in programmatic authorization only represents the subsidy costs of extended loans (based on a presumed default rate), EPA is able to leverage such authority to extend to borrowers approximately 100 times such amount—$5.5 billion—in credit assistance.[7] In addition, since WIFIA loans generally may not cover more than 49% of total costs for any project[8], these funds could ultimately help finance approximately $11 billion each year in water infrastructure.

AWIA 2020 would also reduce costs and streamline the closing process for WIFIA loans by lowering the credit rating requirement for closing from two to one final investment grade rating.[9] The reduced requirement would mirror the existing rating requirement at the WIFIA application stage[10], which is a preliminary investment grade rating from one rating agency.

For the first time in over three decades, the Clean Water State Revolving Loan Fund (CWSRF) program would be reauthorized—conditional, if the reauthorization “scores” from a budgetary perspective, on adopting adequate budgetary offsets.[11] Such a step would acknowledge the ongoing importance of this program to the funding of state and municipal wastewater projects. Funds have been continually appropriated by Congress for this program despite its authorization expiration in 1994.[12] AWIA 2020 would authorize the CWSRF program in the amounts of $2 billion for FY 2022, $2.5 billion in FY 2023 and $3 billion in FY 2024[13], significantly larger than recent appropriated amounts. The bill also proposes to codify language in recent appropriations bills[14] to require 10 percent of CWSRF funds to be used for grants, negative interest loans or loan forgiveness or to buy, refinance or purchase borrower debt.[15] However, language in the bill would appear to offer states the flexibility to apply less than 10 percent to such uses[16], a possible drafting error which may be modified in the definitive legislation.

A significant portion of the AWIA 2020 authorizations are for U.S. Army Corps of Engineers programs and projects. Two of the largest single projects authorized include coastal storm risk management projects in Norfolk, Virginia and the Rockaway peninsula in New York—$909 million and $794 million federal shares for the $1.4 billion and $984 million projects, respectively—addressing flood risks on vulnerable coastal populations in areas affected by Hurricane Sandy.[17] AWIA 2020 also aims to accelerate feasibility studies for potential future projects by requiring the Army Corps to attempt to complete such studies within two years to the maximum extent practicable.[18]

Two other key provisions affecting the Army Corps are the extension of authority (originally granted in the Water Resources Reform and Development Act of 2014) permitting the Army Corps to transfer funds to non-federal entities to complete project feasibility studies and projects[19] and a requirement that the Army Corps publish an annual report identifying authorized studies and projects proposed by non-federal entities to be considered for funding in the Energy and Water Development appropriations bill, including an estimate of costs and the relative benefits of each study or project.[20] AWIA 2020 also requires the Army Corps to place greater importance on non-price elements relative to cost during declared major disasters, which could advance key projects during the current COVID-19 pandemic and future crises.[21]

DWIA 2020

A smaller companion bill to AWIA 2020, DWIA 2020 provides approximately $2.5 billion in federal authorizations for drinking water infrastructure.[22] These funds are spread across several small programs, including a new competitive grant program for underserved communities under the Assistance for Small and Disadvantaged Communities program, authorized at $50 million per year over FY 2022, FY 2023 and FY 2024[23], and a new discretionary grant program modeled after state revolving funds, authorized at $50 million per year over the same time frame.[24] This proposed legislation comes against a familiar backdrop: an estimated 240,000 water main breaks and as many as 75,000 sanitary sewer overflows in each case per year in the United States.[25]

DWIA 2020 would also make certain adjustments and enhancements to the Drinking Water State Revolving Funds (DWSRF) program. Similar to EPW’s approach in AWIA 2020 for the CWSRF program, DWIA 2020 would codify language in previous appropriations bills to require not less than 20 percent of DWSRF funds to be used for grants, negative interest loans or loan forgiveness or to buy, refinance or purchase borrower debt.[26] The drafting inconsistency in AWIA 2020 referred to above is not present in the DWIA 2020 language.

Although the comparable 2018 bill reauthorized the DWSRF program for FY 2019 and FY 2020, neither of the 2020 Water Bills reauthorizes the program for FY 2021 or subsequent years. One stakeholder views the 2020 Water Bills as Congress’s “best chance to reauthorize the program before its expiration” and considers the current omission as a “missed opportunity,” urging its inclusion in the final legislative package.[27]

Funding Needs and the COVID-19 Pandemic

The 2020 Water Bills will be considered by Congress at a critical time for America’s water and wastewater infrastructure systems. A report prepared for the American Water Works Association and the Association of Metropolitan Water Agencies estimates that the aggregate current and future financial impact of the COVID-19 crisis on water and wastewater utilities combined could exceed $27 billion.[28] The report estimates that the financial impact on drinking water utilities alone could be approximately $13.9 billion over 12 months, representing a nearly 17 percent impact on the sector.[29] Such utilities are anticipated to delay and reduce capital expenditures by as much as $5 billion during such period.[30] Passage of the 2020 Water Bills would be an important first step in supporting the physical and financial well-being of water and wastewater systems. Further efforts by the federal government to bolster the sector may be required, either through a dedicated infrastructure bill or via general aid to states and local governments facing prolonged budget deficits in the wake of the pandemic.

Prospects for Passage

The period for submission of written comments ended on May 1. EPW will now consider any proposed amendments to the 2020 Water Bills before voting them out of committee to the full Senate. Meanwhile, the U.S. House of Representatives Transportation and Infrastructure Committee is currently weighing priorities for its own water resources development legislation and may release a bill later this spring or over the summer.[31] Any differences between the Senate and House bills will need to be reconciled before comprehensive legislation can be sent to the President for signature. While passage of the 2020 Water Bills is certainly not guaranteed, the comparable 2018 bill was passed by the Senate 99-1 and by voice vote in the House[32], suggesting that the current legislation may face similarly strong prospects for bipartisan approval. We will monitor the congressional negotiations relating to water infrastructure in the coming months and provide updates on key developments.

Footnotes

[1]  See U.S. Senate Committee on Environment and Public Works, EPW Committee Leaders Release Drafts of Water Infrastructure Legislation, April 21, 2020.
[2]  America’s Water Infrastructure Act of 2020 (Discussion Draft), 116th Cong. (2020).
[3]  Drinking Water Infrastructure Act of 2020 (Discussion Draft), 116th Cong. (2020).
[4]  U.S. Senate Committee on Environment and Public Works, supra note 1.
[5]  See United States Environmental Protection Agency, Water Infrastructure Finance and Innovation Act (WIFIA), What is SWIFIA?
[6]  AWIA 2020, Section 2014.
[7]  United States Environmental Protection Agency, Water Infrastructure Finance and Innovation Act (WIFIA), Is WIFIA Funding Currently Available? See also generally Congressional Research Service, Water Infrastructure Financing: The Water Infrastructure Finance and Innovation Act (WIFIA) Program, May 1, 2019.
[8]  33 USC § 3908(b)(2).
[9]  AWIA 2020, Section 3010.
[10]  33 USC § 3907(a)(1)(D)(i).
[11]  AWIA 2020, Section 2015.
[12]  See Congressional Research Service, Water Infrastructure Financing: History of EPA Appropriations, April 10, 2019.
[13]  AWIA 2020, Section 2015.
[14]  See, e.g., S. 2580, Title II (Environmental Protection Agency), State and Tribal Assistance Grants, Sept. 26, 2019.
[15]  AWIA 2020, Section 2012(a).
[16]  AWIA 2020, Section 2012(a)(3) (providing that “a State shall use not more than 10 percent of a capitalization grant to the State under this title and section 205(m) to provide the additional subsidies described in paragraph (2) to eligible recipients…”) (emphasis added).
[17]  AWIA 2020, Section 1401(3). See also U.S. Army Corps of Engineers, New York District, Fact Sheet: Atlantic Coast of New York City, East Rockaway Inlet to Rockaway Inlet (Rockaway Beach) and Jamaica Bay, February 13, 2020 and U.S. Army Corps of Engineers, Norfolk District, Norfolk Coastal Storm Management, March 21, 2018.
[18]  AWIA 2020, Section 1101(a).
[19]  AWIA 2020, Section 1011.
[20]  AWIA 2020, Section 1013.
[21]  AWIA 2020, Section 1043.
[22]  U.S. Senate Committee on Environment and Public Works, supra note 1.
[23]  DWIA 2020, Section 6(c).
[24]  DWIA 2020, Section 14.
[25]  U.S. Environmental Protection Agency, Office of Research and Development, National Risk Management Research Laboratory, Aging Water Infrastructure Research (Science and Engineering for a Sustainable Future): Addressing the Challenge through Science and Innovation, July 2011.
[26]  DWIA 2020, Section 4(a).
[27]  Statement of Diane VanDe Hei, Association of Metropolitan Water Agencies, to the U.S. Senate Committee on Environment and Public Works, April 22, 2020.
[28]  Raftelis, The Financial Impact of the COVID-19 Crisis on U.S. Drinking Water Utilities, April 14, 2020, Section 2.8.
[29]  Id. Section 2.7.
[30]  Id. Section 2.5.
[31]  U.S. House Committee on Transportation and Infrastructure, Proposals for a Water Resources Development Act of 2020: Members’ Day Hearing, February 27, 2020.
[32]  America’s Water Infrastructure Act of 2018, S. 3021, 115th Congress (2018).

Authors and Contributors

Paul Epstein

Partner

Project Development & Finance

+1 212 848 5266

+1 212 848 5266

New York

David Ullman

Associate

Project Development & Finance

+1 212 848 5131

+1 212 848 5131

New York