What’s behind the Raimondo-Fox plan to fix roads and bridges

RICWFA_logo• 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].

9 thoughts on “What’s behind the Raimondo-Fox plan to fix roads and bridges

  1. Why cant we just use the money that we are putting in the general fund??? Cause the state spends it all and spends to much money. Will this just be another slush fund for the state to ruin??? will our water bills go up???

    The state has to cut the budget,cut,cut,cut,then you will have all the millions that you need to fix the roads without borrowing a penny!

  2. Great article explaining this, Ted.

    Great objections, Anthony. Another layer of opacity and further removal of accountability (which is what happens when a quango gets involved) should NOT be added to the expenditure of our tax dollars.

  3. wheres the money coming from? bonds probably. who cares if it puts the state deeper in hole.

    nice for organized labor and the lawyers that do all the legal work….

    why don’t you ask the general tresurer why the website to calculate retirement benefits for ersri has been down for 3 months.

  4. Check out the latest Clean Water board meeting. They went into executive session to discuss a personnel matter with the executive director. Three days before the agenda was set, the executive director bold-faced lied to me claiming that Clean Water was not going to discuss financing the airport’s glycol plant at this week’s board meeting. When the lie was discovered, the airport was taken off the agenda and a call for an executive session was made. Clean Water Financing puts cities and towns at risk with the City of Warwick assuming 20% of all risk including the speculative loans to the City of Woonsocket for tens of millions. Clean Water’s financial planner has been sued by EDC for its role in the 38 Studios disaster. Clean Water has millions in excess loan capacity the capital for which the cities and towns have created. Maybe that is why the General Treasurer is looking at Clean Water to lend out millions for local streets and bridges without the obligatory revenue streams to dedicate to the repayment of the loans. This is a very very strange deal

  5. Spending is out of control. New jobs for organized labor and lawyers is exactly right. And some people wonder why we are so jaded and skeptical of big government and local government officials. So often people have no idea who they are really electing because they’re misinformed. Such a shame.

  6. Richard is right to be wary of quasi-publics like CWFA that have the right to issue bonds (think EDC and 38 Srudios) but in transportation the problem is not too much spending. Rhode Island is apparently 49th in per-capita spending on highways ($314 per capita, in comparison the US spends $500) and also below average in support for public transit as noted in many studies. We have to be careful that anti-tax zealots aren’t allowed to ruin the country by neglecting infrastructure (and public higher education, science research etc)

    I don’t see what is wrong with good jobs for organized labor providing improvements in our highway and transit systems that serve the state.

    As far as repaying the bonds to be used to redo local roads, as a user fee, it would seem the cities and towns that want to borrow thru the CWFA should repay by adding a local component to the gas tax.

    • If there were any political will to pay for infrastructure maintenance by raising the gas tax, they would just pay for infrastructure maintenance by raising the gas tax; there would be no reason to use debt at all. The “anti-tax zealots,” in this case, are Fox & Raimondo, who value short-term gain (and inter-generational theft) over fiscal prudence.

  7. Ted,

    RICWFA is another one of those RI “who you know” quasi agencies.

    The Bristol County Water Authority borrowed about $1 mil a couple of years ago, inflating the projected costs for the proposed project which was to replace service lines along Hope St in Bristol.

    When BCWA didn’t use all the RICWFA funds, what was left over became a sort of slush fund for BCWA. Nobody from RICWFA ever bothered to check back to see how the funds were actually spent for the initial project.

    Nobody at RICWFA ever bothers to audit these projects.

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