Stakeholders Addressed Issues in Three Key Areas That Would Need To Be Considered in Designing an NIB

Stakeholders who responded to our questionnaire addressed a variety of  issues in three key areas that would need to be considered in designing an  NIB: mission and administrative structure, financing authorities, and  project eligibility and prioritization. While a Majority of Stakeholders Supported the Creation of an NIB, Their Views Varied on Its Mission and Administrative Structure

About three-quarters of stakeholders (20 of 27) responding to our  questionnaire supported the creation of an NIB. In addition, there was no consensus among stakeholders on whether an  NIB should be administered as a new responsibility for an existing federal  agency, structured as a government corporation, or structured as a GSE. We have previously reported that an  entity’s administrative structure affects the extent to which it is under  federal control, how its activities are reflected in the federal budget, and  the risk exposure of U.S. taxpayers. A Majority of Stakeholders Agreed on an NIB’s Financing Authorities, Including How an NIB Should Be Funded and How It Should Finance Projects

Most stakeholders (20 of 22) agreed that the federal government should  provide all or some of the initial capital for an NIB, though 4 stakeholders  suggested that federal capitalization be augmented by private funds. Most stakeholders (21 of 23) agreed that an NIB should be authorized to  generate its own funds for operating expenses and lending, with a  majority of stakeholders (15) supporting an NIB authorized to use multiple  mechanisms to generate funds. Stakeholders offered a variety of reasons for  supporting financial mechanisms. Stakeholders’ Views Varied on What Projects Should Be Eligible for Financing, but a Majority of Stakeholders Agreed on How Projects Should Be Prioritized

Stakeholders had a variety of views on the types of projects that should be  eligible for financing from an NIB. Stakeholders also agreed that an NIB should prioritize projects that  address the greatest infrastructure need and that generate the greatest  public health and environmental benefits. Two examples illustrate these differences:    Santa Paula, California, entered into a DBFO in 2008. Cost and Operational Efficiencies

Another advantage cited by company and municipal officials and  publications we identified is that privately financed PPPs may bring cost  and operational efficiencies to wastewater collection and treatment. Several municipal officials told us companies can take advantage of  economies of scale in a privately financed PPP by, for example, buying key  supplies, such as chemicals, in bulk. Reported Challenges to Considering and Developing Privately Financed Wastewater PPPs

Municipal and company officials also identified a number of potential  challenges to considering and developing privately financed wastewater  PPPs. Municipal  and company officials told us that private financing typically costs more  than tax-exempt municipal bonds. The NRC study  also reported that, for municipalities, private financing is roughly 20 to 40  percent more expensive than public financing. We sent the questionnaire to 23 national  organizations with expertise in the wastewater industry in one of the  following areas: financing and operating wastewater projects, constructing  and maintaining wastewater infrastructure, local and state wastewater  infrastructure needs, and environmental protection. To determine the extent to which wastewater public-private partnerships  (PPPs) have been privately financed, we conducted a literature search of  online databases to identify academic and news articles discussing  privately financed wastewater PPPs initiated since 1992, when President  Bush signed an Executive Order encouraging such partnerships. To determine the potential advantages and challenges of privately  financed wastewater PPPs, we conducted interviews with officials from  six of the seven municipalities we identified that entered into a privately  financed wastewater PPP since 1992; officials from Cranston, Rhode  Island, declined to speak with us. In addition, we conducted case studies  in four of the states in which privately financed wastewater PPPs have  occurred: Alaska, California, New Jersey, and Ohio. After reviewing various publications, we  included the 10 publications that: (1) focused on the wastewater industry  in the United States; (2) discussed the advantages and challenges of  wastewater PPPs; and (3) specifically addressed the use of private  financing in the context of a PPP. 1. 2. 3. What relationship, if any, should an NIB have with the existing state- level Clean Water State Revolving Fund programs? Should an NIB exclusively finance large infrastructure projects? National Research Council.
Why GAO Did This Study

Communities will need hundreds of billions of dollars in coming years to construct and upgrade wastewater infrastructure. Policymakers have proposed a variety of approaches to finance this infrastructure, including the creation of a national infrastructure bank (NIB) and the increased use of privately financed public-private partnerships (PPP). In this context, GAO was asked to identify (1) stakeholder views on issues to be considered in the design of an NIB and (2) the extent to which private financing has been used in wastewater PPPs and its reported advantages and challenges. In conducting this work, GAO developed a questionnaire based on existing NIB proposals and administered it to 37 stakeholders with expertise in wastewater utilities, infrastructure needs, and financing; GAO received 29 responses from stakeholders with a variety of perspectives about an NIB. To determine the extent to which wastewater PPPs have been privately financed and their advantages and disadvantages, GAO identified and interviewed municipalities involved in privately financed PPPs and wastewater services companies, conducted case studies in states with privately financed PPPs, and conducted a literature review. GAO is not making any recommendations. While this report discusses a number of funding approaches, GAO is not endorsing any option and does not have a position on whether an NIB should be established.

What GAO Found

Stakeholders who responded to GAO's questionnaire discussed issues in the following three key areas that should be considered in designing an NIB: 1) Mission and administrative structure. While a majority of stakeholders supported the creation of an NIB, their views varied on its mission and administrative structure. One-third supported an NIB to fund only water and wastewater infrastructure, while two-thirds responded that it should also fund transportation and energy projects. There was no consensus among stakeholders on whether an NIB should be administered by an existing federal agency, structured as a government corporation, or structured as a government-sponsored enterprise. GAO has previously reported that an entity's administrative structure affects the extent to which it is under federal control, how its activities are reflected in the federal budget, and the risk exposure of U.S. taxpayers. 2) Financing authorities. A majority of stakeholders agreed on an NIB's financing authorities. Specifically, a majority said the federal government should provide the initial capital; an NIB should be authorized to use a variety of options to generate funds for operating expenses and lending; and an NIB should offer a variety of mechanisms for financing projects, such as providing direct loans, loan guarantees, and funding for the Environmental Protection Agency's existing wastewater funding program--the Clean Water State Revolving Fund. 3) Project eligibility and prioritization. Stakeholders' views varied on which types of projects should be eligible for NIB financing, such as whether it should exclusively finance large projects. In addition, a majority agreed an NIB should prioritize projects that address the greatest infrastructure need and generate the greatest environmental and public health benefits. GAO identified seven municipalities that have entered into privately financed PPPs--contractual agreements in which the private partner invests funds in the wastewater infrastructure--since 1992: Arvin, California; Cranston, Rhode Island; Fairbanks, Alaska; Franklin, Ohio; North Brunswick, New Jersey; Santa Paula, California; and Woonsocket, Rhode Island. Municipal and wastewater company officials GAO interviewed identified the following examples of advantages of privately financed PPPs: 1) Provide access to financing for municipalities that have difficulty using traditional financing sources, such as municipal bond markets. 2) May make operations more efficient, for example, by taking advantage of economies of scale by buying key supplies, like chemicals, in bulk. 3) May bring new infrastructure online faster than traditional public procurement because companies have more flexibility. These officials identified challenges of privately financed PPPs, including: 1) Local opposition may arise out of concerns about higher wastewater rates and the potential loss of municipal wastewater jobs. 2) Private financing is generally more costly than tax-exempt municipal bonds because of higher interest rates; a 2002 National Research Council study reported that private financing is 20 to 40 percent more expensive. 3) Contracts can be costly and difficult to develop because they are complex, and municipalities and companies are unfamiliar with this type of PPP.