December SWIC Newsletter

In November, SWIC caught up with G. Tracy Mehan III, a member of the U.S. EPA?s Environmental Financial Advisory Board to discuss the future of innovative financing for water and wastewater infrastructure. Mehan is a former Assistant Administrator for Water at EPA, a position he held from 2001 to 2003. He is a consultant in Arlington, Va., and an adjunct professor at George Mason University School of Law. Highlights of his discussion with SWIC are below.


SWIC:
Thank you for joining us. As the newest member of the U.S. EPA?s Environmental Financial Advisory Board, what do you see as the most urgent issue for local water and wastewater systems in the United States?

G. Tracy Mehan: Financing the next generation of environmental solutions, by both the private and public sectors, may be the single most important undertaking for policymakers in the 21st century.

SWIC: The U.S. Conference of Mayors estimates that $2.3 trillion will be needed to improve and upgrade water and wastewater systems over the next 20 years, but municipalities have seen an explosion of debt over the past decade with unprecedented fiscal risks. What will the EFAB do to assist municipalities in the search for finance solutions to upgrade aging water/wastewater infrastructure?

Mehan: The EFAB provides ideas and advice to EPA?s Administrator and program offices on ways to lower the costs of, and increase investments in, environmental and public health protection. EFAB members and I will support EPA?s efforts to create incentives to increase investment in environmental facilities and services, and develop and encourage innovative financing approaches.

SWIC: What are some of the trends in infrastructure finance policy?

Mehan: In Washington, there have been recommendations for more funding of the Clean Water and Safe Drinking Water State Revolving Loan Funds (SRFs), a water trust fund, raising the cap on private activity bonds (PABs), federal tax credit bonds for ?watershed restoration zones? (WRZs), a ?watershed renewal bond fund program,? a water infrastructure bank and, more recently, a pilot program for the Water Infrastructure Finance and Innovation Act of 2013 (WIFIA).

Enactment of this year?s Water Resources Reform and Development Act (WRRDA) included language to establish a Water Infrastructure Finance and Innovation Authority, or WIFIA. While this is a step in the right direction, future WIFIA funds are uncertain and it?s clear that there is plenty of room for other innovative financing methods.

There was the momentary starburst of the $850 billion ?stimulus? bill, which generated some spending for water and wastewater infrastructure.?But we are not going to see the likes of that kind of spending anytime soon.

With the federal debt and deficits at historic levels and municipal debt soaring at alarming rates, innovative finance solutions are desperately needed to address the nation?s infrastructure, which in many cities is beyond or nearing the end of its useful life.


SWIC:
? In September, a Special Panel on Public-Private Partnerships (PPPs) of the House Transportation and Infrastructure Committee released a report on ?Balancing the Needs of the Public and Private Sectors to Finance the Nation?s Infrastructure.? What is your outlook for innovative infrastructure financing and how important are PPPs and private equity in meeting local water/wastewater infrastructure needs?

Mehan: PPPs and private capital are critical to solving the nation?s infrastructure needs. As SWIC knows all too well, one modest approach to quickly increase private equity available for water and wastewater needs would be to remove the state volume cap on private activity bonds. Based on the outcome of removing solid waste facilities from the volume cap in 1986, removing PABs for public purpose drinking water and wastewater facilities from the state volume cap would produce an additional $1 to $2 billion in water infrastructure investment annually at first, potentially increasing to $5 to $6 billion annually as the PPP industry matures.

SWIC has done a lot of good work in educating Congress and advancing legislation to lift the volume cap on PABs that fund water and wastewater infrastructure projects. I look forward to SWIC?s continued efforts to advance PPPs and to increase investment in water and wastewater infrastructure.


Water Infrastructure Policy Recommendation

Congress should pass, and the President should sign, an amendment to the internal revenue code to remove private activity bonds for public purpose drinking water and wastewater facilities from state volume caps, which set ceilings on the maximum amount of these bonds issued within a state. This would accelerate and increase overall investment in water infrastructure through public-private partnerships and permit private equity as an additional source of capital for water projects.
?G. Tracy Mehan, III

The views expressed by Tracy Mehan in this piece are not necessarily those of U.S. EPA or EFAB. Mehan can be reached at mehan321@verizon.net.

The SWIC Newsletter for UIM is co-authored by SWIC co-executive directors Bruce Morgan, Principal of Water Policy Associates, and Eben Wyman, Principal of Wyman Associates. Bruce can be reached at bruce@waterpolicyassociates.com and Eben, at 703-750-1326 or eben@wymanassociates.net.??? ?
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