SWIC Newsletter – April 2014

SWIC applauds the introduction of the Sustainable Water Infrastructure Investment Act of 2014 (H.R. 4237) in the U.S. House of Representatives on March 13. The bipartisan legislation would amend the Internal Revenue Code to provide that the volume cap for private activity bonds (PABs) shall not apply to bonds for facilities for furnishing of water and sewage facilities. PABs allow state governments and municipalities to issue tax-exempt bonds to private investors in order to fund water and wastewater infrastructure projects. The water PAB volume cap is the last major federal impediment of allowing the public sector to satisfy demand in partnership with private service providers.

Lifting the cap would allow local communities to leverage private capital markets in combination with other finance mechanisms and provide an influx of low cost private capital to finance water and wastewater infrastructure projects. Similar policy changes related to PABs have a proven track record in generating significant private capital resources to fund important projects on other governmentally owned facilities such as airports, ports, high-speed intercity rail and solid waste disposal sites.

Congressman Jimmy Duncan, a longtime supporter of water PAB legislation and Chairman of the House Transportation and Infrastructure Committee’s Special Panel on Public-Private Partnerships, underscored the need for investment in water and wastewater infrastructure. “Much of our nation’s water infrastructure is more than 100 years old, and this bill will empower more states and towns to raise the funds needed to address this growing problem,” Duncan said in a statement. “If we do not start investing in our water infrastructure now, it is going to cost our nation many billions more in the future. We need an effective partnership between all levels, federal, state and local.”

Rep. Bill Pascrell, who has authored and sponsored several iterations of the PAB legislation over the years, highlighted the importance of a strong private sector role. “The story of our deteriorating water infrastructure can be told through the seemingly endless water main breaks in communities across our country,” Pascrell said. “By encouraging private investment dollars to help fund critical water infrastructure upgrades instead of public tax dollars, we are making key investments in our country’s future at a greatly reduced cost to the taxpayer. This bipartisan legislation is a commonsense way for our nation to update its aging infrastructure while creating good jobs right here in America.”

Congress has advanced similar versions of the water PAB measure in recent years. Rep. Pascrell’s tax-exempt bond bill passed the U.S. House of Representatives twice as part of larger tax and jobs bills. The PAB measure has not yet made it to the President’s desk for signature and enactment.

Public/Private Utility and Industry Endorsement

The U.S. Conference of Mayors has a long-standing policy, going back to the mid-1990s, to remove the state PAB volume cap for public water and wastewater infrastructure, which rely on municipal bonds. SWIC members and others support the Duncan/Pascrell PAB bill:

The National League of Cities
Water Environment Federation
National Association of Manufacturers
Associated General Contractors of America
American Council of Engineering Companies
Water and Sewer Distributors of America
National Association of Regulatory Utility Commissioners
Pennsylvania Utility Contractors Association
Distribution Contractors Association
Minnesota Utility Contractors Association
Associated Equipment Distributors
Laborers International Union of North America
Water and Wastewater Equipment Manufacturers Association
Gulf Coast Waste Disposal Authority
National Ready Mixed Concrete Association
Plastics Pipe Institute
PVC Pipe Association
John Deere
United Water
Abengoa Water
Mueller Water

How PABs Are Essential to Local Water/Wastewater Systems:

  • The U.S. EPA estimates that $682 billion in infrastructure improvements are needed during the next 20 years in order for local communities to meet safe drinking water and sanitation standards.
  • Capital investment for water and wastewater improvements is difficult as many states and local governments face mounting budget deficits, revenue shortfalls and opposition to new taxes.
  • PABs provide tax-exempt financing that encourages state and local governments to collaborate with sources of private capital to meet a public need. Public-private partnerships funded by PABs provide more affordable infrastructure financing for municipalities and ultimately for downstream customers. Under the PAB model, the cost, risk and long-term debt are transferred from the municipality to the private partner.
  • Water infrastructure projects create high-paying jobs, generate significant economic activity and expand the local tax base. Industry studies have indicated that every $1 billion invested in water and wastewater infrastructure creates up to 28,000 new jobs with average annual earnings of more than $50,000 and increases demand for products and services in other industries by more than $3 billion.
  • Investment in water infrastructure generates measurable employment in hundreds of standard industry classifications recognized by the U.S. Census Bureau.
  • Unfortunately, PABs for water projects are significantly hampered because of the state volume cap, which limits the amount of PABs a state can issue. In fact, the U.S. EPA’s Financial Advisory Board found that “State volume caps were constraining tax-exempt financing in a way that was limiting the supply and/or increasing the cost of investment funds.” Historically, less than 1 percent of PABs have been issued for water/wastewater infrastructure improvements.
  • U.S. EPA Administrator Stephen Johnson told Congress “this initiative will increase capital investment in the nation’s water infrastructure by up to $5 billion per year over time through public-private partnerships.”
  • The U.S. Treasury estimates the provision, which will provide $50 billion in private capital investment over 10 years, would cost the federal government a loss of $201 million in federal tax revenue from 2015 to 2024. The Treasury estimate does not include an estimated $67.5 billion in additional federal tax revenue expected over 20 years from the increased economic activity generated by the $50 billion water infrastructure investment.

You Can Help!

Now is the time to open the door to private capital investment in America?s environmental infrastructure. Call your Congressmen and U.S. Senators at 202-224-3121 and ask them to co-sponsor the Sustainable Water Infrastructure Investment Act, H.R. 4237.

In addition, we invite you to join us in Washington, D.C. on Wednesday, May 14 for “Water Day” of Infrastructure Week, sponsored by the U.S. Chamber of Commerce and the National Association of Manufacturers. On May 14, representatives from public and private water and wastewater systems will join manufacturing, business, trade association and other water and wastewater organization representatives for a day on Capitol Hill to meet with Members of Congress and help raise awareness of the nation’s aging and leaking water infrastructure. We hope you can join us for “Capitol Hill Day.” For more information, please visit SWIC on the web at www.sustainablewaterinfrastructure.org.

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