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Dams are an important part of the country’s infrastructure, supporting flood mitigation, water commerce, hydroelectric power generation, and water supply. But more than 50% of our dams were built before his 1970s, and as they age, their safety responsibilities increase and their effectiveness decreases. Of the approximately 90,000 non-federal dams in the United States, more than 15% are considered high-risk, and many (perhaps as many as 75%) have failed their original purpose.
Repairing dams is often straightforward from an engineering standpoint, but paying for it presents three challenges. First, it’s not cheap. Nationwide, he needs more than $75 billion, including $24 billion for high-risk dams alone. Second, 85% of US dams are non-federal, so the cost of rebuilding dams must be paid for by non-federal governments. And third, while there are potential benefits to rehabilitating infrastructure (e.g., modernizing decades-old engineering to improve efficiency and safety), it is a financially-strapped community. If so, other basic infrastructure needs such as bridge repairs and water system upgrades are often prioritized.
Nonfederal public infrastructure projects are typically financed with long-term debt through the tax-exempt municipal bond market. This long-established and highly efficient market offers federally subsidized interest rates and bond tenors of up to about 30 years, allowing communities to spread out payments for large infrastructure projects over decades. , with minimal impact on the short-term budget. For most basic public infrastructure, municipal bonds work very well.
But for dam restoration projects, the bond market is not a perfect fit. Dam projects are relatively rare and idiosyncratic, limiting their attractiveness to projects that investors don’t understand or have never seen before. , have useful lives of 50 to 100 years, well beyond the term of typical municipal bonds. In effect, bond market parameters limit the extent to which municipal bonds can mobilize the capital available to repair dams, making a tough situation even more difficult.
Fortunately, direct federal financing will soon be available for dam projects. The Corps Water Infrastructure Financing Program (CWIFP) will begin accepting applications this spring. Administered by the U.S. Army Corps of Engineers, the new program has the capacity to provide approximately $7.5 billion in long-term financing, most of which will be allocated specifically for non-federal dam improvements.
CWIFP loans have features that help dam projects make the most of available community funds. For example, the interest rate on the loan is pegged to the US Treasury’s own cost of funding at the time of contract. Their interest rates are similar to or lower than those typical of the tax-exempt bond market. The loan period is 35 years after project completion. This means an overall tenor of 40 to 45 years after project initiation is possible, far superior to the typical bond market where the 30-year clock starts ticking once a project is initiated. increase.
Yet even CWIFP is limited to the specific needs of dams. One reason is that this program wasn’t really designed to be dumb. CWIFP shares a legal framework with the Environmental Protection Agency’s (EPA) highly successful Water Infrastructure Finance and Innovation Act (WIFIA) loan program. Aspects of the WIFIA Act on federal budgeting and financing functions perfectly suited to municipal water systems severely limit CWIFP’s ability to rehabilitate dams.
To alleviate these statutory constraints, CWIFP stakeholder members of the House of Representatives last year introduced the Water Infrastructure Finance and Innovation Act of 2022 Amendment Bill. What dams can offer and clarification of federal budget handling of loans to non-federal borrowers for projects involving some federal crossings. But if not resolved, it could severely limit the effectiveness of his CWIFP for large dam projects. Large dam projects often have a legacy of federal involvement in development and construction.
A WIFIA amendment specific to dam restoration could go a little further when the bill is reintroduced in the new parliament. Under the Department of Transportation’s Transportation Infrastructure Finance and Innovation Act (TIFIA) credit program, federal loans for very long-term transportation projects are allowed for 75-year loan terms. The same maximum duration should be available for dam projects of the same length. In addition, TIFIA and other federal infrastructure loan programs are permitted to adjust loan interest rates at origination to reflect interest rates at the time of loan application. This is an effective function for projects with long development periods, which is a feature of large-scale dams. WIFIA’s legislation does not currently include this functionality, but other loan program legislation could easily be added using this language.
Federal funding is essential to facilitate funding for dam restoration. The Corps’ new program is significant in terms of both lending capacity and capacity, but it’s only the first step. In 2023 he said that the successful implementation of CWIFP will provide a basis for further development. Even more important is the active support from the many stakeholders of our dams.
Martin Doyle is a professor at Duke University, specializing in hydraulic engineering and infrastructure.
John Ryan is president of InRecap, LLC, which specializes in basic public infrastructure financing.
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