By Michael Deane
Deane
As we reflect upon the first year of the Trump Administration, I would like to offer some insight into recent developments in Washington, D.C., and what we are likely to see in 2018 with respect to water infrastructure funding and reform.
This year began with an ambitious plan outlined by President Donald Trump to invest $1 trillion in U.S. infrastructure, which included increased funding for public-private partnerships (P3s) to rebuild the nation’s bridges, highways, ports and water infrastructure. However, other issues such as repeal of the Affordable Care Act and tax reform became larger priorities for Congress and the new Administration.
Despite proposed deep budget cuts to the U.S. Environmental Protection Agency (EPA), the state revolving funds for drinking water and clean water are poised to see modest increases. In addition, the president’s budget proposal includes a $20 million increase in funding for the Water Infrastructure Finance and Innovation Act.
With more than a $1 trillion gap in water infrastructure spending and little hope for a significant amount of new federal funding to be available for infrastructure, the water sector is left with few options for new investment. In addition, the Tax Cuts and Jobs Act (HR 1), which was recently passed by the House, could eliminate private activity bonds used to leverage private investment in water infrastructure if the Senate does not insist on retaining them in a final bill.
Earlier this year, PricewaterhouseCoopers prepared a report at the request of the National Association of Water Companies (NAWC), which concluded that a few targeted changes to federal policies could lead to an additional $43 billion in incremental private drinking water infrastructure investment; $15 to $25 billion incremental private wastewater infrastructure investment; and generate $20 billion investment potentially from public-private partnerships (excluding any potential public-sector investment).
This report reinforced what many in the private water sector already know. There are ways to identify and realize efficiencies and increased investment in the water infrastructure sector without federal subsidies. These policies include:
- Incentivizing partnerships in the water sector;
- Lowering barriers to private water investments; and
- Encouraging effective utility management that requires financial viability and accountability for performance.
Despite the limitations on the federal funding front, there are ways we can move forward now to address the country’s massive infrastructure financing needs. We can do more with less. And those discussions are taking place.
The idea of partnerships is gaining traction within and outside the Administration. Many groups reflecting a broad array of stakeholders – including drinking water and wastewater, private and public, and rural and urban – are coming together with greater unity and purpose to explore ways to incent struggling water and wastewater utilities to consider regionalization or consolidation.
The fact of the matter is that many failing systems simply lack the operational, technical and financial capacity to sustain a viable utility, and face daunting challenges. These include:
- Access to capital – For small systems, accessing capital to fund needed investments can be difficult, with the need for capital driven by required repairs to water mains, new filtration and pumping equipment and meeting EPA water quality regulations.
- Operational efficiencies – Basic services such as billing, customer service and water testing are often duplicated in neighboring systems.
- Purchasing power – Smaller systems have less bargaining power and oftentimes pay higher prices for equipment, tools, services and chemicals than larger systems.
- Becoming EPA compliant – Each new EPA regulation demands greater expertise from the utility operators and costs more money to implement and maintain.
- Many states are beginning to explore this option with greater interest. Kentucky, for example, has been a leader in the consolidation process. In the 1970s, the state had more than 3,000 public water systems and wastewater treatment plants, but has fewer than 800 total systems today.
In a recent hearing before the House Committee Transportation & Infrastructure, Subcommittee Water Resources and Environment, Chairman Garrett Graves (R-La.) painted a challenging picture for water infrastructure investment: “Shrinking municipal budgets, insufficient independent financing capabilities, and increasingly burdensome regulations without commensurate federal support have strained communities’ efforts to address these critical needs.” At numerous times through the hearing, Graves posited the same central question, “What is the federal government’s role in water infrastructure?”
The Chairman’s question is a critical one which needs to be thoughtfully considered and answered. Personally, I believe we as a country must move away from the “business as usual” approach and look for innovative approaches.
What the federal government can do to help is to do more to encourage and incentivize communities to seek partnerships or consolidation with larger regional operators (public or private) as an economically-preferred option for offering community water and sewer service. This could be achieved through financial incentives, encouraging communities to explore the benefits of various types of partnerships, including consolidation,
It’s time for all of us to roll up our sleeves and get to work.
Michael Deane is the executive director of the National Association of Water Companies (NAWC), the national organization representing private water operating companies. Prior to joining NAWC in 2009, Deane was Associate Assistant Administrator for Water for the U.S. EPA, where he played a key role in developing and implementing national water policy.
