• Update: Fox, Raimondo pitch $70M loan fund for repairs (March 21)
The Rhode Island Clean Water Finance Agency’s motto declares, “Clean Water for Rhode Island is Our Only Business.” But that won’t be true for much longer if Treasurer Gina Raimondo and House Speaker Gordon Fox have their way.
Raimondo and Fox will hold a press conference Thursday morning where they’ll propose adding a new Municipal Road and Bridge Revolving Fund to the water agency’s portfolio of programs. They’ll be joined by Senate President Teresa Paiva Weed and municipal leaders, making this as close to a sure thing as any new legislative proposal can be.
So, you ask, what is the R.I. Clean Water Finance Agency?
The short answer: RICWFA is a quasi-public state agency, similar to better-known entities like the R.I. Economic Development Corporation and the R.I. Airport Corporation. While the Clean Water Finance Agency has a relatively low profile, it plays a key part in financing the maintenance of Rhode Island’s water system. Its basic role is to provide subsidized and low-interest loans to local governments that they use to fund water-infrastructure projects of all sizes.
RICWFA opened in July 1990 to fill the void left by sharp reductions in federal aid for local sewer projects. Governor Sundlun expanded its mission in 1993, and Governor Carcieri lowered some of its interest rates in 2004 as part of his push to clean up Narragansett Bay. RICWFA has been growing fast in recent years: its total bond indebtedness jumped from $577 million in 2007 to $707 million in 2012, and as of June 30 it had funded $1.25 billion in low-interest loans.
RICWFA works a bit like a bank. The initial money in its revolving loan funds – its base of capital for lending to municipalities – has come from state bond referendums and federal grants. The R.I. Department of Environmental Management and the R.I. Department of Health each maintain Project Priority Lists, updated annually, that list which local water projects are eligible for RICWFA loans; the departments must also grant Certificates of Approval to specific projects before the agency will fund them. The loan money gets transferred to the communities as they incur project costs and then gets paid back by water ratepayers, usually over 20 years. When money gets paid back with interest, RICWFA can use the proceeds to make new loans – hence “revolving.”
While the details haven’t been released yet, it appears Raimondo and Fox want to turn the Clean Water Finance Agency into more of a state infrastructure bank. If the General Assembly passes legislation to create their proposed Municipal Road and Bridge Revolving Fund by July, presumably RICWFA could quickly go borrow money – perhaps as much as $50 million to $70 million – to capitalize the fund and start making loans. (Like other quasi-publics, RICWFA isn’t required to get voter approval to take on additional debt.) It’s possible the R.I. Department of Transportation could play a similar role to DEM and DoH by creating the Project Priority List that determines eligibility for loans.
It’s easy to see RICWFA’s appeal to Raimondo and Fox.
The agency is lean – its most recent annual report mentioned only seven employees, and it spent less than $2 million on administration and professional fees in the 2010-11 fiscal year. It’s a rare Rhode Island public body with a strong reputation, as evidenced by its AAA bond rating. It hasn’t been hit by the same turnover as organizations like the EDC: Anthony Simeone, RICWFA’s executive director, has been there since 1994, and its longtime board chairman is James Hagerty, a senior banking executive at Washington Trust. Raimondo is represented on the board by Chris Feisthamel, the former Citizens executive who serves as her chief operating officer at Treasury.
The politics are interesting, as well. This looks like another clear sign that Fox trusts Raimondo to come up with innovative policy ideas he can get behind, and with the 2014 campaign around the corner, it won’t be missed that Paiva Weed is joining the two of them for the announcement but Governor Chafee isn’t. Economically, the new fund should be able to get shovel-ready projects going before too long if the proposal moves quickly, which will create badly needed construction jobs that will be popular with private-sector labor unions – all in time for next year’s election. And it’s another way for Raimondo to fulfill her promise to use the dividend from the pension overhaul to support public spending, burnishing her Democratic credentials.
That said, there are lots of questions to be asked about the Raimondo-Fox proposal.
First of all, can local taxpayers afford this? RICWFA loans are usually repaid by a dedicated revenue stream – water bills – while roads and bridges are funded out of property taxes. As always with debt, it’s important to ask whether future income will make debt payments affordable – will Rhode Island’s economy be strong enough in the future to repay the loans? Doing a cost-benefit analysis is also important: will the projects last long enough to make it worth borrowing to fund them now? (Some will certainly answer yes: Providence just borrowed $40 million to fix its streets.)
Another risk is that since the new fund will use state money, it won’t get the same level of oversight the federal government provides for RICWFA’s water funds. And even though RICWFA’s borrowing isn’t legally backed by state taxpayers, we’re seeing in the case of 38 Studios that state leaders are loathe to actually allow a default on any loans connected to state government.
All in all, this should be interesting. To learn more, check out RICWFA’s 2011 annual report [pdf].