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Proposed Water Loan Guarantee Program Needs Congressional Scrutiny

April 15, 2013 J

By Christine Harbin

Washington has a spending problem, but that hasn’t stopped Congress from routinely passing massive spending bills. Approving the President’s stimulus package and the health care law was unfortunately only the beginning. The bloated highway bill that passed last summer is one recent egregious example, and the Hurricane Sandy relief bill that passed in January is a second. The water resources bill (S. 601) that’s quickly and quietly moving through the Senate right now is shaping up to be yet another. Before Congress passes this massive spending bill, members should take a step back to scrutinize what’s in it.

One of the most worrisome parts in the bill is the new loan guarantee program for water infrastructure projects. Under the new Water Infrastructure Finance and Innovation Authority (WIFIA), the Army Corps of Engineers and the Environmental Protection Agency would hand out loans or loan guarantees to state and local governments to pay for water infrastructure projects. This program would authorize $500 million — that’s half a billion dollars — in new spending over the next three years.

Federal agencies have had miserable bad track record with running loan guarantee programs, and there’s no reason to believe that this faulty financing structure would work any differently for water infrastructure. The Department of Energy runs similar loan programs, for example, that have squandered billions of taxpayer dollars on green energy projects that routinely fail. The DOE loan program that financed Solyndra has a default rate that exceeds 45 percent. The Federal Housing Administration runs two loan giants, Fannie Mae and Freddie Mac, which received a $154 billion taxpayer bailout in 2010 and are widely believed to have caused the recent housing crisis. The Department of Transportation, too, runs a loan program for transportation infrastructure that defaults over 40 percent of the time.

Thanks largely to these loan guarantee programs, federal credit has skyrocketed in recent years and represents liabilities in the trillions. Paying for this burden will inevitably fall to American taxpayers, even though they shouldn’t be on the hook for propping up projects that can’t make it in the marketplace. If Congress authorizes WIFIA, then the amount of these liabilities will climb even higher, making it even harder to recover from our government’s spending problem.

Lastly and perhaps most importantly, these loan guarantee programs are an inappropriate role for government. Government should not be picking and choosing which industries to help with their capital needs. If a project is economically viable, whether it’s for water infrastructure or green energy or anything else, than it should seek financing on the private marketplace, not from government. Sitting at their desks in faraway Washington, government officials are simply not in the best position to know which water infrastructure projects should be built.

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