SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1054 words

COMMITTEE: HOUSE TRANSPORTATION

SUBCOMMITTEE: WATER RESOURCES AND ENVIRONMENT

HEADLINE: WATER QUALITY FINANCING

TESTIMONY-BY: MICHAEL D. WOLFF, PRESIDENT,

AFFILIATION: COUNCIL OF INFRASTRUCTURE FINANCING AUTHORITIES

BODY:
Statement of Michael D. Wolff President, Council of Infrastructure Financing Authorities

Before the Subcommittee on Water Resources and Environment

Committee on Transportation and Infrastructure U.S. House of Representatives

March 13, 2002

Good morning. My name is Michael Wolff and I am appearing today in my capacity as President of the Council of Infrastructure Financing Authorities.

CIFA is a national organization made up primarily of state and local officials engaged in the development and financing of water and wastewater pollution control projects and the operation of State Revolving Funds for infrastructure financing. The organization counts among its members 44 states, the District of Columbia and the Commonwealth of Puerto Rico. The individuals who represent the member entities of CIFA are some of the most respected finance officials in the country, and bring countless years of experience in the public and private sectors to bear in their day-to-day functions. Our members have been in the forefront of creating and implementing financial structures that effectively stretch the available federal and state dollars while meeting the requirements of statute, federal oversight, accountability, and fiscal responsibility. We welcome the opportunity to share our views with the Subcommittee on the proposed Water Quality Financing Act of 2002. We very much appreciate the leadership of the Chairman and the Ranking Member in developing this legislation which addresses issues of vital importance to the future of the Clean Water State Revolving Fund program and the realization of national water quality goals. CIFA values the opportunity we have had up to this point to work with the Subcommittee and we will continue to provide any assistance we can as the legislation progresses.

As attention focused on the growing unmet need for water infrastructure funding and Congressional deliberations ensued, our central message has been that the SRF partnership between the federal and state governments continue as the basic mechanism for water infrastructure assistance to local units of government. The proven track record of success argues strongly in favor of the SRF as the primary mechanism for delivery of environmental infrastructure subsidies and we are very grateful that the subcommittee's bill is consistent with that view. The bill recognizes that the SRF program, with an expanded scope and additional resources, can facilitate the next wave of initiatives and activities to assure water quality in a cost-effective, efficient, and innovative manner.

The proposed legislation underscores that the need to provide more assistance to small and disadvantaged communities in meeting their water quality goals remains a significant challenge. We appreciate the efforts in this bill that will allow us to more effectively meet that need. While the SRF programs already serve many small, rural and lower-income communities, the additional flexibility provided in the bill in the form of principal forgiveness and negative interest rates will facilitate us doing our jobs even better in this area.

As an organization, CIFA if focused on the financial elements of the CWSRF, working to assure the long term stability of the program and seeking maximum benefit in terms of providing assistance to communities from the funds available. We are encouraged that the Subcommittee is addressing the need for expanding financing approaches and strategies to maximize water infrastructure funding.

We believe an essential feature of the SRF is the capacity it affords to leverage the funds. Leveraging, in the SRF context, means that states have the ability to use the federal capital grants, as well as their matching share, as collateral to borrow in the public bond market for purposes of increasing the pool of available funds for project lending. This option allows the states to use the funds as security or a source of revenue for the payment of principal and interest on bonds, as long as the bond proceeds are deposited back into the SRF. Security for the bonds may be provided by any of the SRF assets including anticipated future revenues from loan repayments. The use of the assets of the SRF to generate additional monies, which are then used to fund more projects, exemplifies the financial strength of the SRF structure.

Leveraging the SRF can and has dramatically increased the funds available for lending. More than $9 billion has been added to the loan pool by the 24 states that have leveraged their funds. This compares with $18.3 billion in federal capital grants thus far. The successful leveraging occurring with the SRFs has allowed us to address serious problems much more quickly than anyone had anticipated by delivering substantially increased amounts of affordable capital sooner to meet critical infrastructure needs. There are examples of leveraging that demonstrate a multiplier effect of project funding levels at two to four times the original investment.

Recognizing both the compelling need for water infrastructure funding and the challenges faced in significantly increasing current levels of appropriations, we strongly urge that SRF reauthorization efforts include addressing arbitrage rebate rules that in current form limit the ability of the SRF program to generate substantial additional resources.

In this context, arbitrage is the difference between the interest rates at which tax-exempt bonds are issued and the rates at which the proceeds are invested. The states that operate leveraged SRF programs are required by the arbitrage rules to either limit the rate at which funds can be invested, or rebate to the Treasury the net earnings on those portions of the SRF funds that are considered under these rules to be bond proceeds.

This greatly reduces the resources available to fulfill the Funds' purpose of providing below-market financial assistance to help communities meet federal standards for their water programs. CIFA estimates that in the absence of these restrictions, the affected states could earn an additional $100 - $200 million annually on their SRF capitalization funds which, when leveraged, would permit an additional $200 - $400 million annual investment in needed water projects.



LOAD-DATE: March 21, 2002