Federal agencies increase their hand in water infrastructure

The federal government’s role in water supply and wastewater treatment infrastructure is taking on greater importance than in the past as municipalities are challenged to keep pace with the aging of more than 70,000 systems and 3 million miles of underground pipe networks. With overall public spending on water utilities declining year-over-year in five of the last 10 years, core federal programs are proving to be more critical in addressing urban and rural treatment system or network investment needs, according to a new report from Bluefield Research.

In addition to U.S. Department of Agriculture, Environmental Protection Agency, and Water Infrastructure Finance and Innovation Act of 2017 sources, the U.S. Bureau of Reclamation has a small (< 1 percent) role in annual funding.

CHART: Bluefield Research, Boston

The need for infrastructure dollars is evident in the Boston-based water market specialist ‘s ongoing analysis of municipal utility capital improvement plans and annual State Revolving Funding (SRF) requests. In 2018, analysis of utility planning documents resulted in as much as $68 billion in annual capital needs for water & wastewater infrastructure over the next decade. At the same time, $82 billion was requested from state administered SRF programs for clean (wastewater) and drinking water projects, up from $64 billion in the prior year. With only $15.2 billion awarded through SRF, the gap between utilities’ investment needs and available spend is clearly widening, Bluefield staff affirm.

“SRF loans and grants, which make up 60 percent of government allocations, are more important than ever as the financial burden falls increasingly on local communities,” says Research Director Erin Boney Casey. “Some states like Ohio are more proactive in supporting requests, while surprisingly, other state funds in Arizona and Tennessee, for example, are underutilized. Navigating these processes can be a challenge and, in fact, technology and equipment vendors are now recognizing the opportunity to support utilities in the application process to make a sale.”

Bluefield’s new report, Funding U.S. Water & Wastewater Infrastructure: Analyzing Government Sources for Project Development, examines $25.3 billion of loans and grants distributed in 2018 through Environmental Protection Agency SRF; U.S. Department of Agriculture Loan & Grant and Bureau of Reclamation Programs; and, Water Infrastructure Finance and Innovation Act (WIFIA) channels. These funding sources, which address varying geographic needs and project sizes, typically receive bipartisan support and are expected to remain as water infrastructure mainstays in the absence of a more wide sweeping federal public works act.

Last year saw a spike in the amount made available by the federal programs, with WIFIA expanding to over $4.8 billion in its second year, and the USDA dedicating over $5 billion to its water and waste program in a push to invest in rural communities. Select cities and states are also becoming more creative and using innovative mechanisms to fund their water infrastructure improvements.

Traditionally, rate increases have been a way to pay for improvements. That method is not sustainable, Bluefield researchers argue, particularly with water & wastewater rates increasing by as much as 30 percent since 2012—outpacing inflation and median household income growth. Because of its own affordability struggles, for example, the city of Philadelphia has moved to implement a new water pricing model to address the 40 percent of customers falling behind on bill payments at any given time. Atlanta and Washington D.C. are leveraging environmental impact bonds as an alternative means of financing infrastructure improvements. At the core of this approach, also known as “pay for success,” are project-specific performance metrics that can be measured at baseline and monitored thereafter across a bond’s life cycle.

“There is no one-stop shop for water infrastructure funding,” Casey observes. “Therefore, utilities and municipalities are being forced to be more creative in finding ways to leverage existing funding sources and financing tools.”