Dams are crucial components of the nation’s infrastructure, supporting flood mitigation, water commerce, hydropower and water provide. Nonetheless, greater than 50 p.c of our dams have been constructed earlier than 1970, and as they age, security calls for enhance whereas their effectiveness decreases. Of the almost 90,000 non-federal dams within the U.S., greater than 15 p.c are thought of high-risk, and plenty of—maybe as many as 75 p.c—not serve their meant function.
Dam reconstruction is commonly easy from an engineering perspective, however paying for it faces three challenges. First, it is not low-cost; greater than $75 billion is required nationally, together with $24 billion for high-risk dams alone. Second, as a result of 85 p.c of US dams are non-federal, they should pay for dam rehabilitation from non-federal sources. And third, whereas there are potential advantages to rehabilitating any infrastructure (eg, enhancing effectivity or security by upgrading decades-old engineering), when cash is tight for a group, different fundamental infrastructure wants, reminiscent of repairing bridges or upgrading the water system, usually take priority .
Non-federal public infrastructure tasks are usually financed with long-term debt by means of the tax-exempt municipal bond market. This long-established and extremely environment friendly market provides federally sponsored rates of interest and bond phrases of as much as 30 years, permitting the group to unfold funds for main infrastructure tasks over a long time, minimizing short-term funds impacts. For most elementary public infrastructure, municipal bonds work very properly.
However for dam restoration tasks, the bond market will not be solely appropriate. Dam tasks are comparatively uncommon and idiosyncratic, limiting the attraction to traders in a undertaking they might not perceive or haven’t seen earlier than. As soon as full, dam rehabilitation will usually have a helpful life of fifty to 100 years, for much longer than the time period of a typical municipal bond. The truth is, the parameters of the bond market restrict the extent to which municipal bonds can mobilize any out there capital to revive the dam, making a tough state of affairs much more tough.
Fortuitously, direct federal funding for dam tasks will quickly be out there. This spring, the Corps Water Infrastructure Funding Program (CWIFP) will start accepting functions. Administered by the US Military Corps of Engineers, this new program may have the capability to offer roughly $7.5 billion in long-term loans, most of which is particularly allotted to non-federal dam enhancements.
CWIFP loans may have options to assist dam tasks profit from out there group funding. For instance, the mortgage rate of interest will probably be primarily based on the US Treasury’s personal price of funding on the time of dedication. This price is akin to and even decrease than what’s typical within the tax-exempt bond market. The maturity of the mortgage can be 35 years after the completion of the undertaking. Which means a complete period of 40 to 45 years is feasible after the undertaking begins, which is considerably higher than what might be carried out in a typical bond market, the place the 30-year clock would begin ticking in the beginning of the undertaking.
But even CWIFP is restricted to the particular wants of dams, partially as a result of this system was probably not designed for dams. CWIFP shares a statutory framework with the Environmental Safety Company’s (EPA) extremely profitable Water Infrastructure Finance and Innovation Act (WIFIA) mortgage program, which was primarily designed for municipal public water tasks. The credit score perform and federal funds points of WIFIA which might be solely applicable for municipal water methods will severely restrict CWIFP’s dam restoration choices.
To scale back these authorized restrictions, CWIFP stakeholder lawmakers launched a invoice within the Home of Representatives final yr, the Water Infrastructure Financing and Innovation Amendments Act of 2022. The proposed adjustments embrace a 55-year mortgage time period that higher matches the period of the advantages the dam can present, and clarifying the federal funds’s remedy of loans to non-federal debtors for tasks with some federal intersection. On the floor, the funds downside could appear mysterious. Nonetheless, if not addressed, it might considerably restrict the effectiveness of the CWIFP for giant dam tasks, which regularly have a legacy of federal involvement in growth and development.
Amendments to WIFIA particularly addressing dam rehabilitation may go a bit additional when the invoice is reintroduced within the new Congress. Mortgage maturities of 75 years are actually allowed for federal loans for very long-life transportation tasks underneath the Division of Transportation’s Transportation Infrastructure Financing and Innovation (TIFIA) mortgage program. The identical most time period ought to be out there for dam tasks with the identical longevity. As well as, TIFIA and different federal infrastructure mortgage applications might regulate the mortgage rate of interest at execution to mirror what it will have been on the time of the mortgage utility. This function is helpful for tasks with a protracted growth interval, which can be attribute of enormous dam tasks. The WIFIA statute doesn’t at present embrace this function, however it will be simple so as to add it utilizing language within the statutes of different mortgage applications.
Federal funding will probably be crucial to facilitate funding for dam restoration. The brand new corps program is essential in each credit score capability and capability, however it is just step one. Profitable implementation of the CWIFP in 2023 will present the premise for additional growth – and maybe extra importantly, lively help from the numerous stakeholders in our nation’s dams.
Martin Doyle is a professor at Duke College specializing in water engineering and infrastructure.
John Ryan is a principal at InRecap, LLC, an organization centered on financing important public infrastructure.