Innovative Financing Secures Future for Sustainable Water Infrastructure

Innovative financing and pricing flexibility are key to preparing the nation?s aging freshwater systems to handle growing demand and environmental challenges, according to a Charting New Waters report released on Jan. 26 by The Johnson Foundation at Wingspread, American Rivers and Ceres.

The Financing Sustainable Water Infrastructure report is the product of a meeting convened by The Johnson Foundation in collaboration with American Rivers and Ceres, which brought together a group of experts to discuss ways to drive funding toward the infrastructure needed for the 21st century.

Largely built on systems developed during the 19th and early 20th centuries, U.S. water infrastructure faces profound problems of aging components, outdated technology and inflexible governance systems ill-equipped to handle current consumption, environmental and economic problems.

Presently, about 6 billion gallons of expensive, treated water is being lost in the U.S. each day due to leaky and aging pipes ? some 14 percent of the nation?s daily water use. This pervasive water waste is underscored by the fact the American Society of Civil Engineers gives the nation?s water systems a D-minus, the lowest grade of any infrastructure including roads and bridges.

The report concludes that rebuilding and operating our water systems as they are presently built would be enormously inefficient. One major problem is the very nature of the systems themselves ? where drinking water, storm water and wastewater are built, financed and operated as entirely distinct units rather than as more efficient, interconnected systems. Another major problem is myopic, inflexible water-pricing systems that fail to distinguish between various water uses and generally undervalue water.

In order to achieve more sustainable, resilient and cost-effective freshwater systems, the report recommends bold new approaches for financing and operating public water systems, including:

  • Local water solutions that can improve efficiencies, including green infrastructure, closed-loop systems and water recycling.
  • Flexible water pricing and revenue structures that distinguish between drinking water and various other types of water, such as lawn water and toilet water.
  • System-wide, full-cost accounting of water services and financing mechanisms.
  • Less reliance on state and federal funding and more reliance on private, market-based financing mechanisms that can support local, customer-supported solutions.

?While the deteriorating state of the nation?s water infrastructure is not a secret, we have lacked workable strategies and policies to finance the changes needed,? said Lynn Broaddus, director of environment programs at The Johnson Foundation. ?This report addresses the critical linkage between financing and sustainability that was initially raised by the Charting New Waters consensus report in 2010. It?s not enough to pay for new water infrastructure. We need the financing to actually drive a new sustainable water infrastructure that will take care of generations to come.?

Jeffrey Odefey, director of Storm Water Programs at American Rivers said, ?Clean water and resilient ecosystems are absolutely vital to our health, our communities and economy. This timely report lays out clear directions to ensure that our communities grow into the future with safe, reliable water supplies and healthy rivers and streams.?

Sharlene Leurig, senior manager of Water and Insurance Programs at Ceres said, ?This report makes clear that our nation’s water infrastructure system is broken and dramatic changes are needed. Rethinking how we finance and operate our vast water systems is not a choice, it’s a must. We have the engineering and land use tools we need to ensure our water systems can stand up to 21st century challenges. The key will be partnerships and cooperation between business, government and public interest groups to finance these new tools.?

The Johnson Foundation is releasing this report as part of its work with Charting New Waters, an effort it formally launched in 2010, dedicated to catalyzing new solutions to U.S. freshwater challenges. Charting New Waters is composed of a diverse group of leaders from business, agriculture, academia and environmental organizations that have publicly committed to improving U.S. freshwater resources by advancing the principles and recommendations of the group.

The initial phase of work led to the release of Charting New Waters: A Call to Action to Address U.S. Freshwater Challenges, a consensus report issued on Sept. 15, 2010.

As part of its ongoing Charting New Waters effort, The Johnson Foundation is also hosting a series of regional freshwater forums that convene experts to examine freshwater challenges, successes, innovations and potential solutions that can bridge geographies and inform national policy. The first forum took place in Denver, Colo., in October 2011.

Water Funding Cut in FY 2012

Investment levels for water infrastructure projects were cut as a result of a bill being passed in the closing days of the first session of the 112th Congress, according to a report issued by AED. The Omnibus Appropriations Bill (HR 2055) resulted in $101 in reductions from the EPA?s State Revolving Fund (SRF) budgets. With roughly 12 percent of water utility bids attributable to the purchase, rental and leasing of construction equipment and to the cost of dealer-performed equipment repairs, the reduction in investment could cost the equipment industry $12 million in lost market opportunity.

The Clean Water SRF, used by states for water quality protection and wastewater infrastructure projects, was allotted about $1.47 billion in 2012, a cut of more than $50 million. The Drinking Water SRF, which provides states the resources for potable water infrastructure projects, will receive $919 million in 2012 ? $44 million less than in 2011.

4th Quarter Nonresidential Fixed Investment Up

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Nonresidential fixed investment increased 1.7 percent in the fourth quarter of 2011, following a revised 15.7 percent increase in the previous quarter according to the Jan. 27 Gross Domestic Product (GDP) report by the Department of Commerce.

Nonresidential fixed investment in structures fell 7.2 percent for the quarter after increasing 14.4 percent in the third quarter and 22.6 percent in the second quarter of last year. Nonresidential fixed investment in equipment and software was up 5.2 percent in the fourth quarter following a 16.2 percent increase in the third quarter.

Residential fixed investment jumped 10.9 percent in the fourth quarter of 2011 after a 1.3 percent increase in the third quarter.

Federal government spending fell 7.3 percent in the fourth quarter as national defense spending decreased by 12.5 percent and federal nondefense spending increased 4.2 percent. State and local government spending was down for the sixth straight quarter as spending slipped 2.6 percent in the fourth quarter.

Gross domestic purchases ? purchases by U.S. residents of goods and services wherever produced ? increased 2.8 percent in the fourth quarter following an increase of 1.3 percent in the third quarter. Overall, real GDP increased 2.8 percent in the fourth quarter following a revised 1.8 percent increase in the third quarter of last year.

?The fourth quarter of 2011 was a disappointing one for nonresidential construction structures,? said Associated Builders and Contractors Chief Economist Anirban Basu. ?Investment in structures had blossomed during the two previous quarters, expanding 22.6 percent in the second quarter and 14.4 percent in the third quarter. The fourth quarter represented a reversal with investment dipping 7.2 percent.?

?While this may be attributable to seasonal factors and not particularly worrisome, another theory is that the slowdown in investment in structures is associated with the soft patch of economic growth that characterized much of last year,? Basu said. ?Investment in structures tends to be a lagging economic indicator, which means that the slowdown in economic growth during the first half of last year would be reflected in subsequent data characterizing nonresidential investment.?

?Overall, most people will focus on the GDP?s disappointing headline number,? Basu said. The consensus forecast was for 3 percent growth on an annualized basis during last year?s fourth quarter. While 2.8 percent growth is in the immediate vicinity, the marketplace was certainly hoping for better (growth) because the fourth quarter of 2011 was the year?s best, as well as the best performing quarter since the second quarter of 2010.

?It is likely that the consensus forecast would have not been so optimistic had forecasters understood how substantially government outlays have been falling,? Basu said. ?State government spending declined for a sixth consecutive quarter, and federal government outlays fell 3 percent for the quarter, adding to the economic malaise that is facing the country.?

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